Interview With Kevin Fleming of Grupo Mariana and Seaside Mariana in Nicaragua
“THE MISSION OF GRUPO MARIANA FAMILY OF RESORTS S.A. IS TO CREATE FIRST CLASS RESORTS CATERING TO AN INTERNATIONAL CLIENTELE, WHILE SIMULTANEOUSLY FOSTERING GROWTH, SELF-RELIANCE AND AN INCREASED STANDARD OF LIVING FOR THE PEOPLE OF NICARAGUA.” http://www.grupomariana.com/contenidoview.php?menu=2&smenu=10&id_contenido_textual=9
On April 2, 2008, I interview Kevin Fleming, founding owner and developer heading the Grupo Mariana project (http://www.grupomariana.com) in Nicaragua. The interview follows.
PC: I like your mission statement, and your websites are high-quality. Do you have someone working in Nicaragua, or were those designed outside the country?
KF: I have a couple IT guys here in Nicaragua, and there’s stuff I update personally as well.
PC: Who are your current investors in the project, specifically those who have invested cash either for property or for a share of one of the corporations?
KF: Sure, in our context, I’d describe the investors as those who have purchased a residential retail product – homesite or condominium. As regards the equity interest, I’m the single shareholder – 100% - full owner – of the development. There is no equity participant in the development other than myself. The sales that we’ve made to date are all residential retail sales who have paid full price in exchange for their titles to what they’ve purchased.
PC: How many have you sold so far?
KF: In the development, we have sold 255 homesites and 48 condominiums.
PC: Wow, that’s a lot –
KF: And that’s all in the past 14 months.
KF: Although we have made a lot sales, part of our marketing strategy is to be disciplined to highlight the country and educate about the country, rather than just a message of buy from us. We don’t focus on the fact that we’ve sold a lot, as the reason to buy, but rather on the country and the project. Most people will try the other way. I’m a little different.
PC: Do you do your own sales work, or do you have other people also who go to investor conferences and present?
KF: Out of 67 events we’ve done in 14 countries and 44 cities, I’ve participated in 80 percent, and my team locally has gone to the others.
PC: Is the equity interest that is advertised on the website (is it $150,000 or $350,000?) – is that the same equity class as your own personal equity class?
KF: It’s a little different; in fact, it’s not equity at all. The program that’s online is what’s called a founder member offering, and it’s a $350,000 security issue. And what that means is that this one, as a redemption certificate, is like a gift certificate that allows you the ability to receive your coupon of $350,000 and purchase real estate at a forthcoming date at a 25% discount to its release price, with the first choice of the real estate that will be for sale. They don’t have any share as a stakeholder in the development. It’s a US SEC-registered security offering.
PC: Where is the legal entity offering that?
KF: It’s Seaside Mariana Spa and Golf Resort; it’s registered in the states but is incorporated in Nicaragua.
PC: How many legal entities do you have in Nicaragua?
KF: Grupo Mariana has over twenty. But Seaside Mariana has 3 main entities in the development.
PC: Are there any related legal entities outside Nicaragua?
KF: No, everything that has to do with our project is Nicaraguan-based, focused solely to doing business according to the Nicaragua laws.
PC: Have you ever met Daniel Ortega?
PC: Have you spoken personally with anyone formerly in the FSLN who has since had a falling-out?
KF: Being a local here, I really don’t know politically who might be the band of characters that might have been in that are now out that I even know; I would say, on a day-to-day basis, there’s not anyone I know of now – outside of the work we do with those in the government directly as officers in the government, we don’t really have any contact with politicians outside that, Sandinistas, or for that matter, PLC.
PC: Are you aware of any property confiscations that have taken place in the last 15 years in Nicaragua?
KF: My property knowledge only goes back 4.5 years since being in country; and I do not know of any confiscations that have taken place in the normal day-to-day business that I’ve been around.
PC: How much land is currently owned by the Seaside Mariana? How many distinct title histories?
KF: Just one property. One large lot, 923 acres, in 2 distinct properties.
PC: Have any of those properties been involved in Reform Agraria at any time in the past 30 years?
KF: The back side of the property. The Seaside Mariana property falls into 2 distinct municipalities, separated by a river. On the ocean side of the property, which falls into the municipality of San Rafael del Sur, that title is freehold title that is held along the coast. The property that is on the north side, which is the mountainous region of our property, falls into the municipality of Diriamba, and that property was an Agrarian Reform title.
PC: What are the sizes of those two parts of the property?
KF: The front side, along the coast, on the south side, is about 55%, and the back side is around 45%.
PC: What precautions did you take, in consideration of that property history on the north side, to make sure that it was still a safe purchase.
