GlobeSt.com: How does Tijuana relate to San Diego and other US regions?

Kanerva: Most travelers reach Tijuana via the San Ysidro Port of Entry, the busiest border crossing in the world. One of the main arteries through California, I-5, goes directly across the border, from which point it's only a short drive to restaurants, bars, and the Centro Histórico, the old city center that contains AvenidaRevolución, Tijuana's traditional tourist strip.

AvenidaRevolución looks a lot different these days. Instead of the bawdy, crowded avenue full of American tourists it was 10 years ago, it now plays host to local residents looking for a nice night out. On any given evening, one can find Tijuanenses families strolling down the street, browsing the shops and patronizing the local restaurants.

GlobeSt.com: How did this happen? How did the city reinvent itself in such a short period of time?

Kanerva: As a border town, Tijuana has always been characterized by “multiple identities”—Mexicans escaping areas rife with poverty and violence and Americans escaping rules and regulations to let loose in Mexico. Since the days of Prohibition, Americans have flocked to Tijuana as an overnight escape, and Tijuanenses started to cater to their “Tijuana” tastes. Reality followed expectations, and Tijuana became defined by its seedier elements—cheap booze, raunchy shows, and prostitution. Then, in 2008, violence exploded as three rival drug cartels battled for supremacy, and Americans abandoned Tijuana as a vacation destination. When the drug violence subsided in 2011, the locals were finally able to reclaim their city.

GlobeSt.com: How did the city get rebuilt?

Kanerva: The younger generation of Tijuanense were up to the task. No longer catering to Americans, they envisioned remaking Tijuana into a cultural center with a renewed sense of community, embracing the use of art and music as forms of expression. Nightclubs and restaurants reopened their doors, and wealthy local families began to redevelop the Centro Histórico.

Today, a multitude of commercial real estate development is planned, in process or has been recently completed. The food scene has taken off, offering everything from food truck collectives to fine-dining options. Craft breweries have emerged, hidden below and behind the shops around AvenidaRevolución. The burgeoning art, food, and music scene has greatly increased the city's appeal to locals and travelers alike.

GlobeSt.com: Can you be more specific about the commercial real estate development going on in Tijuana?

Kanerva: Interest in real estate development has grown by leaps and bounds in the past few years. Both local and international developers have taken it upon themselves to contribute to the revitalization process, putting private money into developments ranging from office buildings to high-end condos. They're finding that the market is strong, and demand is more than meeting the supply.

According to a recent article in the San Diego Union-Tribune, there are currently about a dozen new projects underway in the city center. Many are the doing of local Mexican developers, looking to revitalize the Downtown area. Surprisingly, though, there are a growing number of influential San Diego developers who see great potential in Tijuana development and have projects planned or currently underway.

GlobeSt.com: Why are San Diegans willing to take on development in another country, and how is this working out for them?

Kanerva: The rationale of San Diegans willing to take on development in another country is varied. First, development in California is complicated. The government bureaucracy and amount of regulations and restrictions that developers deal with on a daily basis is enough to drive anyone to seek greener pastures. The California Environmental Quality Act and the California Coastal Commission regularly present roadblocks to development that can hold up projects indefinitely. While learning the development practices, laws, and conventions of another country presents its own set of challenges, developers are finding it an exciting alternative to developing in California.

Moreover, it just makes sense in light of the worsening housing crisis in California. Tijuana is a relatively untapped market that presents great potential to alleviate housing needs north of the border and to attract Mexicans from other areas. A high-end condominium project on the south end of AvenidaRevolución will rent for around $750 per month, unheard of in any major California city. And on the development side, according to a local developer, returns on Tijuana developments are up to three times as much as they are in San Diego.

GlobeSt.com: Can you give us an example of a San Diego developer who is working on a project in Tijuana?

Kanerva: Greg Shannon, a prominent San Diego developer, is currently working on two projects in Tijuana and has plans for future developments down the line. He is focused on apartments, which are chronically under-supplied and too expensive for the general population. The emergence of maquiladoras, manufacturing operations that run adjacent to the border, has created an abundance of skilled workers in Tijuana, which now boasts Mexico's largest middle class. With more workers arriving every day, the need for affordable apartment product is high.

Shannon has said that regulations have not been excessive so far; instead, development there is more market-based. While the real estate market is much less sophisticated, it is also much more accepting of entrepreneurism. Also, he's said it's essential to find a Mexican partner to help navigate the market. Challenges of developing there include differences in both regulations and culture. For example, it can be difficult to convince property owners to sell land, even as it sits vacant and unused, because Mexicans tend to treat land as less of a commodity and more of a “thing to hold onto.”

Part 1 of 2

SAN DIEGO—Just over the border, while no one's been looking, Tijuana has been going through a rebirth of sorts, San Diego-based Fident Capital associate Silva Kanerva tells GlobeSt.com. In part 1 of this exclusive two-part interview, we spoke with Kanerva about the changes happening in Tijuana and how they are impacting San Diego's commercial real estate market. In part 2, we will discuss other changes to the market and whether it is safe on many levels.

GlobeSt.com: How has Tijuana changed?

Kanerva: Back in the good ol' days, circa the early 2000s, it was the destination of choice for rowdy college students and Southern Californians looking for a good time across the border. Then, in 2008, the drug violence exploded, and Americans disavowed the city. Most haven't been back since. Little did we know that in our absence, the Tijuanenses were remaking their city. No longer catering to American tastes, the locals began to rediscover their identity again. Like a butterfly from a cocoon, Tijuana has managed to reemerge new, different and better than it was before.

GlobeSt.com: How does Tijuana relate to San Diego and other US regions?

Kanerva: Most travelers reach Tijuana via the San Ysidro Port of Entry, the busiest border crossing in the world. One of the main arteries through California, I-5, goes directly across the border, from which point it's only a short drive to restaurants, bars, and the Centro Histórico, the old city center that contains AvenidaRevolución, Tijuana's traditional tourist strip.

AvenidaRevolución looks a lot different these days. Instead of the bawdy, crowded avenue full of American tourists it was 10 years ago, it now plays host to local residents looking for a nice night out. On any given evening, one can find Tijuanenses families strolling down the street, browsing the shops and patronizing the local restaurants.

GlobeSt.com: How did this happen? How did the city reinvent itself in such a short period of time?

Kanerva: As a border town, Tijuana has always been characterized by “multiple identities”—Mexicans escaping areas rife with poverty and violence and Americans escaping rules and regulations to let loose in Mexico. Since the days of Prohibition, Americans have flocked to Tijuana as an overnight escape, and Tijuanenses started to cater to their “Tijuana” tastes. Reality followed expectations, and Tijuana became defined by its seedier elements—cheap booze, raunchy shows, and prostitution. Then, in 2008, violence exploded as three rival drug cartels battled for supremacy, and Americans abandoned Tijuana as a vacation destination. When the drug violence subsided in 2011, the locals were finally able to reclaim their city.