202 Understanding Construction in Costa Rica

[Richard Bexon]

Okay. Good afternoon, Juan.

[Juan From Eje]

How are you doing? Hey, Richard. How's been everything?

[Richard Bexon]

Good, man. Busy as I'm sure you guys are as well. I know that we finished a few projects together.

You guys did amazing work. So I appreciate you taking time out of what I know is a busy schedule to join us here on the podcast.

[Juan From Eje]

Thank you very much. You have been keeping us very busy.

[Richard Bexon]

Not at all. You're a great partner to have. And yeah, we've done some great things together.

So I think anyone that's listening, that wants to talk to Juan Aneja, all of the contact details will be in the description down below. But, but let's get straight into it. I mean, when, you know, markets have had a good start to 2024, real estate is starting to slow down in Costa Rica, which I think we can see.

I think that's part and parcel of really a slowdown in like we're returning to seasonality that we had prior to COVID, you know, the craziness is over, as I like to say, the party is somewhat over. I think it's a higher watermark than 2019. But how is your business?

I mean, are your requests still the same? Has it gone up? Is it going down?

I mean, what are you guys seeing?

[Juan From Eje]

Actually, our requests are being, I mean, they just keep getting better and better. And you guys are asking us to participate in new projects with you guys and some other clients. Actually, right now we're working with a new client.

It's a British guy who just came here to Costa Rica and wanted to build something and he reached out to us. Thanks to the, that's how it's working here right now. You have a sign outside your construction.

Yep. There is come here, he wants to invest and he just called you because of that sign. So it's lucky.

It's funny because I mean, I know the numbers say that the constructions are going kind of go down right now, but for us, it's been quite the opposite. I mean, we feel like there's plenty of job for us, especially in Guanacaste. I mean, it's basically in Guanacaste where everything it's like going really fast and really big right now.

[Richard Bexon]

Yeah. Well, that's awesome, dude. But I mean, look, I mean, typically there are two ways.

I mean, we just did a webinar on construction. We did it with Eric Corrales in our office. And anyone that wants to take a look at that webinar can just go to our YouTube channel or go to our website, investingcostarica.com.

But I mean, there are typically two ways of doing a contract here. We have a key in hand as they call Javi and Manu in Costa Rica or a cost plus. I mean, what's the difference and the risk for clients of each one?

[Juan From Eje]

I think the main difference, the fundamental difference, it's who is going to take the big risk. So when it's key in hand, the risk is on the builder, on the constructor party. And when it's administration, it's what we call it.

What did you call it? Sorry.

[Richard Bexon]

Yeah. Cost plus, basically.

[Juan From Eje]

Cost plus. And cost plus, there's a fee and a time set from the beginning. And basically, the risk there is for the client, for the owner of the project.

Obviously, the constructor, they're going to be looking for a good job, good quality job, time, cost, and everything. But the risk is finally on the owner of the project. If something's coming slow and the time is going to be farther apart from what we settled from the beginning of the project, that's going to be on the owner.

He's going to end up spending more money, right? As opposite on the key in hand. And key in hand, we establish a fee, we establish, not a fee, an amount, and we establish a time.

And if that goes off, it's on the builder, right? Obviously, there are some stuff like some change orders or something that's obviously going to change the final fee and the time, but it's always going to be a risk on the part of the constructor. So I think the main difference is that who's willing to take the risk.

That's the difference for me. That's, yeah, the difference. And for the clients, again, it's the risk.

If they want to risk it, they should have a really good, reliable constructor to have the administration process. And well, in your case, you usually are part of that project manager and stuff. But I feel that the key in hand is safer for the owner, in my opinion, obviously.

And obviously, I'm also BS because I'm a constructor, right? And I prefer to work in key in hand. But I understand when people are trying to work in administration, but they have to be really, really aware that the risk is always going to be on their end.

[Richard Bexon]

Yeah. I mean, look, I agree with you. I mean, I think if the client is not going to be in country or doesn't have like an owner's rep or project manager, a key in hand, you have a manual fixed price is definitely going to be the way to go.

I think if you have a rep, you're here in country, or you have a project manager, the cost plus can work very well for you because it will probably end up being more affordable for you. Again, as we've seen recently, that change in the exchange rate, even though there were key in hands, that exchange rate changed, really changed a lot of those key in hands to cost plus in the end, if that makes sense. And I think that that's where, if you're asking me, at the moment, what would you do, Rich?

I would do a cost plus. But again, I would have an owner's rep project manager because the exchange rate is getting in the favor. We're starting to see it climb again.

I mean, we're at 522. A month ago, we were down in the 500s. It was only probably 45 days ago, we were at 490.

