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The Rebirth Of Condado
Seven Years After The Closing Of The Condado Trio, The Reconstruction Of The Vanderbilt And La Concha Hotels Heralds The Rebirth Of Puerto Ricos Premier Tourism District
By JOANISABEL GONZALEZ-VELAZQUEZ
April 1, 2004
Local hotel projects suffer growing pains
By 2020, Puerto Rico should have nearly 25,000 rooms. Is that only a pipe dream?
In 2005, Condados economy will boom again with the reopening of the Condado Vanderbilt and La Concha hotels, which represent a total investment of $224 million and promise to create 1,050 permanent jobs. During the demolition and construction phase, the project has created 450 jobs.
The reconstruction of the former Condado Trio will revitalize the Condado area of San Juan, which was once the main tourism district in Puerto Rico, said Hugh Andrews, the head of International Hospitality Enterprises (IHE) and the developer of both hotels.
"From now on, there is no Condado Trio, nor is there a Condado Duo. La Concha Hotel and the Condado Vanderbilt are two separate properties, with distinct offerings and a focus on different markets," said Andrews, who has been credited with boosting the islands tourism industry during the 1970s.
The veteran hotelier discussed with CARIBBEAN BUSINESS what he envisions will be Condados foremost tourism properties, for which he has secured financing from the Government Development Bank (GDB).
The first phase of the project, slated to begin this year, entails reconstructing the two hotels, including the meeting and retail spaces, the guest areas and parking lots, and La Conchas casino. La Concha Hotel will have 248 guest rooms and the Condado Vanderbilt Hotel 93. Both should begin operations in 2005.
The second phase of the project, scheduled to start next year, will add condo-hotel units to both the Vanderbilt and La Concha.
A condo-hotel is operated as a commercial hotel, but some of the units are owned by individuals who may use them only for a certain time each year. At other times, the units may be used by guests of the hotel. Condo owners and guests have access to all of the hotels services and facilities.
La Concha will have one 12-story tower with 200 condo-hotel units, to be built to the east of the original hotel building. The Vanderbilt will have two 12-story towers with 216 units, to be built on either side of the hotels main structure.
La Concha had 228 rooms and the Vanderbilt had 240 when they closed in the late 1990s. Upon completion, the new hotels will increase the total number of rooms by 38%. There will be 341 hotel rooms and 416 condo-hotel units, for a total of 757 rooms in the complex in the heart of Condado. The complex will also have 896 parking spaces.
A rocky start
In 1997, the administration of Pedro Rossello proposed the redevelopment of the Condado area. Hotelier Brian McLaughlin suggested renovating and expanding the Vanderbilt and demolishing the convention center and La Concha to build another hotel.
Public opinion and then-San Juan Mayor Sila M. Calderon challenged the proposal in court, which ruled in favor of the municipal government in 1999. The property remained abandoned until 2002, when Calderon, by then the islands governor, selected IHEs proposal for the redevelopment of the Vanderbilt and La Concha hotels.
The convention center was demolished and a new plaza, The Window to the Sea, was built. Calderon is expected to inaugurate the plaza next month.
Andrews said the project is uncharted territory for him. Although he has been in the hospitality business for nearly three decades, this is the first time his company has acted as developer, promoter, and operator. "This is something really different," he said. "Ive been involved in every aspect of the process."
Andrews spent nearly a year in discussions with the GDB and the Tourism Co. about the projects financing. In January, IHE obtained approval for the financing, the terms of which Andrews described as creative.
The GDB extended a direct loan to IHE, and the Tourism Co.s Hotel Development Corp. invested $11.6 million, said Tourism Co. Executive Director Jose Suarez.
Suarez said the redevelopment of the Vanderbilt and La Concha hotels is a key project of the Calderon administration, which has an interest in spurring hotel development on the island.
"We are optimistic about the project. Securities brokers have said people are very interested in the initiative," he said.
Additional financing for the project will come from IHEs sale of $23 million in partnerships. Andrews said partner investors, those who will purchase condo-hotel units, could receive incentives such as tax credits and exemptions from property tax.