KF: A couple things. But first – the entire property was held by one single owner, where the title dates back to 1904. The property was owned by one individual by over 100 years. [must have been some old dude! –ed ;) ] But the back side was taken from the original owner. The original owner actually had the property returned to them at a later year – so the chain of title doesn’t go back to a cooperativa.
PC: How did he redeem it?
KF: I don’t know the entire history, or the details of how he redeemed it. From a technical/legal point of view, we had a firm do the title history search, in conjunction with First American and Stewart Title – which hold title insurance for the properties – I assume what research that was done two and a half years ago to satisfy them was appropriate. Whether he had to pay, or how much, or whether he got that back, I don’t know.
PC: Who are your current investors? What sales are the buyers from?
KF: 50% are from the US, 25% from Cananda, 25% from Europe.
PC: You're a Canadian citizen?
PC: When did you meet Daniel Ortega?
KF: We introduced the project to him in September of 2007, and that was our only meeting. Probably getting about time for another meeting.
PC: How far away is his property from the Seaside Mariana?
KF: I’m not aware of a property where I’ve seen a title that has his name on it anywhere in Nicaragua.
PC: The closest one I’m aware of is in La Boquita; I’m no expert on Daniel Ortega, or his assets.
KF: I remember asking a question once flying in a helicopter, seeing a funny-looking purple house with a lot of colors, and they said that was a protocol house for the government, but I can’t say for sure of Daniel Ortega owning any property.
PC: I know that you have an event coming up. What are the dates of that event?
KF: May 18 – 21.
PC: Are there still open spaces for people to attend?
KF: Yes. It’s an intimate event: we’re hoping to attract 20 people; it’s an opportunity to bring owners and prospects into country, while in addition we’ll be filming the event to be able to broadcast online to attract people later to Nicaragua using the events of the platform.
PC: That sounds fantastic. What would be the cost for a couple?
KF: $395 per person for a couple; $495 per person for individuals; if you’re coming from from out of town, that includes lodging and other activities.
PC: What are all the websites you own related to your Nicaragua projects?
KF: Grupomariana.com seasidemariana.com islamariana.com fundacionmariana.org casamariana.org [as well as many more… maybe 100 more, just block names for future development … for instance, reservemariana … marianaprivateresidence …]
PC: How do you build link popularity for your websites?
KF: Most of the growth has been organic; through exhibitions and promotions and publications in the U.S. and Europe, it’s grown naturally to where it is today.
PC: I know I’ve seen advertisements for the site, whether that is on Nicaragua websites or Costa Rica websites I don’t remember.
KF: Some of our agents might have in multiple countries are approved agents to market and list our product, and it’s quite possible that you’ll see our website on 40 or 50 different websites just through our agent network.
PC: Do you have a consistent commission structure across all agents?
PC: What is it?
KF: From a base commission of 7% all the way up to 12% depending upon the type of product that is being sold.
PC: Are you familiar with the website nicaraguanpost.com?
KF: Yes, I believe that was a local Nicaraguan paper that tried to establish itself in the marketplace, that as far as I know now is no longer active.
PC: Did it actually print any print issues?
KF: Yes, it did. We actually advertised in that magazine for a period of four weeks.
PC: Was that a weekly?
KF: I can’t remember; I think it was biweekly, actually.
PC: On one of your websites, you have the following: Nicaragua is recognized as having the lowest crime rate in Latin America, according to Interpol and the Inter-American Institute on Human Rights. (http://www.thenewnicaragua.com/contenidoview.php?menu=16&smenu=40&id_contenido_textual=13) Who wrote that?
KF: The text is taken from a feasibility study that was conducted by a company in Nicaragua called Calvet and Associates that has prepared the studies for our project.
PC: Is that a locally-owned company?
KF: Yes, it’s a locally-owned company that provides services to a variety of businesses in Nicaragua… Better if you take a look at their website: http://www.rcalvet.com
PC: Did you interact with them personally, or is that your wife or one of your employees communicating with them?
KF: The communication with Raul [Calvet] is throughout the entire company, and most of us have met him or interacted with him in some way.
PC: Here is a list of management from the website. Are you aware of whether any of these individuals have strong political ties – either Sandinista, or Arnoldo, or as the case may be - Mrs. Maria M. Rueda, Ms. Rosario Arana, Carmen Elizondo, Mr. Franklin Ruiz, Maria Martha Rodriguez, Fanny Salas, Armando Martínez.
KF: Those are the key people in our organization: the list is correct. I’m not aware of any political associations for any of them.
PC: How many of them speak English: ?
KF: All of them except for two.
PC: Do also have their own businesses in Nicaragua?
KF: One has a business, and I know it and understand it.
PC: Have you met Arnoldo Aleman?
