"In general, people shouldn't come to Mexico for inexpensive real estate. The cost of the real estate will be equal to or greater than in the United States."

This is according to John Mankus, managing director for marketing at Denver, Colo.,-based Development Company of the Americas.

"The main reason is the cost for infrastructure," continued Mankus. "In the United States, we are blessed with municipal financing where utilities can issue bonds to build sewer lines, power lines and roads. In Mexico, there is no such animal. Everything is privately financed."

Mexico has plenty of incentives for foreign industry. Land prices are not one of them. But plenty of prepared land awaits industrial development, especially for companies seeking Mexico's many advantages.

"Land is not cheap in Mexico," agreed Gary Swedback, director of NAI Mexico, a San Diego, Calif.,-based firm experienced in Mexico's large commercial real estate markets. "The main site factors in Mexico are operating locations and the industry infrastructure necessary to support it."

Industrial park or greenfield?

A major decision foreign companies face when setting up in Mexico is to select between real estate within an industrial park or greenfield.

The consensus is that industrial park land is the best choice. Not that greenfield sites are impossible to work with.

"For (a) greenfield, you have to be street-smart and industry wise," said Jose Enriquez, sales and marketing director of American Industries International, which operates parks in Ciudad Juarez and Ciudad Chihuahua. "A greenfield is more difficult and takes more time. You have to make sure about zoning, electricity, sewer, even the level of the lot."

NAI Mexico's Swedback went through the greenfield process in the spring as Japan-based Panasonic looked at sites within, and outside of, industrial parks in Mexico.

Panasonic decided to purchase a 44.5-acre site inside an industrial park in Monterrey. The company will build a 500,000 square foot plant to make microwave ovens and vacuum sweepers.

"But land was not the biggest factor," said Swedback. "The main factors were labor availability, image and transportation access."

What are the advantages of buying within an industrial park?

"The park owner already has done the due diligence," said Enriquez. "The owner has made sure there is enough electricity and water. Standards are different from city to city. In Juarez, there are strict regulations to become a park.

"Also in a park, you can go and talk to the other plant operators and ask, ‘What was your experience with the owner?' You can talk to your future neighbor to find out how the park owner will treat you."

"The industrial park developer is a translator in a country where things work differently," said Victor Mohamar, director of operations for Constructora DAVI, which in two years has developed more than 500,000 square feet of industrial space in two parks at Saltillo and its suburb, Ramos Arizpe.

"We take on all the risks and get all the licenses," said Mohamar. "We provide the infrastructure and control who the neighbors are. If you are going to a greenfield site, you may be promised something by a government that may not be there the next year."

"Multinational companies should go to Mexico for the labor costs and to be near their customers," said Mankus of Development Company of the Americas. "They shouldn't spend a lot of time looking for real estate. They should go to where the real estate is easy."

The cost of land varies widely, said Rafael McCadden, director of the Mexico Association of Industrial Parks, which goes by the acronym AMPIP, in Mexico City.

"A study recently showed that Guadalajara and Tijuana are the most expensive cities," said McCadden. "Monterrey, Saltillo, Queretaro and San Luis Potosi also are very popular. Of these, the lowest prices would be in Queretaro and San Luis Potosi, where land is priced between $2 and $2.50 per square foot."

In contrast, metropolitan Guadalajara industrial land will sell between $6.50-9 a square foot, but the price drops closer to the airport 20 miles away, to the $4-$4.50 range, according to McCadden.

The two main factors driving land prices are the original price for the undeveloped land and, of course, supply and demand.

"In Queretaro, (undeveloped land) never was bought at $5 per square foot," said McCadden. "Also there are three industrial parks in Queretaro offering land and competing with each other. In Guadalajara, the price is $5 per square foot for undeveloped land, so it is hard for it to sell under $7 after it is developed."

Mankus said the land that his company has purchased to develop, then lease, ranged from $1.40 per square foot to about $8.35.

Mohamar said DAVI's land in Saltillo ranges from $1.85-$2.30 per square foot.

Some regions are jumping in Mexico

Monterrey is hot, speaking in terms of real estate.

"Two years ago, Monterrey had 80 maquiladoras. Now, there are 140," said NAI Mexico's Swedback. "Monterrey also has more joint ventures than any other Mexican city. The Whirlpool-VITRO joint venture is an example."

Other hot spots are Reynosa and Nogales along the U.S. border, and Torreon, Saltillo, Ciudad Chihuahua and Guadalajara in Mexico's interior, according to Swedback.

"There's a second industrial belt being developed away from the border," said Swedback, referring to Torreon, Saltillo and Chihuahua. "And Guadalajara is taking off, again, with more electronic manufacturers and their suppliers."

Watch out for pitfalls - especially error-prone brokers and poor due diligence - when buying industrial land in Mexico, advised Vince Alfaro, executive vice president, and Jose Piña, business development director, for Kitchell Mexico, a subsidiary of U.S.-based Kitchell Contractors.

"One U.S. owner was told by his broker that the city's sewer ran through the property and it had sufficient capacity to handle the waste generated," said Piña. "During the design of the facility, it was discovered that the sewer line dumped into an open trench one-half mile from the property. The owner's environmental concern caused him to build his own sewer treatment facility, at a cost of $350,000."

Title insurance is now available in Mexico from U.S. title companies.

"Many of the mistakes associated with buying a piece of property in Mexico can be avoided with proper evaluations and extra due diligence," said Piña. "It is not only what you see that is important."