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Exploring the underground real estate market in Havana

Ruben Font carries a scaffold piece to his home in Havana, Cuba. (AP Photo/Franklin Reyes)

Eager to own a piece of their native homeland, Cuban Americans are placing their bets on the island’s underground foreign real estate market.
HAVANA, Dec. 16th  It is still illegal — according to both U.S. and Cuban law — for Americans to purchase property in Cuba, but that hasn’t stopped some from trying.

Their window of opportunity first opened in 2011, when Cuba relaxed a decades-long ban on the sale of property in the country, which prevented home and landowners from selling and purchasing property. Until that point, Cubans were only allowed to swap or barter their homes in deals called “permutas” (meaning “exchange”).

Once the ban was lifted, Cuban-Americans with family and friends still on the island — and cash to burn — saw a way to reclaim a piece of their homeland. In the few years since, an underground foreign real estate market has flourished without much interference from either country’s government.   

“This is one of those things where the market forces and interests are ahead of the law,” says Pedro Freyre, chair of Akerman LLP’s International Practice and an expert on the U.S. embargo on Cuba. “[These buyers] left behind homes and they’re beginning to go back to Cuba, look at these places and for most of them this is not about recovering property but about the emotional connection and the family connection.”

The law that bans foreigners from buying property in Cuba is not changing even after last year’s announcement that U.S. and Cuba would reestablish diplomatic relations.

Although restrictions around other kinds of financial transactions were loosened (e.g. Americans can now send $2,000 to Cuban nationals per quarter, up from $500, and use U.S. credit and debit cards in Cuba), non-Cuban residents are barred from buying property there. There are an estimated 2 million Cubans in America, according U.S. Census data.

The process of purchasing Cuban property illegally is simple enough, explains Freyre. “You go to your old house, see who’s living there, and you ask if they want to sell. Then you find a Cuban relative who will buy the house for you.”

Simple, yes, but also risky. Jerry Haar, international business professor at Florida International University, likens the transaction to “being on a high wire with no net below.”

“Your relatives could decide, ‘oh, I want 60/40 ownership instead of 50/50,’ or say ‘I’ve changed my mind and [the property] belongs to me,’ and the government may very well back them up,” Haar says. “You’re dealing with a no man’s land when it comes to the Cuban court systems and it’s very tricky.”

Anabel Fernandez, a University of Havana-educated attorney currently pursuing a law degree at the University of Miami, says there’s an additional risk to consider — that the Cuban government could reverse its loosening on property rights altogether.

After the Cuban revolution in the 1950s, the government nationalized billions of dollars worth of property (homes, farmland, businesses) owned by private Cuban citizens, as well as foreign-owned property (talks between the U.S. and Cuba to settle disputes over American-owned properties that were seized are still ongoing.)

“Even if you as a Cuban national buy a residence lawfully through the right mechanisms, the government could at any time repossess the property without any cause,” Fernandez says. “There is no certainty in any type of transaction in Cuba.”

A sentimental foothold

Joseph, 59, who immigrated to Miami from Havana in 1960, is considering buying a home in Cuba now. When his family fled Cuba, they left their home in the care of a family friend. After some years, the friend became too old to care for the home, so she traded it with another family and moved away.

When Joseph, who did not want his real name used because of the legal implications of this kind of transaction, visited his childhood home for the first time three years ago, he was surprised to find the previous occupants hadn’t changed much. They even left behind stacks of magazines from the 1940s and 1950s and old mason jars his grandfather kept around the house.

“I was very young, but I still have memories of the house I lived in,” says Joseph, a financial advisor in Miami. “There’s obviously a ton of sentimental value [in purchasing the home]… It’d be really nice to have a home my siblings can all visit and connect them to their previous homeland.”  

Joseph has no immediate family in Cuba to front the sale, so he’s working with a local attorney to find an alternative third party. He’s also exploring the option of establishing residency in Cuba, since he was born there and qualifies (marrying a Cuban national would also qualify one for residency).