"One of the benefits of the law is that condo owners may benefit from a property tax exemption of up to 90%. This is a great option for professional couples who, because of their high income, may need some additional tax relief," he said.
Andrews added that because the average occupancy rate in Condado hotels is approximately 80%, the value of the condo owners property is sure to increase. "It is a good opportunity for investors," reiterated Andrews. "Condo owners will have access to the amenities of both properties through their beach club membership, even when they arent staying in their units."
La Concha Hotel
Each week, Andrews meets with his architects and engineers, led by Jim Trevorrow, Waldemar Toro, and Peter Richter, to fine-tune the details of the project. They discuss everything from what kind of windows will be installed to how much space is needed for back-of-the-house operations.
The design for La Concha Hotel calls for a modern, sophisticated style that reflects the islands tropical nature.
"La Concha will express the islands tropical and Puerto Rican style, although we will respect the [original] architects vision," said Andrews. "Miguel Ferrer, who originally designed the property in the 1950s, is very pleased with what we are doing." Osvaldo Toro, now deceased, helped Ferrer design La Concha, which began operations in 1956.
The designers envision an open lobby, allowing better airflow and the entrance of natural light; a ground-level casino with a separate entrance on Ashford Avenue; an ice cream parlor; a game room for kids; and approximately 4,000 square feet of meeting space. Andrews said the hotels pool will be lowered by one level, giving guests more privacy, and the lobby will have 14-foot-high ceilings to provide a sense of spaciousness.
The guest rooms will be expanded by eliminating the balcony areas. Double-occupancy rooms will have queen-size beds. All rooms will be outfitted with high-speed Internet access, a plasma television, and modern furniture. The bathrooms will have a walk-in shower with a frosted-glass wall replacing the usual shower curtain. Including furniture, IHE will invest approximately $200,000 per room at La Concha and $250,000 per room at the Vanderbilt.
La Conchas condo-hotel units, meanwhile, will be in a U-shaped building above the five-story parking lot, which will have space for 568 vehicles. One and two-room condo-units will be available at prices probably starting at $350,000. The fully equipped units will also have a seating area and a kitchen.
Andrews added that the shell-shaped structure facing the ocean will be restored and converted into a beach club for guests and condo-hotel owners.
Condado Vanderbilt Hotel
Renovating the Vanderbilt requires a different approach because Andrews wants to transform it into a five-star hotel resembling the original 1919 structure in architecture and interior design. A project of this nature requires additional investments of time and resources, noted Andrews.
Rooms in the new Vanderbilt will measure 17 feet across, will have high ceilings, and will be equipped with elegant furniture. The marble baths will have double sinks and both showers, and tubs.
"When the hotel was closed and demolition started, many of the fixtures and decorations, including the lamps and handrails, disappeared. There was nothing when we got there," said Andrews.
The project entails eliminating the lobbys casino and replacing it with a lounge that will afford a view of the ocean. The hotels 10,000 square feet of retail space will be refurbished, along with the meeting and banquet space. The Vanderbilt will also offer guests a fine dining restaurant, a bistro, a spa, and other entertainment options.
The Vanderbilts condo-hotel units, whose prices will start at $300,000, will be divided between two towers. A 40-foot-long glass bridge will connect the hotels main building to the east tower; the west tower will be above the retail space.
Architectural firm Jorge Rossello & Associates is working on both hotels. This project is the seventh hotel-development collaboration between Andrews and Rossello. Earlier projects include the Wyndham San Juan Hotel & Casino in Isla Verde and El Convento in Old San Juan.
"Jorge [Rossello] has done a terrific job," said Andrews. "Developing a hotel isnt an easy task; not everybody is able to pull it off with the degree of professionalism and expertise the customer deserves."
PR Development Service Group is the general contractor for both hotels.
La Concha and Vanderbilt wont solve Condado problems
Even though Andrews is certain the Vanderbilt and La Concha hotels will be a success, he said they wont solve Condados economic and quality-of-life problems, which include traffic jams and insufficient parking.