PC: What do you think of the relation between him and Ortega? We recently read that there was another step in the pact – with Aleman reportedly pardoned by Sandinista judges in exchange for Ortega getting control of the legislature. On the other hand, there’s the answer by Aleman that it was just a coincidence that these two things happened on the same day. Do you think about these things, or is that not important to the business?
KF: Well, I believe that all aspects are important to the business as it relates to perception. I believe that our businesses are structured in a way that is diversified in the economy in Nicaragua, and where we focus is where there is opportunity within the country to work within those sectors of the economy that have the ability to move forward; so both our companies and the people of Nicaragua prosper. In regards to Aleman and Ortega and relationships and jail and pacto, well, we hear it in the press in the time, but as a company, unless I can verify it 100%, I don’t pay attention to speculation and rumors. I focus more on the laws at hand and whether they’re broken or not, moreso than I’m worried about what might happen.
KF: What do you think, Peter?
PC: I have never met either one of them, and although I would like to, I didn’t focus my time in Nicaragua on meeting anyone who had a big vehicle or a big title in their job. I occasionally ran across a few people who were property owners, but I never met any [big] politicians. The Nicaraguan character is very sophisticated; many people go to Nicaragua and they think the people are simple, but I think that’s simply not accurate. With regards to this specific question of the press reporting of this as a deal, I’m fairly sure that the specific press is accurate. At any level, there has to be cooperation among people in order for things to get done. So if those are the two most powerful men in the country, then things are going to work much better on one level if those two people are on the same page. If you’re in a country dominated by a civil war, then you’re in trouble. On the other hand, I think there’s something very troubling when one party controls so many branches of the government. For me personally, I think there is not as much a respect for civil society and justice – the enforceability of contracts for instance – as there is in the states. So when you can’t count on contracts and justice, that makes it a hard place to do business.
KF: I think what you just said is pretty intuitive, and I agree with everything you’ve just said. I also like to think that Nicaragua in some manner, in where it has come from the 80s, has made some progress, and I suppose the question would be – if you compare it to other democracies around the world, Nicaragua would be considered a young democracy – I’m not sure after 20 years, about the comparison – what did it look like in the states 20 years after Democracy was formed? I think there’s no doubt things are a lot better than before. And there’s room to improve. There’s ability to move within the system – albeit not perfect – it’s there, though it has to be learning all the time. If it didn’t have room for improvement, Nicaragua would be a lot more expensive, and Nicaragua wouldn’t be what it is today. Until the future reveals itself, we don’t know how it’s going to play out... From an investment point of view, you can put your money in the bank and earn one and a half percent and know what’s going to happen, or you can put your money in Nicaragua and make 400%, and you might lose it all. So I guess it all depends on what people’s appetite is for risk and reward and what it is they are looking to get out of it.
PC: What have been your greatest challenge or frustration so far?
KF: Nothing has been frustrating so far; the greatest challenge, I would say that - unlike most projects that only have to go through the administrative process of permits and developments in one municipality, we actually have to do ours twice, because our project falls into two municipalities. This has not made it frustrating, but has made it challenging. Yet everything has progressed forward in a manner that I think is quite exceptional; that we’re one year ahead of schedule and have not had any delays. So I’m pretty happy about it.
PC: Where are investors funds held of closed sales?
KF: Those funds are held in Nicaragua, under our control, and are with BANPRO, which we use for all our transactions.
PC: Stored in dollar-denominated funds with BANPRO?
KF: No, the funds are not held in escrow: we’ve used the percentage paid up front in developing the project.
PC: Have you done any construction yet?
KF: The first three years have been about permits, plans, designs, and concepts. The construction phase of the development does not begin until December 2009.
PC: Have you received deposits for the 300 homesites/condominiums?
KF: Yes, 100% deposits.
PC: Have those funds been entirely used up already in the planning, permitting, and initial land purchase?
KF: A great deal, I would say, 80% of funds have gone to administration in the planning, design, and concept phase of the development, in marketing and sales, and there are funds in escrow as well, based on future sales of construction.
PC: What do you mean, “There are funds in escrow?“
KF: Think of it this way: When a dollar comes in, there’s a percentage that goes out – there’s money spent on the brand, on administration, on soft costs, on hard costs, and commission. As an example, we’ve already drilled 4 wells in the project at 200,000 plus – that’s a hard cost.
PC: You’ve already drilled four wells?
KF: Probably the best is to suggest – on the seaside mariana website, there’s a Gallery in the main menu, and that main menu, there’s a tab called progress, and there you’ll see photos and a timeline of construction, and to give more of a sense of where money is spent.
PC : Is commission paid out entirely from initial deposit, or only partially?
KF: If a sale is made in full and is paid in full, the commission is paid in full; if a deposit is made on property, then if it’s a homesite residence, then there is no commission paid until the homesite residence has closed; if there is a construction product that is sold, the commission is paid once there is a thirty percent nonrefundable deposit placed in escrow.
