The 1993 law revisions in Mexico eliminated the "prohibited zone" within 100 kilometers of the border, 60 kilometers of the coast and in all of Baja California. They also eliminated the "fideicomiso" trust arrangements and 49% foreign ownership limitations on nonresidential property. Then all the hotel bargains seemed to be found "South of the Border." 

JMBM's increasingly steady deal flow of transactions in Acapulco, Mexico City, Puerto Vallarta, Cancun, and elsewhere in Mexico, confirms that the next wave of hospitality investment is in Mexico and elsewhere in Latin America. But this unique market presents special challenges, including legal, cultural, business and language hurdles to doing a deal. 

Things are Different. The language, culture and approach are just the starting point. Mexican law is derived from the Spanish civil law system instead of our Anglo-American common law. Some basic legal principles and even the specific rules are similar and some are very different. For example, management agreements are generally "agency" agreements under Mexican law and establish terminable agencies there much as they do in the United States. 

Due Diligence. Due diligence and title issues will present some interesting challenges. Lodging properties are typically owned by corporations which are bought and sold in stock deals instead of asset transactions. Your due diligence review must therefore include an investigation of the property and the ownership entity as well, because the buyer will acquire all of the selling entity's existing liabilities, including any tax, employee, contractual or third party liabilities. And employment and labor responsibilities can be far more significant than most U.S. buyers are used to. 

Similarly, there are no government-issued tax clearance certificates, so the due diligence audit and reliability of certified financial statements will be more important. Representations, warranties, indemnities and holdbacks, applicable law and remedies all require careful consideration. 

Title Insurance. What law will govern your claim on title insurance if you have to make one? Will you have to po to Mexico to sue a Mexican company in a Mexican can court? 

Several of the large U.S. title insurance companies now issue policies covering properties in Mexico. The policies, and the procedures for obtaining them,  however, are quite different from what you may be used to, and the premiums can cost substantially more than the average U.S. policy. 

Title policies for property in Mexico can be issued as either U.S. or Mexican policies, depending on how the title insurance is structured and the identity of the insured. Under appropriate arrangements, the policies can cover individual or corporate shareholders which are the direct or indirect owners of the Mexican entity with title to a property. 

One advantage of a U.S. policy is that claims made under such policies will be governed by U.S. law and subject to the jurisdiction as well as the greater predictability of the U.S. courts. At JMBM, we have worked extensively with the major title insurance companies doing business in Mexico. 

Assemble the Right Team. As with any hotel deal, the key to success is to assemble a team with experienced, knowledgeable respected players. Retaining sophisticated U.S. hotel counsel is often critical to protect your interests by managing the host of legal issues which arise and coordinating with local Mexican counsel to address various local law matters, helping bridge substantial cultural differences in deal points and concerns. 

Anti-Trust Laws. In Mexico, the Anti-Trust Commission (Commission Federal de Competencia) must give prior approval to certain transactions. Similar to the Hart-Scott-Rodino Act in the U.S. (which no longer applies to hotel acquisitions), there are "size of the transaction" and "size of the parties" tests which determine whether a transaction falls within the jurisdiction of the Commission. Due to the large purchase price, many hotel deals will fall within the scope of this law, and a significant penalty is imposed for failing to comply. The approval process can take twenty to forty-five days or more, depending upon the completeness of the application submitted to the Commission and the Commission's response. 

In addition to extensive legal experience in the hospitality industry and in Mexico and Latin America, JMBM's hotel group includes Spanish-speaking attorneys who, through their own personal and professional backgrounds, understand the unique factors which come into play in doing business in Mexico. 

If you are interested, please ask for the flyer on the new JMBM Mexico & Latin America Hotel Group, and a recent analysis on Opportunities and Pitfalls in Hawaii, another unique hotel market where the JMBM Lodging & Leisure Group practices extensively.