Location, location, location: A mere 90 miles from Florida

By TRACEY EATON / The Dallas Morning News

HAVANA – Just 90 miles from American shores yet impossibly out of reach is a cash-starved nation awash in billions of dollars in real estate.

The largely untapped Cuban market, with exquisite mansions, majestic colonial homes and virgin beaches, is a potential gold mine for U.S. developers and builders. And it could be a powerful economic engine in the rebuilding of Cuba in the post-Castro era.

But for Americans to get a piece of the action, Cuba and the United States would have to untangle one of the nastiest property disputes in modern history.

Fidel Castro's government nationalized most private property after the 1959 revolution. Cubans lost land, homes and businesses. Foreigners – and especially Americans – suffered, too, in the largest uncompensated taking of U.S.-owned properties ever.

"Any future government in Cuba is going to have to recognize private property and do something about the property that was confiscated," said Jaime Suchlicki, director of the Institute for Cuban and Cuban-American Studies at the University of Miami. "This issue can't be left hanging."

Cuban officials say they're willing to negotiate but won't be bullied, especially by a U.S. government that's trying to topple the socialist regime.

Politics aside, no one doubts that Cuba's real estate market holds promise.

In 1959, Cuban rebels began taking control of private property in Cuba. American citizens and companies lost $1.8 billion in property, which, with interest alone, would be worth more than $6 billion today Cuban exiles lost much more, upwards of $100 billion in properties, by some estimates.

More than 5,000 U.S. citizens and 898 companies have pending claims with the U.S. Foreign Claims Settlement Commission. Whether they'll get compensation is unclear.

Eighty-five percent of the 5,911 certified claims were filed by individuals. The rest were filed by companies. The corporate claims represent most of the value – $1.6 billion of the initial $1.8 billion in nationalized properties.

Sources: Foreign Claims Settlement Commission, The Dallas Morning News
One prime spot is the Malecón, a waterfront highway lined by a row of colonial buildings, a patchwork of faded paint – pale greens, pinks, purples and yellows.

"Every time I drive along the Malecón with American businessmen, they say, 'Boy, would I like to invest in that,' " said Ismael Sené, a former Cuban government official who often meets with visiting Americans. "If there's a common theme that comes up when I'm with business people, it's real estate."

American investors show more interest in real estate than any other sector of the Cuban economy, said Kirby Jones, president of Alamar & Associates, a Washington, D.C., firm that promotes trade between the two countries.

"Investors are struck by both the opportunities and the needs. They talk about apartment houses, resorts, condos, restoration projects. If the embargo were lifted, you'd see substantial investment in real estate," said Mr. Jones, who has led dozens of fact-finding trips to the island.

But cracking the market won't be easy, experts say.

Developers and builders should be prepared to run a gantlet of challenges, said Joseph Scarpaci, a Virginia Tech urban affairs and planning professor who has visited the island more than 30 times.

For starters, he said, the water and sewer systems need a major overhaul. More than half the water flowing into Havana leaks from water mains, pumping stations and line connectors before it reaches its final destination.

Plugging the holes won't be cheap. Russian consultants in the late 1980s said it would take $15 billion to upgrade water and sewage services in Havana, Mr. Scarpaci said.

"Today, it's probably closer to $50 billion," he said.

And he doesn't think Cuba will be able to find the money.

"I see no possible way that the current political economy of socialist Cuba – with so many competing demands like just keeping the lights on – will ever be able to address the needs of residential and commercial properties without a massive infusion of foreign aid," Mr. Scarpaci said.

It's not just the infrastructure that needs work. Vast numbers of buildings are crumbling. Several hundred collapse at least partially every year, the United Nations says.

Walls tumble down, roofs crumple, stairways cave in, owing to gravity and neglect.

"Cubans worry and complain, and some die in collapsed buildings, but the government does not listen," James Cason, the top U.S. diplomat in Cuba, told a Miami crowd in November.

Castro loyalists resent the accusations and say U.S. economic sanctions prevent them from making many needed repairs. Housing has been a priority since the revolution's beginning, they say, and workers have built hundreds of thousands of low-rent apartments.

Still, government funds for redevelopment are limited.

"Social needs take priority over business needs," said a Havana official who spoke on condition of anonymity. "So if you're a foreign developer and you want to renovate a hotel, you'll probably have to improve the surrounding neighborhood, too."

At least two delegations of American business people visit Havana every month to explore the possibilities in the real estate market, he said.

For now, most foreign investment is limited to hotels and other properties in Cuba's $2-billion-per-year tourism industry.

In 1994, the Havana condominium market appeared to open a crack when a state-run company began selling new condos to foreigners.

By 1998, buyers had snapped up 300 properties. But in 1999, the government abruptly halted sales and bought out the foreigners' interests in the condos. Now only rentals and leases are allowed.

Changing rules won't be the only challenge in the future. Another will be figuring out what properties are worth.

"How do you assess a market value in a non-market economy?" Mr. Scarpaci asked. "This is a real quagmire."

Of course, before Americans start scouting locations for the first McDonald's along the Malecón, the two nations are going to have to learn to get along.

No one quite agrees on how that will happen. But for some, property is the key.

"It is the issue holding back the lifting of the embargo," said María de Lourdes Duke, a Cuban-American who founded the Friendship Foundation, a New York-based group that opposes the decades-long economic blockade against Cuba.

Bush administration officials say it's more complicated than that.

They say they won't restore trade and diplomatic ties while Mr. Castro and his brother, Raul, are in power. It's not just a policy statement; it's written into the law.

They also insist that the next Cuban government must move toward democracy and free markets.

A May 2004 Bush administration report lays out some of the details:

It calls for a U.S.-Cuba Free Trade Agreement in the future. It urges a free Cuba to safeguard investors' money and protect property rights. And it asks Cuba to settle property claims quickly, "bearing in mind that a long, complicated process is not in Cuba's best economic interest."

Cuban officials say it's offensive that the Americans are planning for their future. They say the United States shouldn't meddle in their affairs. And they say that if any nation should be compensated for past wrongs, it's Cuba, which they say has suffered more than $60 billion in trade-ban-related damage.

Given the hostility between the two governments, about all that could be done now is to negotiate the framework of a property settlement, said Matías Travieso-Diaz, a Cuban-American lawyer and expert on the issue. But neither side is interested. And so, "claims negotiation at this point in time is an economic and political nonstarter," he said.

Once the Castro brothers are no longer on the scene, however, the United States and Cuba should work hard to settle the property issue "or it could be a bottleneck during the reconstruction of Cuba," said Mr. Suchlicki, the University of Miami expert.

"American companies and Cuban companies are going to be filing lawsuits. The courts here and in Cuba are going to be clogged with litigation. It's going to be a mess. Lawyers are going to make a fortune."

E-mail traceyeaton2004@yahoo.com

THE TOP U.S. CORPORATE CLAIMS

Cuban Electric Company , $267.6 million (1960 dollars)

International Telephone & Telegraph , $130.7 million

North America Sugar Industries, Cuban-American Mercantile Corp., West India Company , $109 million

Moa Bay Mining Company , $88.3 million

United Fruit Sugar Company , $85.1 million

West Indies Sugar Company , $84.9 million

American Sugar Company , $85.1 million

Standard Oil Company , $71.6 million

Other notable claimants:

Texaco, Inc. , $50.1 million

Coca-Cola Company , $27.5 million

Lone Star Cement Company , $24.9 million