In 2001, when Andrews submitted his proposal for the hotels redevelopment, the architectural firm suggested to the government that it change the flow of traffic on Condados main road, add parking space, and expropriate a number of nearby lots to create a plaza that would stretch from the front of the Vanderbilt to the Condado Lagoon.
"The proposals were aimed at improving the Condado area according to a vision of what tourists and other people should see," said Andrews. "I have lived here for 27 years, and residents and businesses are still waiting for solutions. Condado is in ruins. There should be a lot more attractions for tourists and residents."
It has been over a year since the Calderon administration picked IHE to redevelop the former Condado Trio, yet those issues still havent been addressed. "It would be valuable for the tourism industry and for Condados future to see the central and municipal governments working together on this," said Andrews.
The Tourism Co.s Suarez agrees on the need for cooperation on this project, though he acknowledges there are difficulties.
"Land in Condado is really expensive, and we cant [easily] expropriate those plots because there are a considerable number of housing units and businesses in the area," he said. "The initial concept was to have a park in front of the hotel. That is a great idea, but making it reality isnt so simple."
Regarding the parking, Suarez said both hotels will have the number of spaces required by the building code. Whats more, a planned residential project next to Aguadilla Street should add 500 public parking spaces, which makes the governments intervention to build a parking lot unnecessary.
Financing continues to be sticking point for hotel projects
One of the reasons developing hotel projects has become more challenging in Puerto Ricoand in many other destinationsis difficulty obtaining financing.
"A hotel is nothing but a real-estate development project that already has certain risks in terms of financing," said Carlos J. Toro, deputy executive director of planning & financial incentives at the Puerto Rico Tourism Co.
Some factors influencing the feasibility of hotel projects in Puerto Rico include the islands dependence on air transportation, its vulnerability to hurricanes, and the possibility of delays in the permitting process. Also, investors have generally become more cautious because of the aftereffects of 9/11, including the war in Iraq and the continuing threat of terrorism.
"Those realities make investors wary about...developing a hotel, and banks pay close attention to those indicators before financing a hotel project," said Toro.
He said good hotel projects are those that have gone through an in-depth planning process, whose investors have a good credit history, and whose costs are consistent with the reality of trends in the market. They also have an organized, committed, and cooperative team of developers, investors, contractors, and hotel operator.
"Usually, financing institutions analyze the construction cost per hotel room as a key factor. That cost could be up to $350,000 for a luxury project in Puerto Rico. Room-development costs in a low- or moderate-price hotel could reach $200,000."
Tim Lorimer, Scotiabanks senior vice president for corporate banking, noted that the risks are much higher in the tourism industry because of its cyclical nature, meaning it experiences high and low seasons. "Typically, our financing terms for a hotel would be more conservative than for a residential project," he said.
He added that Scotiabank, which has the largest portfolio of loans to hotel projects in the Caribbean, is optimistic about the tourism industry in the region because visitors are attracted to the Caribbeans geography and climate. Whats more, he said, the Caribbean will probably receive more visits from the growing population of seniors.
Roberto Cordova, executive vice president for wholesale banking at Banco Santander, said Puerto Ricos private banks are willing to finance hotel projects, but they have had to be more conservative in order to protect their interests. He noted, for instance, that local banks are requiring developers to put up more capital.
Cordova said banks are more ready to finance projects to expand or renovate hotels because these have proved to have a steady cash flow. "There are several banks willing to participate in the financing of expansion projects," he said.
Banking institutions abroad are also financing the expansion projects of several local hotels. "The big challenge...lies in the financing of new properties," said Cordova. "You dont see foreign capital financing new hotel projects, only local capital."
He added that the government plays a key role in financing new projects. "All recently approved hospitality projects have received some degree of financial support from the government. When the property is stable, the government withdraws and the private sector continues the financing," said Cordova.
He insisted, however, on the need for more innovative financing instruments. "We need more financing instruments like the one used for the Vanderbilt and La Concha hotels. The challenge lies in identifying tax benefits to encourage investors," he said.