He will need a Cuban sponsor, which could be tricky since his entire family moved to the U.S. He’d also have to commit to returning for at least a week every 24 months. But residency would allow him to at least purchase property without a middleman. There’s also the possibility Cuba opens up its real estate market to foreign investors over the next few years.
With so many factors at play and a government notorious for making up the rules as it goes, Joseph says he’s keeping his expectations low.

“You have to be somewhat detached and not invested in outcome because there so many variables that are unknown,” he says. “This may not ever happen. If it doesn’t happen…I’ll probably be disappointed, but it won’t be the end of the world.”

Further complicating matters is the fact that he wouldn’t just be buying a home. He might also potentially uproot the family currently living there. Joseph visited again in early December and broached the subject of a sale with the owners for the first time. They seemed interested but he didn’t press the issue.

“You want to make them feel comfortable and that you’re not going to kick them out of the house or be too aggressive,” Joseph says. If he were able to purchase the home, he’d likely keep them on as tenants and treat it like a vacation home for his family.

In the meantime, Joseph, with help from some of his cousins, has set his sights on a smaller goal — restoring an old family tomb in Havana. The tomb sustained some structural damage that hasn’t been repaired and he’s working with his cousins to sink some money into its restoration. The project will probably cost about $10,000. He sees it as less of a risk, as no other family has come forward to claim the property and the current title owner is deceased.

Investors biding their time

Speculators like Joseph are common, says Hugo Cancio, a Miami-based Cuban-American entrepreneur who runs several media properties in the U.S. and Cuba, including one focused on the burgeoning real estate market. Investors are salivating over oceanfront properties that haven’t been renovated in years in popular cities like Havana. The idea is that if they can get in early, plunk down a few hundred thousand dollars on a property and bide their time until Cuba officially opens its market to foreigners, they can triple their investment down the road.

“I’ve seen people pay a substantial amount of money for apartments right across from the water in Havana,” Cancio says. “It’s a gold rush to try to own something… But today you’re investing blind. It’s a risky business.”

In a market subject to such speculation, prices are all over the map. According to data compiled by Isladata.com, a research firm Cancio also operates, homes and apartments for sale in May 2015 sold for anywhere from $8,000 (U.S.) at the low end to $180,000 at the high end. A search on the popular Cuban real estate listing website Cubisima turned up listings for three-bedroom homes in Havana that ranged from $1,500 to $770,000.

For Raul Valdes-Fauli, a partner at Fox Rothschild LLP in Miami, the risk is too great to consider. He was 16 when his parents fled Cuba in 1960, leaving their home behind. “I was talking to my brother this morning about reclaiming some of our property, but we would not think of doing it against the law,” he says. “We have enough invested here [in America] and our lives are here. We’re not going to violate the law just to go back.”

http://finance.yahoo.com/news/buying-real-estate-in-cuba-211639988.html

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Airbnb crack’s the Cuban market

havana-live-HAVANA SKYLINEHAVANA,  July  6 Nathan Blecharczyk, a co-founder of Airbnb, leafed through the guest book at one bed and breakfast that had joined the lodging company’s network, tried a Cuba Libre in the roof-top bar of one of the city’s most fashionable private restaurants and climbed a spiral staircase to view the roof terrace at another Central Havana listing.

Cuba is the new frontier for the company, which was founded on a decision to rent out a few air mattresses in a San Francisco apartment in 2007 and in five years has become an online force for booking in-home stays in 191 countries.

Blecharczyk’s June 23-26 trip was the first visit to Cuba by one of the San Francisco-based company’s three co-founders since Airbnb launched its Cuba booking service in April and his first time on the island.

Airbnb morphed from its humble beginning to a company that now has more than 1.2 million listings worldwide. It’s in the process of raising $1.5 billion from investors, which, according to some estimates, could boost the value of the company to more than $25 billion.

