Panamanian real estate developer Jose Bern believes that his country has been a well-kept economic secret for years. But in dramatic fashion, global real estate investors such as New York developer Donald Trump are uncovering the secret.

Due largely to the upcoming $5.25 billion expansion of the Panama Canal and the Latin American nation's pending free-trade agreement with the United States, the Panamanian real estate market is poised for even more growth.

The country is experiencing a burst of condominium construction, including the 65-story, $220 million Trump Club International Hotel & Tower, a 2.4 million sq. ft. project featuring condos, hotel rooms, office lofts and a casino.

Also under construction in Panama City is the Ice Tower, a 104-story condo skyscraper that is touted as the tallest building in Latin America. The commercial, industrial and retail sectors are primed for expansion as well. “I see sustained growth in all areas of real estate in the next 10 years,” says Bern.

Much of the activity centers on condominiums, with Panama building momentum as a retirement haven for Americans and other foreigners lured by the weather and a low cost of living.

A study last year by real estate advisory firm Prima Panama found 107 condo towers at least 20 stories high were under way in the Panama City area — representing nearly 11,000 units, more than 25 million sq. ft. and more than $3.1 billion worth of construction.

Still, there are real estate investment risks and among them is a lack of reliable market data, says Embree “Chuck” Bedsole, a managing director at Dallas-based Alvarez & Marsal Real Estate Advisory Services LLC. “Investors may find the due diligence process a bit frustrating when trying to resolve key issues related to market performance, pricing, and operating and development costs.”

The development wave accelerated after Panamanian voters last October endorsed the canal expansion to accommodate bigger ships and more cargo traffic between the Atlantic and Pacific oceans, primarily goods traveling between the United States and Asia.

The massive undertaking is scheduled to start in 2008 and be finished in 2014. A report last year from Credit Suisse Securities (USA) LLC described the canal expansion as “more of a golden goose project rather than a white elephant.”

Panama's population is about 3.2 million, covering an area the size of South Carolina. Panama City is the nation's hub of commerce and government, with more than 1 million people.

The combination of population and job growth, government tax breaks, and imminent legal and business reforms has created a favorable climate for both local and foreign investors. U.S. investment in Panama in 2004 — the most recent data available — totaled nearly $6 billion, up from $5.1 billion in 2001, according to the Congressional Research Service.

Panamanian real estate developer Octavio Vallarino says office buildings in prime locations are selling for about $200 per sq. ft., just below the average selling price of $216 per sq. ft. for U.S. office buildings, reports Real Capital Analytics.

Bedsole of Alvarez & Marsal Real Estate says demand for Panamanian office space over the next 10 years will be spurred by construction and shipping companies, the high-tech sector, and corporate relocations.

But Bedsole is sounding a cautionary note. “The current development frenzy — especially in and around Panama City and the canal — has caused prices to increase substantially and prompted the need for more thorough due diligence during the land acquisition process.”