Cordova added that Puerto Ricos tourism industry has an opportunity in the dollars devaluation against the euro. "The dollars decline should bring more tourists from Europe, who used to discount Puerto Rico because it was expensive," he said.
Blockages in the hotel-development pipeline
The difficulty in securing financing for the renovation of the Vanderbilt and La Concha hotels in Condado indicates that developing hotel projects in Puerto Rico continues to be a challenge.
There are currently 12,345 hotel rooms endorsed by the Puerto Rico Tourism Co.
According to the strategic plan adopted by the local tourism industry two years ago, that number should double by 2020 to satisfy increased demand. Vancouver-based InterVistas Consulting Inc., which the Tourism Co. hired to devise a five-year strategy for developing the islands tourism industry, said Puerto Rico will be receiving 11 million tourists annually by 2020. In 2000, the island received 4.9 million visitors who spent $2.7 billion in the local economy.
The hotel projects currently in the pipeline represent an investment of $826 million and promise to generate nearly 3,500 jobs during construction. Once in operation, the hotels will create 3,000 new permanent jobs.
To be sure, Puerto Rico isnt the only destination where hospitality projects have stagnated. Tourism Co. Executive Director Jose Suarez noted sluggishness on the U.S. mainland and in many foreign countries, in part because of the aftereffects of 9/11, severe acute respiratory syndrome, the war in Iraq, and health problems aboard cruise ships.
In 2003, the stateside room inventory grew at a rate of only 1.21%. Puerto Ricos, meanwhile, grew at an even slower rate of 0.67%.
"Upscale development projects have decreased in the States; moderate- and low-price hotel initiatives have showed better results, as have mixed-use projects, which combine tourism and residential facilities," said Suarez.
Since increasing the number of hotel rooms and diversifying the tourism offerings are key to the advancement of Puerto Ricos tourism industryand of its overall economythe government has taken a lead role in promoting hotel development on the island.
"Difficult times made the private sector limit its participation, but we saw it as an opportunity. We expect an economic recovery, and we will be ready for it in terms of the hospitality sector," said Suarez.
Suarez said the government has provided financing for hotel projects, helping to fill the gap between developers own capital investments and financing from private entities. He said the Tourism Co. injected $20 million into its subsidiary Hotel Development Corp. (HDC), which went toward the renovation of the former Carib-Inn, the completion of Costa Bonita in Culebra, the renovation of the long-awaited La Concha and Vanderbilt hotels, and other projects.
The agency is currently working on the financing for the 412-room Fairmont Coco Beach in Rio Grande, in which the HDC has already invested $15 million. "The Fairmont project was halted when one of the investors pulled out after 9/11. We decided to move the project forward through the HDC. There are still some negotiations going on between Scotiabank and the GDB [Government Development Bank] to complete the financing," said Suarez.
"We see ourselves as the last financing resource. We would like the private sector to invest more in hotel projects," he added.
This year, the Puerto Rico Tourism Co. plans to add 1,479 rooms to the islands inventory through 13 projects to create or expand hotels. Sol Melias Paradisus Puerto Rico, which opened last week, is responsible for 500 of those rooms.
Six of the projects scheduled to open this year are three months to two years behind schedule, among them the Condado Lagoon Villas, Costa Bonita in Culebra, Costa Caribe (an expansion of the Ponce Hilton), and Hotel Promenada Plaza in Old San Juan.
Four projects under construction are scheduled to begin operations in 2005 and 2006. They are La Concha, the Vanderbilt, the Fairmont Coco Beach, and El Legado Golf Resort.
Another 49 projects to build, expand, or restore hotels are in the planning stage. If the projects prove feasible, they will be developed in 25 municipalities, including Vieques, Culebra, Carolina, San Juan, Fajardo, Utuado, Cidra, Yauco, Arroyo, and Mayaguez.
Carlos J. Toro, deputy executive director of planning & financial incentives at the Tourism Co., said each hotel project is unique. Small projects such as guest houses could be operational in only six months; complex projects such as a resort take at least three years.