So where I see this going is I might, look, I would personally do a cost plus, but I would probably hire a project manager, owner's rep. But again, I'm biased as well. It's going to work out to be more affordable in the long run because you're just playing cost and then you have the administration fee.

The other one, the key in hand is there's been some padding in there because also is construction companies got hurt in the last couple of years, because they quoted at 650 colones and that number went down. So now everyone's a little skittish because they don't know what's going to happen with the exchange rate. So there is quite a bit of padding, but I agree.

I'm like, if you're not here and you don't have a rep, just do a key in hand because it's going to be a lot easier.

[Juan From Eje]

I think at the end, there's not like a fixed answer for this question. I mean, you have to present the options to the owner at any given time. And based on that, he has to decide whether he wants to take the risk or taking all those variables into question, right?

[Richard Bexon]

Yeah. Well, I mean, look, it's pretty interesting where construction's going and it's probably going to be interesting in the next 10 to 20 years. I mean, people, I think comparing at the moment, a lot of steel structure versus concrete when it comes to a build.

I mean, which one is, what's your opinion on both of these and is one cheaper to do than the other?

[Juan From Eje]

Again, it depends on a number of variables, how easy or how difficult it is to get somewhere you're going to develop the project, the time, the moment. For example, a couple of years ago, steel structures went up, they skyrocketed. So it wasn't cheaper to build on steel than it was to build on concrete.

You have to analyze when the project is starting to burn it, the genesis of the project, you have to realize with all these variables, which way to go in terms of design. It's not a formula. It's not always like steel is cheaper than concrete or the other way.

You have to analyze every time how cheap or how expensive it's going to be with both materials. Like I said, I'm sorry, there's no, again, that's not a fixed answer to this question. You have to analyze each project and what you want to get from that project.

[Richard Bexon]

Well, let's say it's a residential home. Someone's trying to do it as affordable as possible. It's one story, I don't know, 200 square meters.

[Juan From Eje]

I would go with concrete. Myself, I would go with concrete. Why?

Because I think it's more reliable. The finishes might not be as expensive as you would with a steel structure. In terms of maybe you're going to do, I don't know if it's the correct name, but steel frame, and you're going to have a lot of glass and a lot of wooden, that's going to be at the end, it's going to be probably more expensive than just having concrete and have plaster.

Again, you can have windows and all, but it's not going to be as big as a steel structure. Or maybe you're going to have a steel frame and you're going to use lightweight walls. That's not going to be as safe as concrete.

Safe in terms of intruders, let's call it that way.

[Richard Bexon]

Well, I think one thing to bear in mind is where you're building, as you mentioned there. In very humid environments, like in the southern zone, probably concrete's going to be a little bit better. Because again, everything's going to be attacking that steel.

You just need to make sure that you've, and then all of the cladding that goes around it, you just need to make sure that you're using materials that are going to be weather resistant. But also from an insulation point of view, concrete is a very good insulator as well.

[Juan From Eje]

You might conceive the project with concrete, but it's in a really difficult place to get and you won't have concrete delivered there. So either you're going to have to do it by hand on the side, by small fractions of the project, or you can build on steel. But also you said something very important, maybe in the south or in the coastal areas, the saltiness, it's a very important factor.

And steel structures obviously are really impacted by that.

[Richard Bexon]

Yeah. I mean, I think I agree. There's no one solution there.

It just depends on what it is that you're doing. A lot of people ask, and I'm sure you get it all the time, Juan, hey, how much does it cost per square meter to build a house in Costa Rica? And I mean, that's a very difficult question, but like a moderate house, you know, with ceramic floors, with, I don't know, a caddy, you know, or Europa windows, like typical standard, you know, I mean, what would you say the square meter is at the moment?

Would you, would you be comfortable quoting?

[Juan From Eje]

Starting off again, like you said, it depends on a lot of factors, but you can have that same house that you're describing in the central area of Costa Rica, but you can translate, you can have it on Guanacaste. And that same house, it's going to be more expensive, maybe in Guanacaste. Why?

Because there's a lot of logistics that's going to be more expensive, driving stuff to Guanacaste, driving people to Guanacaste. For a normal house, like we're, okay, like a regular house we're discussing, the price might go from 1,200 to 1,500 bucks per square meter. That would be about $110 and $140 per square feet.

[Richard Bexon]

I think that's going to be pretty basic, no?

[Juan From Eje]

That might be, okay, we can go up from that.

[Richard Bexon]

I mean, a very, I hear that number and I go, it's more of like a Tico style, like, like you're not, you know, like, let's take... I'm building right now, the one that I told you before, the Pinilla.

[Juan From Eje]

Yeah. That's, I mean, it's not a very luxurious house. It's a well-designed, really, really beautiful place.

And that's about $2,000 a square meter.

[Richard Bexon]

Yeah.