Airbnb encourages interaction between guests and hosts around the globe. “We like to say, it’s the U.N. at the kitchen table,” Blecharczyk said. At the end of each stay, guests and hosts rate each other, and hosts with high ratings and lots of reservations move to the highest positions in Airbnb’s listings.

Since the Cuban booking service went live on the island three months ago, Airbnb has accumulated more than 2,000 listings, making it the fastest-growing launch in Airbnb history. It helped that Cubans have been offering extra rooms in their homes for some three decades to supplement their incomes. Airbnb piggybacked on that trend.

Listings range from simple rooms with shared bathrooms to accommodations such as La Rosa de Ortega in suburban La Vibora where owners Julia de la Rosa and Silvio Ortega have been renovating a 1938 mansion for the past 20 years. Their B&B has a swimming pool, large sun deck and nine stylish rooms that have their own bathrooms. Renovation of a 10th room is just about finished.

havana-live-MARTA MAYBE BIG ON DISPLAY

Marta Vitorte has two Vedado listings in Airbnb.She’s in the process of buying a third apartment that she also put into Airbnb.

“Overall, it’s been a remarkably successful launch. I think the potential is quite huge,” Blecharczyk said. “Frankly, this is unlike any other country — that there was already such an industry of home-sharing.”

But Airbnb wants an even bigger share of the Cuban pie. Currently, only American travelers are allowed to use the booking service to make reservations for in-home stays on the island. But during his Havana trip, Blecharczyk, Airbnb’s chief technical officer, said the company was seeking a license that would allow travelers from outside the United States to also use the Airbnb website to book stays.

If the proposal is approved, he said, non-American travelers using the site would still have to “qualify for the same reasons” as American travelers to Cuba. While U.S. law still prohibits tourist trips to Cuba, “purposeful travel” in 12 broad categories is allowed.

NEW FRONTIER

Although Airbnb scaled up quickly, it plateaued when it reached 190 countries. Blecharczyk said Cuba was always in the back of his mind as a new market, but the company really kicked into action on Dec. 17 when President Barack Obama and Cuban leader Raúl Castro announced that after more than a half-century of frosty relations, the two countries would renew diplomatic ties and open respective embassies.

The rapprochement brought with it not only U.S. permission for more Americans to travel to the island but also new regulations that made an Airbnb expansion to the island feasible.

“I think a couple of things are very important,” said Augusto Maxwell, a Miami lawyer who accompanied Airbnb executives to the island in February and helped them navigate the new legal realities.

Before Dec. 17, any company that wanted to provide travel services to Cuba had to get a specific license from Treasury’s Office of Foreign Assets Control, and it required reams of paperwork. “The application was very detailed, rigorous,” Maxwell said. Under the new rules, “all the paperwork is gone,” he said.

The old rules also required a bricks-and-mortar location to sell tickets, making it difficult for any company to operate in virtual space. Plus, the burden “to sell travel services only to a properly licensed traveler fell on the company and they were always subject to audits,” Maxwell said.

The shift in liability from the company to the traveler was key in Airbnb’s decision to enter Cuba, Blecharczyk said.

During his trip to Havana, Blecharczyk not only met with operators of casas particulares, the Cuban version of a bed and breakfast, but talked with private restaurant owners, young tech entrepreneurs and the owners of other small businesses.

The financially strapped Cuban government began emphasizing self-employment in 2010 in an effort to cut bloated state payrolls. Now, nearly 500,000 Cubans have joined the ranks of cuentapropistas, or the self-employed.

But the practice of renting out rooms or even entire apartments to visitors was already well-established by then.

“It began well before the special period [after the collapse of the Soviet Union when Cuba went through a prolonged economic crisis during the 1990s] when people were looking for economic solutions,” said Marta Vitorte, who has been in the casa business for the past 20 years.

“Now people in the business have evolved,” she said. “Now the mentality is more that we do this to live better than we must do this to satisfy the basic needs of a family.”