PC: What do you mean “closed?”
KF: Title transfer – the title receives title for the property.
PC: So far nobody has received title to the property, is that correct?
KF: The people who purchased condominiums have not received title, because the condos are not yet built; the people who purchased property are in the process of receiving their titles at this time. Some have been transferred, some have not, most people have not gone through the process of getting their power of attorney in place, which allows for the title to be passed to them, but all of the properties are registered and can be transferred at any time as soon as the individual owner establishes themselves here in Nicaragua or has a power of attorney in place so that the titles can be transferred while not present in the country.
PC: What do you expect to be the upcoming challenges?
KF: Like any development, the heavy lifting of the construction project is about to begin at the end of the year and over the next two years. The predevelopment is coming to a close, and the construction work is about to begin. Like any project that’s going to spend millions of dollars, you want to control those processes as best as possible. What we’re about to do in Nicaragua has never been done. The challenge will be to control the project so that the cost does not get out of hand.
PC: What is the product that most people will be considering purchasing at your upcoming May 18-21 offering?
KF: Ten years ago raw land and individual homesites was the flavor of the day; I believe now – and moving forward – a turnkey product is going to lead the way in regards the way, but also an ability to finance that product is going to be important as well. And beyond that, what I think is important is that with the change in the economy in the world, the recession that we’re experiencing today, processes and expectations of well-tuned plans of a year ago need to be revisited and revived. What is the opportunity that people are going to look for in the future? I think that value and quality are going to stand quite high in the consumer’s mind, and quite frankly I think the Seaside Mariana has the best value proposition on the Pacific coast of the Americas. So we’re excited about the future and moving forward.
PC: That’s good information, but I mean something slightly different in my question. What’s the most common thing that people want to buy? What one product are they going to be thinking?
KF: The goal of the May event is to experience Nicaragua, not a sale. We haven’t even thought about whether we’ll be selling any product at that time – the event is not so much one-sided, to release products, moreso it’s an opportunity to experience Nicaragua and what has to offer, and what has transpired in the past two years – so that whether you’re actually here in Nicaragua or online – you’ll have an opportunity to learn about Nicaragua and the product and what it has to offer.
PC: I read that you were involved previously in the paint business. Was your experience with the real estate aspect of that?
KF: In the paint manufacturing business, my responsibilities were working with territory, engineers, architects, contractors, the city of Vancouver, spending 13 years with the company, more an experience in the business side, rather than paint specific. I’ve owned property and sold it, but that wasn’t the focus of my work in the paint industry per se.
PC: Does the property extend right up to the beach?
PC: What are you aware of in terms of the the current and prospective laws about ownership of beach property?
KF: There’s no official release of the proposed legislation, so it wouldn’t be appropriate to comment. They’re looking more at zoning issues rather than restrictive issues. One does have to take into account the appropriateness of putting more control into municipalities and consider that in their master plans.
PC: I read about the foundation. Who funds the foundation? Do you have any projects yet?
KF: My wife and I, through the corporation.
PC: Any projects yet?
KF: If you visit the website, you’ll be able to see the different events we’ve sponsored.
PC: Is there a person to make a proposal to? Who is the contact?
KF: I’m the person.
PC: What experience do you have with the various online Nicaragua forums and Central America forums? What do you think of them? Overall do they help people make informed decisions or not?
KF: I have my reservations about them; in the media world in which we live, we’re not going to get away from online forums. If anything I take issue with the screening of comments without verifying of facts. Someone who accepts posts without verifying the facts - unless there’s some sort of credible organization behind it, you have to see as a consumer of the information that it’s buyer beware, be cautious – these forums can be basically a slanderous form of communication. I think the idea is great to have forums; but some of them, the way it plays out, what you can read on them, you have to be cautious.
KF: We will have a new website with an owner’s forum soon. We’re working on it now..
KF: What about you Peter?
PC: I did have a farm, also in Diriamba, I arrived in Nicaragua around the same time as you did; ultimately I decided it wasn’t the place for me. Remember that I mostly interacted with poor people – directly working with people who came to my farm as my employees, and only somewhat less with nearby landowners, and others; and ultimately – I felt that their preference for stability over progress wasn’t something that was a compatible match for me. I’d have a worker who rather than wanting to learn a new way to do something, would prefer to do it the same way every day, even if it was not working.
KF: It’s true. As much as you want to progress fast, the culture isn’t one that moves quickly. You have to recognize that, and chisel away at something rather that jackhammer at it. When it comes to developers and developments, it’s now a couple administrations, and I’ve seen developers come and go, construction starts and stops. Overall, I think what we’re offering is something that people are becoming more interested in – a simpler way of life – I think Nicaragua has something to offer them.