[Juan From Eje]

So it does goes up. It has seven bedrooms. It has six or seven bathrooms.

So it's a big place. It's a beautiful place. It's not, it's not...

Ultra luxurious. It's not this, it's not luxurious. Like I would say maybe Villa Alegria that we built a couple of months ago was, but it's a beautiful place.

It's well-designed and it's about $2,000 per square meter.

[Richard Bexon]

Well, okay. So that's about 2,000. And we're probably talking about in the mid to upper range there, the upper range probably being 2,500 and beyond, if you know what I mean.

[Juan From Eje]

That's it. You can even go farther than that. You can go higher than that.

Of course.

[Richard Bexon]

I mean, how much do you think today, because I think that's probably what somebody from North America or the Western world would consider medium. The Gates house that we built. I mean, how much do you think that would cost today to build per square meter?

[Juan From Eje]

That could be around 1,500 and I'm sorry, about $1,600 to $1,800 per square meter.

[Richard Bexon]

I think that's probably, you know, it's probably going to be what? Probably $180 to $200 a square foot, basically.

[Juan From Eje]

That's about that. Yeah.

[Richard Bexon]

And I think if you want a very basic house, yeah. I mean, $1,200 to $1,500, it can be done, but I always say someone can always do it cheaper in Costa Rica, but then once you go through the process of building, you're going to find out real quick that that's not true.

[Juan From Eje]

You're going to find out that it wasn't cheap as you thought it would be.

[Richard Bexon]

Correct.

[Juan From Eje]

Correct.

[Richard Bexon]

Usually when I hear really cheap quotes, I'm like either they don't know what they're doing, you know, and just throwing that number out to get, uh, to get business or they quoted not realistically and probably get you 60, 70% through the house. And then I'll come back and ask you for more money.

[Juan From Eje]

Like, you know, and then there are some, some people out there that they know that they're charging low so they can get the, and when the projects got, it's already started, they started, they start to say, well, uh, when we gave you the code, we had this very low budget tile or something like that. And that's where they're going to say, well, okay. It wasn't that cheap.

[Richard Bexon]

Yeah. I agree.

[Juan From Eje]

That's why the project manager is coming handy again.

[Richard Bexon]

And we're paying, we're paying the buck, you know, I mean, when it comes to that stuff, because we give the reality of the situation.

[Juan From Eje]

I completely agree with you. I mean, it's, it's a really good work team that when there's a project manager and I'm sorry, and a builder that get along together. I mean, that's a great owners might think it's, it's expensive at the beginning, but yeah, like you said, they're going to soon enough, they're going to find out that they should have done that.

[Richard Bexon]

I always say, I might look guys on the project management front, we'll save you the money in value engineering by a long way. Like when we go through and value engineer a project, we'll save you whatever our fees are like probably two or three times. Yes.

You know, what are the main variables that impact the cost of a build in Costa Rica?

[Juan From Eje]

Okay. Well, first of all, the soil quality, that's really important because if you have bad soil, you're going to have to do like this big substitutions or you're going to have big foundations. That's the first one.

Second one, it's water. How are you going to handle water on your property? That's really important as well.

The finishes that you're going to use. There's, there's a variety of finishes that you can use styling, windows, toilets, furniture, whatever that that's really important. But I think the biggest one it's, it's labor.

I mean, in Costa Rica, labor, it's a, it's a really big part of the construction. And I, in my opinion, it's the biggest, has the biggest impact on construction in terms of if you have a lot of people, good people, they're going to get, they have good salaries, but we have the, well, social security here, which is, it's a, it's a big part of what, it's a big portion of labor. But also if you're going to, if you're going to build in Guanacaste, probably you won't have enough labor in the zone.

So you're going to have to bring them from Nicaragua, from Central Valley, and you have to pay them better than they gain in central area. But also you're going to have to find somewhere for them to live and you have to feed them and you have to relocate them. So that, that, those are the main, the main points for me that they, to consider when you're building in Costa Rica.

[Richard Bexon]

Yeah. I mean, it's, it's, it's, it's interesting. I mean, you know, because the labor thing has become, there have been a lot of the construction guys have gone to the States, you know, when the States opened up its doors, a lot of them moved up.

So, I mean, I don't think construction workers in Costa Rica have ever earned so well.

[Juan From Eje]

I mean, we have great builders here. We have great, great builders. And we actually had one of our, one of our best guys here.

He was offered a job in the States and he, I mean, he's Nicaraguan. So they have like this, an amnesty or something. Yeah.

So he went and he's doing great over there. I mean, because we have, we do have great labor here. But yeah, we have that thing where the, where their costs, it's sometimes can go really, really, really upward because of the social security.

Which is about 50% plus from, from whatever you're paying to the guy.

[Richard Bexon]

I agree. I agree. I mean, I mentioned in the podcast, they're kind of just currency.

