Americans look to the next Baja boom town

When David Butterfield and his wife, Norma, turned 50 a few years ago they started thinking about retirement: Florida - not their style; southern California - too many cars; Hawaii - too far from family.

And then they stumbled upon Loreto, a sleepy Mexican fishing village cradled between craggy mountain ridges that tumble into the Sea of Cortez. It was perfect.

The Butterfields, Canadian-Americans who live in Scottsdale, Ariz., are in many ways typical of the hundreds of thousands of Americans who have, in the past decade, chosen to buy homes, or second homes, south of the border.

The only difference is that Mr. Butterfield, a multimillionaire developer, became so keen, so sure, so excited about the region and the possibilities here - that he decided to build not only his personal dream home, but a $3 billion, 6,000-home resort development.

Baja has long been a haven for Americans looking for a lower cost of living, cheap healthcare, warm weather, and a more relaxed pace of life. The 20-mile stretch of coastline between the towns of Cabo San Lucas and San Jose del Cabo on the southernmost tip of Baja is bursting at the seams with gated residential communities, private clubs, and designer golf courses.

But the housing boom beyond Los Cabos started only about five years ago, spurred by skyrocketing US real estate prices, and amended Mexican laws in the wake of the 1994 North American Free Trade Agreement (NAFTA) that encourage foreign investment and made purchasing beachfront land easier.

The increased availability of title insurance here, a form of protection for buyers should problems arise over issues such as ownership or unpaid taxes, has also helped the trend, as has the reluctance among many US travelers and investors to venture far from home after the Sept. 11 attacks.

Within two years of Butterfield starting his development, 524 other buyers had already signed up to be his neighbors - putting down $200 million - and sales are going strong. "I think," says Butterfield, "...it's coming together beautifully."

The Villages of Loreto Bay is the largest real estate deal ever made by the Mexican government and Baja's most ambitious housing project to date. At the moment, the 8,000-acre site features mainly hundreds of construction workers banging, building, and painting away day and night - and a few would-be buyers meandering in and out of the just-finished model first neighborhood.

But, within 12 to 15 years, if all goes according to plan, the development will include two 18-hole championship golf courses, a 5,000 acre natural preserve, a beach club, tennis center, and marina, as well as restaurants, and galleries to go along with the American and Canadian homeowners. Loreto's population is expected to grow in this time from 15,000 to 120,000.

The faith that Butterfield; his partner, Arizona developer James Grogan; and the Mexican government have in the development is based on a clear trend - there is a fresh Baja housing rush on.

The US Department of State estimates that out of the approximately four million Americans living overseas, between 600,000 and one million are in Baja and elsewhere in Mexico - up from about 200,000 a decade ago.

Gustavo Torres, a real estate agent in Northern Baja's Rosarito Beach, a one hour drive from San Diego, says his firm, RE/MAX, sells 10 to 20 properties a week. "Sales here have quadrupled in the last two years," he says, with prices going up at a rate of 15 to 20 percent a year. About one-quarter of the 55,000 residents in Rosarito today are Americans.

"Rosarito beach is in the eye of the boom," says Mr. Torres, who estimates the next "hot area" will be Ensenada. And Loreto, he concludes, "is what the future is all about."

The Loreto Bay homes are priced between the mid-$200,000s for a 1,500-square-foot, single-family home to more than $2 million for a custom-designed, oceanfront house. "The days of finding a $30,000 beachfront property in Baja, are basically over," admits Torres. "But compare prices to the beach in California, and it's still a steal."

Prices are not the only thing changing in Baja. The buyers are different too. Fifteen years ago, when Tijuana-based real estate agent Nicolas Renard started selling property in Baja, he says, "... it was just a few retirees. " But today, he sees younger and wealthier buyers. "They are looking to make a profit, and this is a clear opportunity," says Renard.

Arturo Rolland, a real estate agent based in San Diego, is seeing another trend - that of Mexican-Americans entering the market. It's a group with growing income, he says, that has not forgotten its roots. "They want to be back in Mexico, but not too far away from their families in the US."

Loreto was identified by FONATUR, Mexico's tourism development agency, more than 20 years ago as one of five prime tourism and investment destinations in Mexico, along with Cancún, Los Cabos, Ixtapa-Zihuatenejo, and Huatulco.

Infrastructure, including an international airport, was put up here in preparation for fast development. But, while those other destinations blossomed, Loreto was left behind - until Butterfield and his team entered the picture.

"Loreto is the most beautiful, the friendliest, and it's outside the hurricane belt. It was always supposed to be the best destination of them all," says Victor Manuel Castorena Davis, a member of Loreto's urban development commission "Many of us felt jealous of those places which did develop ... but we have learned from others' mistakes and we are now going to do it right." Loreto's time, he says, "has finally come."

Most Loretans say they are enthusiastic about the economic opportunities large scale development projects like Loreto Bay will bring to their region. After all, ten years ago Los Cabos was similarly a small town of 15,000. Today, it's a city of 160,000, with cinemas, shopping, much improved education and healthcare systems, and a per capita income of $17,000, compared to $6,000 nationally.

But others are wary of the downsides of such fast growth, and worry it will do everything from create traffic jams and sewage spills to deplete the clean water, overtax the police force, marginalize the local population, and generally ruin the tranquility and beauty that made the place attractive in the first place.

A group of professors at Harvard University's design school have even put together a report called "Loreto Alternative Futures" which warns of the ecological, visual, social, and economic risks posed by the Loreto Bay plan.

Rodolfo Palacois Castro, general director of budget in town, grew up in Cabo San Lucas. "We used to go to the beaches there with family," he says. "Now, they have all been privatized by the resorts. There is no room for us." The same thing, he worries, is about to happen to Loreto.

Sergio Morales Polo, president of a local ecological group says he is not opposed to the entire project, just to its scale. "What's wrong with 3,000 houses? With a nine-hole golf course? What about moderation?" he asks.

Butterfield, who is also president and founder of the Trust for Sustainable Development in Victoria, British Columbia, says he can understand some of these concerns, but promises his project will be different - responsible, creative, and attentive to the ecological and social needs of the place. He has hired a former director of Earth Day international as the project's full-time vice president for sustainability, and brought in several well-known environmentalists as consultants and in-house watchdogs. They are working on plans to renew natural estuaries here, and regenerate native mangrove forests so as to enhance the rich marine and bird life of Loreto. "We want to do 'good,'" says the developer.

Anne Thanhouser, a 52-year-old assets manager from Portland, Ore., came down to Loreto on a whim last year. Like the Butterfields, she too was looking for a dream home. She found it in lot 103. Her three-bedroom house will be ready, she is told, in two years. Meanwhile, she comes on visits: to get to know the beach, look at her plot and the floor plans, and get lightheaded with excitement all over again. "It's perfect," she says. "Its hard to believe what's happening here."

• Ms. Harman is Latin America bureau chief for the Monitor and USA Today.