Over mojitos at Havana’s fashionable Café Madrigal, whose bare brick walls are studded with eclectic art and vintage posters, Blecharczyk discussed the lodging business with several hosts in Airbnb’s Cuba network.

Vitorte, who has two antique-filled Vedado apartments in the peer-to-peer rental network, is in the process of buying a third that will be used as a guest house. “Now is the time to act before the prices go crazy,” she said.

Since Airbnb’s Cuba launch, Cuban hosts have earned an average of $650 — far more than they could earn at most state jobs in three months. Airbnb collects 3 percent of each transaction from its hosts. On average, the hosts take in $200 per booking, Blechcharczyk said.

The average room price in Havana is $41, according to Airbnb.

VISITING CASAS

Blecharczyk, who stayed at an Airbnb listing, toured various casa particulares.

At 67 Tenth Street, he visited Armando Unsáin’s guest house, an 1861 colonial where a nine-month renovation was nearing completion. When it’s done, he plans to raise prices and officially launch on the Airbnb network.

The Madrid native, who has become a permanent resident of Cuba, rents out six rooms. For prices ranging from $35 for a double to $70 for a large suite, guests get an accommodation that boasts stained glass windows, vintage tiles and an ornate chandelier. For Unsáin, being part of the Airbnb network is like a stamp of approval. It’s a place where all serious casas need to be, he said.

As a dozen workers rushed to put the finishing touches on the reno, Blecharczyk sat in the living room with Unsáin leafing through his guest book.

“I think it’s so amazing to see how beautiful the architecture is in some of these homes,” he said. “The second piece of this is that there’s kind of an optimism in the air. There’s a lot of excitement about new opportunities among Cubans — and among Airbnb hosts in particular about how more exposure will allow them to reinvest and make improvements both for their benefit and the benefit of their guests.”

Even though Airbnb only launched in Cuba on April 2, being part of the Airbnb community has already begun to pay dividends for some hosts.

Yosvany Coca, who runs the Casa Blanca guest house that is so-named because of its all-white theme — white walls, white bedding, white towels — on the seaside Malecon, said that so far he’s had 10 Airbnb guests and has another 30 forward bookings.

Before Airbnb, Dany Hernández said he and his sister-in-law advertised their two properties by word of mouth or by handing out business cards. “We’re really happy with the way things have gone” since signing up with Airbnb, he said. They’ve had four Airbnb reservations so far.

Beyond offering a one-bedroom apartment with an updated kitchen and bath, TV and stereo for around $50 a night, Hernández, a former baseball player and now a youth baseball coach, said he likes to offer his guests something “special” if they want. He shares his life with them, taking them to his home and explaining how Cubans really live, or he might take them fishing along the Malecon or to the ball park.

More and more Cubans are thinking about converting any extra space they have into a room for visitors. Some families even squeeze into a single room so they’ll have more rooms to rent to guests.

When a bartender at the Hotel Nacional struck up a conversation with Airbnb executives during Blecharczyk’s visit, within minutes he was on the phone to his sister-in-law in Miami asking her to sign up the family’s two Cuban properties with Airbnb.

Although some hosts have Internet at their homes, it is of the snail-like dial-up variety. Those who don’t have Internet service go to hotels or state-run cyber cafés or pay around $5 to “hosting partners” with Internet who can manage their inquiries and bookings.

ROUGH PATCHES

There have been a few glitches as Cuban hosts and Airbnb adjust to each other.

Airbnb says it wants payment to reach hosts within 24 hours of a guest’s arrival, but some hosts complain it is taking longer. “We do try to pay them as soon as possible but our capacity does differ by country,” Blecharczyk said.

Airbnb has been using a Miami company, Va Cuba, to deliver the remittances, which can be sent directly to a host’s doorstep or deposited in a bank account.

One host also complained that the reservation of a guest who also booked for two of her friends was canceled because they didn’t have the correct paperwork. To travel to Cuba, each traveler must fill out paperwork certifying that they fall within one of the dozen authorized travel categories.