I mean, how are you guys, or how do you typically manage currency exchange in your contracts? Because like before pandemic, we didn't talk really about currency and construction. I mean, but how do you manage that now going forwards with clients?

[Juan From Eje]

Yeah. Like you say, a few years ago, that wasn't even, that wasn't even a topic because exchange rate was always going up, but in like small amounts. Yep.

And it was, it was, it was almost constantly growing, but in a little, in little steps, right? Like you say, since pandemic, it's been mad and we had, we had to learn it in a rough way in one of our contracts a couple of years ago. So right now we just, we just have to, to have like a line in the contract where we specify how it should be handled if the exchange rate goes up or goes down.

Yeah. And it has to be like that. We have to analyze every, every contract, every new project to see how we're going to handle that and how it's very suited for the, for the client.

Right. And what he's looking for. Yeah.

Because yeah, no, no one wants to start the project with 10 bucks and then end up paying 12, $13. It's not, it's not fair, but we do not control the exchange rate.

[Richard Bexon]

Correct. Yeah. I mean, I think anyone that's going into a partnership with a construction company, and I think they need to understand that it's a partnership that you're going in with, like you're in this together.

It's not, you know, win, lose or lose, win. It has to be either a win-win or a lose-lose, if that makes sense. And I think that that's very difficult for some people to understand.

And, you know, because it'd be like, Hey, it's a fixed price contract. And it's like, yeah, but like, that's why we put that clause in there because like, do you want the construction company 60 or 70% through, through the project? Because there's been a huge swing exchange rate.

We go like, look, I can't finish this project. Like you don't want that because it's still going to cost you the same amount, but like, it should be like, it's a partnership. And if it gets better, great.

Like, you know, you win and like, and the company still wins. The company still makes what it was making. And now the client gets their product cheaper.

But if it goes the other way, you know, then I think you just need to sit down both company, you know, both company, both partners and figure this out kind of going forwards.

[Juan From Eje]

Maybe a good practice is to have like a, from the beginning and reference a reference exchange rate. That's, and if the, if the exchange rate goes up or down, we can sit down and discuss about it and whether how we should handle it. But it's a good practice to have a, have a standard over there.

After that, we can go up or down.

[Richard Bexon]

Awesome. Well, Van, my last question for you is I've kept you long enough. If you inherited $500,000 and you had to invest it into a business or real estate in Costa Rica, what would you invest it in and why?

[Juan From Eje]

Well, again, I'm biased. So I would definitely invest in projects, construction projects over in Guanacaste, especially Guanacaste. Where would you build and what would you build?

Yeah. A couple of years ago, I would have answered without a question, Avellanas because I love that place. But I happen to learn now recently at Matapalo area.

It's, it's such a beautiful place. And it's not that, I mean, it's, they have lower prices on the, on the soil there. It's, it's really good.

They have, they have water and they have all the same beaches we have near Playa Grande. It's there. I mean, like Matapalo is really near to Playa Grande.

Yeah. But it's way cheaper. Right now it's way cheaper and there's water over there, which Playa Grande right now doesn't have too much.

And you have really, really, really good beaches over there. Nice, small private beaches over there.

[Richard Bexon]

It's beautiful over there, man. You know?

[Juan From Eje]

Yeah. I really want to develop something there really, really soon.

[Richard Bexon]

Yeah. I mean, it's beautiful over there. I think that's going to be like a long-term play, if that makes sense of like, I mean, and I think that, you know, you say it from a, as being a Costa Rican of places, you just love to go that feel that raw and authenticity that, that is Costa Rica.

You know, I think when areas get very busy, it loses that, that the Costa Ricans don't like it as much, if that makes sense. Because it doesn't feel like, like when they were growing up or when they were kids and et cetera. Yeah.

You know, I always say watch where the Costa Ricans are going, because in the next 10 to 20 years, that will tell you which beach towns are really going to take off.

[Juan From Eje]

Yeah, that's, that's correct. I mean, it's a long-term idea, but that's why it's important to start to invest there as soon as possible, because right now the land it's, it's cheaper. In a couple of years, it's not going to be as cheap as right now.

[Richard Bexon]

Yeah. Yeah. Well, awesome.

Juan, this has been an absolute pleasure to get you on here and share some of the knowledge with the, with the guests here. Anyone that wants to contact Juan and Eje Constructivo, all of their contact details are in the description. They're a great construction company, guys.

We use them on a lot of different projects. We're working on other ones with them at the moment as well. So all of their contact details will be in the description down below.

But Juan, thanks very much for joining us on the podcast.

[Juan From Eje]

Thank you again, Richard, for having me again in this amazing podcast and hope to see you soon, man. Sounds good, man. Thank you, man.