Some projects hit a snag in securing financing; others are victims of Puerto Ricos notoriously cumbersome permitting process. Still others are delayed by disputes between partners and investors, as happened with the InterContinental Cayo Largo Resort in Fajardo. The project, which is 95% complete, has been halted for almost a year because the propertys owners are embroiled in a legal dispute.
Nonetheless, said Toro, the government is committed to boosting the islands tourism industry.
"Paradisus Puerto Rico [in Rio Grande] is a good example of how government agencies pull together in favor of the tourism industry," he said. "We provided a great deal of support to Sol Melia. For instance, we assisted with filling infrastructure needs in the area; we looked for better tax credits; and we signed a cooperative marketing agreement with the hotel, as we do with all new properties."
Toro noted that all new hotel projects must fit in with the Tourism Co.s master development plan (CB March 18), which considers the need to protect Puerto Ricos natural resources.
Government becomes major player in financing hotels
Government Development Bank (GDB) President Antonio Faria said the government has joined efforts with private financial institutions to promote new hotel developments in Puerto Rico.
"Government financing has been crucial to making most of the hotel projects viable," he said. "Although local banking institutions have mastered the financing process, financing tourism projects is a high-risk venture that requires a greater deal of expertise."
He added that governments participation in financing hotel developments demonstrates the tourism industrys importance to the local economy. "In some cases, as in the case of tourism development projects, the government has to be the driving force of the economy," said Faria.
Since the creation in 1993 of the Tourism Development Fund (TDF), a subsidiary of the GDB, most of the new hotel projects have been financed in part by the government. At present, the TDF has a portfolio of $675 million in guaranteed or direct loans to 15 hotel projects representing 3,539 rooms. Of those projects, requiring a total investment of $1.08 billion, eight are already in operation.
Others have been troublesome for the TDF, such as Cayo Largo in Fajardo, Martineau Bay in Vieques, and the Ritz-Carlton San Juan. The GDB has taken legal action in these cases, seeking to take control of the properties or demanding damages. According to some experts who refused to be identified, the GDB may be sending the wrong message to potential investors in Puerto Rico.
"As a government financial institution, it is our mission to promote economic development," said Faria. "However, we cant risk the credibility and the trust of our bondholders, and we had to take action on those issues."
The government hasnt only assisted large hotel projects. Last year, the Economic Development Bank (EDB) created a Tourism Fund to finance projects such as small inns, guesthouses, tour operators, restaurants, and sports-related tourism initiatives, said EDB President Francisco Rodriguez.
As of Feb. 28, the EDB had approved $8.7 million in loans to five projects: three hotels, a pizza parlor in Carolina, and a parador in Adjuntas. Rodriguez said the EDBs current loans have saved 112 jobs and have created 71 direct and 271 indirect jobs.
"We are definitely committed to the islands tourism industry because it is certainly among those with the most potential. We have been working intensively with the private sector to help local entrepreneurs improve the quality of their services and expand their offerings," said Rodriguez.
The Condado Trio Saga
The Rossello administration proposes redeveloping Condado area and selling government-owned Condado Trio. Brian McLaughlin wins bid to acquire and redevelop Condado Trio.
Public opinion rejects redevelopment proposals and urges protecting Vanderbilt and La Concha hotels as architectural gems. The mayor of San Juan, Sila M. Calderon, contests McLaughlins proposal in court.
Courts rule in favor of the municipality of San Juan.
Calderon administration reopens sale of Condado Trio; convention center is demolished.
Grassy areas of Window to the Sea open to the public; International Hospitality Enterprises (IHE) selected to redevelop hotels.
Negotiations regarding IHEs development contract concluded; government handles newly named Condado Duo permitting process, seeks compliance in accordance with projects environmental feasibility studies; selective demolition of Vanderbilts west wing begins to remove lead and asbestos.
The Window to the Sea closes for construction of plaza.
First phase of construction of 226-room La Concha and 93-room Vanderbilt begins.
This Caribbean Business article appears courtesy of Casiano Communications.