“In an abundance of caution, you need each traveler to certify that they’re an authorized traveler — not just the booker,” Maxwell said.

Airbnb said it’s working with its hosts to resolve such problems. “All of this is being worked out for the first time,” Blecharczyk said. “We’re working through all these issues. We’re trying to understand what isn’t working and smooth those parts out.”

Ezio Romolo said the first day that Airbnb launched he had 129 inquiries about accommodations at his stylish Casa Densil guest house, which has two rooftop terraces and an ebullient host who frequently entertains Cuban musicians. But then he did something that deactivated his listing. Airbnb helped him get back online but the upshot is that he still hasn’t booked an Airbnb traveler in any of his three bedrooms.

He has booked through mid-August anyway but after that he’s looking forward to welcoming Airbnb guests. “I make the best sangria,” he said. For a price, Romolo also offers guests everything from their choice of Cuban cigars to car service, laundry, salsa and folkloric dance classes, beer, mojitos, Cuba Libres and meals.

“What’s great to get first-hand is how the hosts have fixed their places up,” Blecharczyk. At Casa Densil, he climbed to the highest of Romolo’s roof-top terraces where guests can relax in a bed surrounded by flowing white curtains.

Around Havana, the mark of a casa particular is often a freshly painted facade in a row of crumbling dwellings. Running a guest house appears to be one of the healthiest of the self-employment segments.

NATE AND USAIN BIG ON DT MAYBE

Adamo Usain (left) , Nathan Blecharczyk on of the companys co-founder.

In some U.S. cities, there has been criticism of short-term rentals because they cut into the tax revenue hotels would pay and may exacerbate the housing crunch in cities where rentals are in short supply. But in Cuba, casa operators are required to pay taxes and so far they aren’t considered competition to state-owned hotels because there’s still a shortage of hotel rooms in Cuba.

How did Airbnb get its name?

In 2007, Brian Chesky, Joe Gebbia and Nate Blecharczyk were sharing a San Francisco apartment when the landlord raised the rent 25 percent. Blecharczyk moved out. The two remaining roommates, both designers, didn’t have the money to make the rent, but when they found out a big international design conference, IDSA, was coming to town and all the hotel rooms in the city were sold out, they had an idea.

They decided to rent out their extra room to designers who didn’t have a place to stay. “There was no furniture, no bed. But they opened up the closet, pulled out two air mattresses and set them up,” Blecharczyk said. They offered the space to conference delegates as the Air Bed & Breakfast. Surprise: They had takers at $80 a pop.

“They hosted three designers and made over $1,000,” Blecharczyk said. “Joe and Brian showed them around San Francisco and really gave them the local experience.”

Chesky, Gebbia and Blecharczyk had been thinking about starting a company together, and they did just that in 2008. “We thought why don’t we make it just as easy to book a person’s home as it is a hotel,” Blecharczyk said. Air Bed & Breakfast was born.

To raise money during the 2008 election year, they bought a load of cereal and designed candidate-themed boxes of Obama O’s and Cap’n McCain’s. Selling them for $40 each, they managed to raise around $30,000 for their new venture.

In the spring of 2009, the name was shortened to Airbnb, and since then, the company has been on a growth spurt. “I remember very early every week we would add another country to the site. We were growing very quickly but then it stopped — it stopped at 190 countries,” Blecharczyk said. That is until Cuba was added.

Airbnb now has more than 1.2 million listings, including more than 600 castles, in 191 countries around the world.

At one point, a few years ago before the U.S. travel regulations changed, some operators of Cuban guest houses were trying to sign up with the Airbnb network. “We had to put an end to that, make sure the proper restrictions were in effect,” Blecharczyk said. “We had to add code [to the website] to make sure that nobody could pay for something from Cuba.”

But since Dec. 17, it has been a whole new ballgame in Cuba.

http://www.miamiherald.com/news/business/biz-monday/article26213032.html#storylink=cpy
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