More years ago than I care to admit, a speaker at a conference of real estate developers reached the point where the inevitable “location, location, location” cliché was uttered. In the audience was consultant Sandy Goodkin, who leaned over and said just loud enough for me and others to hear, “He’s wrong. It’s timing, timing, timing.”

Goodkin later elaborated in an article that “Timing is the essence of making money in the real estate (or any) market.” Today, it is a lesson uncomfortably true for many in San Diego and Baja.

For successful professional developers, location is simply analyzing a particular piece of land for its highest and best use, be it retail, commercial, hospitality or residential. Are mistakes made? Of course. Most often by the developer attempting to force the oversized round peg in the undersized square hole.

But one can have the best location and still enter the market with the right product at the wrong time. Or, as most often happens, begin the project at or near a high cycle, but come into the market after the upward swing has crested and downward movement appears on the radar screen. Worse yet are those perfectly located developments that prepared construction activity as the market crested only to see it plummet shortly after breaking ground.

Two irrefutable laws govern the marketplace: the law of supply and demand and the infectious law that has shipwrecked many a fortune seeker — the point of maximum optimism is the point of maximum risk. Maximum optimism most often occurs as supply and demand seem to have no end, values continue to rise and buyers continue to purchase. When the belief that there is virtually no risk takes hold, maximum risk is reached and “timing, timing, timing” becomes the forgotten factor.

This is so because demand is dependent on the price and financing costs of the supply. When the price and costs reach the point where the market can no longer sustain continued growth, timing has caught up, and the danger of loss enters the picture.

How does all his affect today’s Baja California real estate market? Let’s start with the reality that business laws need no passports, and are, with cultural and regional variations, the same anywhere in the world.

The major difference is that in Baja, property values along the coast have not peaked compared to California coastal properties, although they have soared out of reach for most Mexicans. Baja coastal properties continue to enjoy “location, location, location” and a marketing price edge in attracting U.S. buyers.

But Baja developers are now coming face to face with Goodkin’s “timing, timing, timing” precept, one not of their own making. They simply are victims of another law: “When the U.S. sneezes, the world gets a cold, and Mexico, pneumonia.”

Baja California’s North Coast has long enjoyed the “location, location, location” real estate precept. The perfect “timing, timing, timing” came along in 2003 when mortgage rates descended to levels not seen since the 1960s and Californians flush with equity went on a home buying frenzy.

Quite suddenly homeowners saw their home values explode by 20 percent to 40 percent and more within a year. A $200,000 home suddenly became $300,000. Over a few short years the $500,000 home ballooned to $1 million in value. With low mortgage rates and no closing costs offered, many began to either sell or cash out equity, and that began Baja’s made-in-the-USA “timing, timing, timing” cycle.

Real estate investors who in the course of business watch trends were among the first to pounce on the coming Baja boom. They began making deposits on planned homes and condos with purchase payments due as construction progressed. As American buyers appeared, investors could sell at a tidy profit. Then, when the “sell” signs in the California market began appearing, they dumped their “options” at near cost — let someone else take the loss.

Many Baja coastal property owners, who equated land ownership with automatic membership in the world of real estate development, had no appreciation that real estate development is a profession unto itself. They were caught off guard by the American investors who were the first to profit.

Beachfront land prices along Baja’s coast rapidly escalated. But so what? As long as construction could continue, the land price was well within the return on investment formulas and demand was high — very high — sustaining the escalation of land and home/condo prices.

The unsophisticated and inexperienced Mexican developers are now the ones seeking bail-out formulas. They are beginning to hurt, as the market is no longer “open a project and buyers will pour in.” Now comes the hard work, requiring lots of know-how and intestinal fortitude, along with some deep pockets. The days of selling 40-plus homes over a weekend at one project are gone, at least for the foreseeable future.

The Mexican and American professional real estate developers who now control most of the better projects are rethinking their marketing strategies.

Before them are several positive factors:

• Beachfront and ocean view properties still dominate the equation, “location, location, location.”
  
  
• Baja coastal properties still represent a significant bargain over comparable California coastal properties and, as in California, prices are no longer escalating.
  
  
• The presence of U.S.-based title insurance companies offering policies to U.S. buyers has made buying Mexican property a safe investment for buyers.
  
  
• The emergence of U.S. and Mexican financial institutions offering mortgage financing to U.S. buyers has eliminated the need for all cash purchases.
  
  
• Real estate reform and recent moves to professionalize real estate brokers and agents is steadily weeding out the amateur and unethical professionals.
  
  
• Property taxes and maintenance costs as well as living costs are substantially lower in Baja compared to anywhere in Southern California.

And the biggest factor, one which remains today and tomorrow, is that every day in the United States nearly 10,000 adults classified as “active seniors” are entering retirement. Many are unable to afford to stay where they live and enjoy a reasonable quality of life. But they might be able to in Baja California.

For the wealthy, the emergence of luxury developments in Baja means not sacrificing anything. To the contrary, because of cost differentials, they will have more of everything at a bargain.

So it is altogether possible that Baja can create its own upward timing cycle through wise marketing and smart business plans. It may be time to dispel the “U.S. sneeze law,” at least on this subject.

Patrick Osio Jr. can be reached at posiojr@sandiegometro.com. The veteran consultant also has issued The Mexican Perspective, an intensive primer on business culture and protocol. Copies are available at hispanicvista.com/sales/book_sale.htm.