Cuba-US detente needs exile land claim fix to lure developers

cue-point-slide-1HAVANA,  June 29 (By Andrew Willis, Bloomberg News) Normalization of U.S. and Cuban ties should include resolution of land ownership claims from exiled citizens to encourage more real estate investment on the island, one property developer said.

London & Regional Properties Ltd. has plans in place for a more than $500 million project with as many as 1,000 homes on the coast east of Havana.

Other developers are also eyeing ways to grab a piece of the action in the balmy Caribbean island nation, an appetite that was whetted by the U.S. decision last year to restore relations after more than half a century of acrimony.

“The subject of claims is a much bigger issue that will have to be dealt with at government level as part of the overall reconciliation,” said Ian Livingstone, co-chairman of London & Regional, which is building the Carbonera project. “I don’t think it will be decided on a one-by-one litigation. There will have to be some general ruling.”

A U.S. official said the State Department is committed to pursuing a resolution of the claims.

The Justice Department has validated 5,913 claims by U.S. citizens and corporations for property that was seized after the Cuban revolution that brought Fidel Castro to power in 1959.

The value of those claims is approaching $8 billion with interest, Michael Kelly, a professor of law at Creighton University in Omaha, Neb., said in an email. The amount of claims by Cuban-Americans could be even larger, although proving those property rights would be harder, he said.

“You go down to Miami and talk to people and it seems like everyone had an uncle with a sugar mill, which, if true, would mean there were a million sugar mills on the island,” Kelly said.

‘Essential’ measure

Cuba’s state-owned Palmares SA owns a 51 percent stake in the Carbonera venture, which was proposed before the recent thaw was announced and is being built on land that’s free from exiles’ ownership claims.

The project is scheduled to start construction early next year with sales beginning by the end of 2016. It’s the first with properties open to purchase by non-Cubans.

“It’s happening, and it’s the first time,” Livingstone said. “In the past it’s just been building a hotel and taking the income, whereas this is capital.”

Americans are forbidden from purchasing homes in the Carbonera project under current rules. Most of the demand will come from Canada and parts of Latin America and Europe, Livingstone said.

Few foreigners

“There is a huge interest in being first movers into this market by investors,” he said. “Obviously we were not anticipating American buyers and still aren’t. If they come, so much the better.”

The development is set to include a boutique hotel, 18-hole golf course and retail outlets. Entry prices for smaller apartments are expected to start at about $450 a square foot, according to the company.

That compares with an average of about $640 in Miami Beach, according to the National Association of Realtors.

Resolving property claims “is essential to attract direct foreign investment,” Kelly said. “No company wants to invest in a place where their property can be nationalized without any consequences.”

Cuba might issue bonds to U.S. citizens whose property it took because it can’t afford to pay cash, said James Gueits, a partner at Miami-based law firm Levine Kellogg Lehman Schneider & Grossman LLP and the son of Cuban exiles.

No Trump?

Given the continued role of government in every business, “I don’t see Donald Trump building any condos in Havana any time soon,” Gueits said. “Cuba doesn’t have a private sector. The system is just not set up for American-style capitalism.”

Few foreigners landing in the international airport just a couple of miles away visit the village of Carbonera, according to local resident Roque Cuesta, 60.

Most foreign tourists head to the better-known Varadero resort town further east, he said.

At present, the village consists of a pothole-ridden main street and a few hundred concrete houses interspersed with bright red Flamboyant trees.

Nearby is the beach that the British company would make into a destination. Two vintage cars are parked by the water, one of them is blaring music.

Cuesta says he earns 10 Cuban pesos ($10) a month selling lobsters and cold drinks to the mostly local crowd who come to the beach.

He mans one of two fridges that hold the supplies. By 7 p.m. on a recent Sunday, the fridges were already turned off because they had sold out of drinks for the day.

Dressed in a red T-shirt and gray baseball cap, Cuesta is optimistic that plans to expand the Panama Canal and improved relations with the United States will bring greater prosperity to the island.

“If we can improve relations with our big neighbor we can advance. That’s what everyone wants,” he said, looking out over the sea. “I want to keep working here, even after the development. You have to move forwards, not backwards.”