For investors who actually want some product for their capital, South of the Border may be the ticket, says Chuck Bedsole, Ernst & Young's practice leader for real estate advisory services in Latin America. Mexico--especially since it started receiving investment-grade ratings from the likes of Fitch and S&P--is considered the gateway to Latin America, he says, but a gateway to where? With the most obvious exceptions of certain economies such as Panama, Brazil, Costa Rica and El Salvador, much of the continent is riddled with political and economic turmoil that will demand a longer-term hold than many investors care to accept. But opportunistic players who dodge those bullets are looking at returns that compare very favorably to many comparable US-based gambits, says Bedsole. In a recent, exclusive interview, the E&Y executive spelled out the specifics of those returns--and the likelihood that one of those bullets will find you.

GlobeSt.com: From where I sit, Latin America has always seemed a real political and economic mess. Are you saying it's changing or is my assumption wrong?

Bedsole: It's wrong. You need to look at Latin America not singularly but as a collection of individual markets. But, with the exception of Mexico and certain economies like Costa Rica, Panama and El Salvador, I would probably agree with your comments.

GlobeSt.com: Where are the opportunistic investors heading?

Bedsole: Well, Mexico is the gateway. There is a tremendous amount of interest in Mexico, as there has been for the past couple of years. There are a lot of reasons for that. Prime among these is the investment-grade rating hat Mexico received last year by Fitch and Moody's and the S&P. That's significant because it frees up a lot of institutional investors to increase their activity there. In addition, there's real market demand. The returns are higher--in terms of both cash on cash and IRR--in some cases 200 to 300 basis points over similar US investments. This is key for investors who aren't seeing the same quality of deals in the US because a lot of them are picked over or too mature.

GlobeSt.com: What asset classes are we talking about?

Bedsole: We've got to talk about several different asset classes: lodging and recreational; retail--there's a tremendous amount of activity in retail right now; then comes industrial; and housing. The office side is really the domain of the big players--the Hines and Tishmans and Equitys of the world.

GlobeSt.com: Other than the real contrarians, what type of investor is lured South of the Border?

Bedsole: They're investors who are following companies that they've done activity with in the US and in other markets. Heretofore, it was opportunity funds, large private investment funds, but that's changing, particularly in Mexico, which is bringing in folks such as pension funds. And, in turn, that helps firms like GMAC and GE Capital get more comfortable about expanding their portfolios in this market.

GlobeSt.com: In practical terms, what does Mexico's gateway position mean for the rest of Latin America?

Bedsole: It's very positive. Mexico has a definite impact on the other major South American economies. The real wild card here will be Brazil, which is where some of these contrarian investors will come in. We often talk about Argentina as being a major economy, but Sao Paolo's GDP is greater than the whole country of Argentina. That doesn't mean there aren't going to be some opportunities in Argentina, but given the political and economic turmoil, the substantial returns will come for those who adopt a long-term perspective.

GlobeSt.com: And how long is long?

Bedsole: In Argentina, we're looking at a turnaround in four or five years. I wish I could be more positive, but there are some fundamental issues they need to address before the market bounces back like it was several years ago.

GlobeSt.com: But in reality, five years is no longer than a good, solid recession, no?

Bedsole: Yes, but you've got to realize that they are already a couple of years into this situation.

GlobeSt.com: So the logical progression is Mexico, Brazil and then wherever you care to place your bets?

Bedsole: There will be some niche opportunities in Costa Rica and Panama and, while you certainly don't have the demographics of Mexico or Brazil, they do offer an educated workforce and relatively stable economies.

GlobeSt.com: So how does a first-time investor avoid getting burned?

Bedsole: When you're going into South America, look at all of the issues and adjust your return requirements accordingly. And look at things in the long term. Be smart about your diligence and make sure that when you go to acquire or invest in any of these properties that you have a local partner.