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Building A Dream
'Owning a hotel is like owning a small town,' one hotelier says. Why do developers enterand succeed inthis complex and risky business?
BY EVELYN GUADALUPE-FAJARDO
December 7, 2000
Fantasy Island: The inside story of how three businessmen became hoteliers and are contributing - big - to Puerto Rico's blossoming hospitality industry
Cleofe Rubi of Mora Development never intended to get into the hotel business. It happened almost by accident.
"Where my Embassy Suites Hotel is now located in Isla Verde, I originally intended to develop the lot of land for commercial use," Rubi said. However today, he is one of Puerto Ricos most enterprising hotel developers with two major hotels under his belt that contribute 565 rooms to the islands 12,000-plus room inventory.
And there are still more to come: Rubi is planning two more hotels, a 150-room Marriott Courtyard in Fajardo and a 125 room Hampton Inn in Luquillo, and is ready to begin construction of 60 one-bedroom timeshare units in Boqueron this month.
Rubi is just one of a growing number of developers in Puerto Rico who are changing the face of tourism.
CARIBBEAN BUSINESS recently interviewed three of the more active members of this group: Rubi, Hector Pages of Empresas Pages, and Jesus "Chu" Ruiz of Industria Hotelera Puertorriqueña (IHP). Among them, they have created 1,850 rooms with an estimated investment of $400 million and 1,800 jobs.
A very unique type of business
"Building hotels is a different kind of business than building homes," said Rubi, who has 30 years of experience in the construction industry. "It requires a lot of knowledge. But thanks to my experience in construction and my engineering degree, I have been able to learn about the hotel business quite rapidly."
In 1989, Rubis career took a dramatic detour from development of low income and mid-priced housing projects, to building luxury housing for Puerto Ricos tourists. He bought six acres of land in Isla Verde adjacent to Luis Muñoz Marin (LMM) International Airport and decided it was a more profitable to build a hotel rather than a commercial area.
But building the Embassy Suites in Isla Verde wasnt an easy task.
Rubi found himself in court against the Federal Aviation Administration (FAA) because of the proposed height for the building. According to Rubi, the FAA had protested that the Embassy Suites would interfere with their instrumental equipment at LMM Airport.
"We went to Atlanta to meet with our lawyers regarding the FAA case," Rubi said. "Then we went to Washington D.C. to meet with the FAA, who finally determined that our hotel was appropriately designed."
In 1997, Rubi opened Isla Verdes 300-room Embassy Suites Hotel at an estimated investment of $53 million. In two of its three years of its existence in Puerto Rico, Embassy Suites has surpassed Rubis projected earnings.
Several years later, Rubi once again faced off against other federal government agencies. This time, the veteran developer battled for his newest venturethe $38 million Embassy Suites Dorado del Mar Hotelwhich did not have permits for beach access.
"In Puerto Rico most developers have problems getting construction permits," Rubi said.
However, Rubi was determined to get those beach permits. He decided to build his hotel in Dorado, despite the lack of beach permits from the U.S. Army Corps of Engineers that deemed the beach unsafe for tourists. One year into the construction, with the assistance of the Puerto Rico Tourism Co., Rubi was able to alter the beach for safety of the guests.
Embassy Suites Dorado del Mar is scheduled to open its door in early summer of 2001.
"Thanks to the working relationship with Empresas Saldurni at Dorado del Mar, I got the opportunity to build the Embassy Suites Dorado del Mar," said Rubi, who had previously worked with Empresas Saldurni building the villas located at Dorado del Mar.
Rubi may be known in the industry for his successful Embassy Suites hotel, but his true love continues to be building homes.
"Those who have enough money invested in the hotel business will get a decent return on the capital in the long run," Rubi said. "But my love is building homes. The hotel industry is beautiful but I dont recommend it to newcomers because it requires a substantial investment."
Embassy Suites Dorado del Mar is complemented by 91 two-bedroom apartments (where 55 of will be condo-hotel units and 36 will be time-share units). The project also has an 18-hole golf course that was designed by Puerto Rican golf pro Chi Chi Rodriguez.
Besides his two Embassy Suites hotels, Rubi has signed a letter of intent with Marriott International to build a third hotelMarriott Courtyard on seven acres at Dos Mares project in Fajardo.
Rubi would like to build a 150-room Marriott Courtyard with limited services, so it can cater to the overflow of El Conquistador Resort & Country Club and the new J.W. Marriott that will be also constructed at Dos Mares.
In the meantime, CARIBBEAN BUSINESS learned that Rubi will begin construction this month of 60 one-bedroom timeshare units in Boqueron, where he plans to develop a Vacation Club style company to operate the business. He is also negotiating to build a 125-room Hampton Inn hotel in Luquillo, but no further information was given about that project.
From Section 8 housing to a fancy hotel
Developer Hector Pages, who has built low income housing for over 30 years, also found himself by accident involved in building one of Puerto Ricos most luxurious hotelthe $138 million, 419-room Ritz-Carlton San Juan Hotel, Spa & Casino.
In 1990, he began negotiating a lease hold contract from a group of stateside investors for 8.3 acres of beachfront land in Isla Verde, that formerly housed a Holiday Inn hotel. Pages had the idea of remodeling the existing building into a moderately priced hotel, but little did he know the government had different plans for him.
"When I went looking for financing at the Government Development Bank, which at the time was headed by Marcos Rodriguez Emma, he insisted a five-star hotel had to be built there," Pages said. "The reason being that it was the last piece of beachfront property in the area that could be developed to cater to the upper class traveler."
With no experience in hotel business and even less expertise in the upscale lodging industry, Pages flew off to Miami in search of consulting in hotel development. And thats where Green Isle Partners was born, headed by Harvey Sandlers and Pages, who is a limited partner. Sandlers, owns 77% stake in the Ritz Carlton San Juan Hotel, while Pages owns the remainder.
"I love the hotel industry because you meet a lot of people who have different ways of thinking. Its a very interesting and demanding business," Pages said.
Pages must definitely be fond of the tourism industry because he is ready to build his second hotela $70 million, 320-room Marriott Courtyard on three acres in Isla Verde.
Marriott Courtyard in Isla Verde is designed to be an eight-story hotel with meeting and convention space, banquet area, entertainment center, a signature restaurant, and a health club.
Marriott International appeared to be enthusiastic about the project signing a letter of intent to manage the hotel. The Puerto Rico Tourism Co. also seemed to be content with the project because they immediately endorsed it.
"I wanted a Marriott hotel on my property because of the success the company has had with their Condado hotel," Page said. "Also, Marriott had been searching to introduce another of its brands in Puerto Rico."
Marriott International has also signed a letter of intent with local developer Efraim Kier to manage a JW Marriott at the Dos Mares project in Fajardo.
The Courtyard in Isla Verde is expected to be a more upscale version of its sister hotels in the States. Average rates at the Courtyard will fluctuate from $140 to $145 per night, depending on the season.
"The Courtyard in Isla Verde has been designed to be a true business persons hotel," Pages said. "It will have a state-of-the-art security and surveillance system, as well as digital access lines for computers."
Despite his newly found love for the tourism industry, Pages admits there are a series of challenges and risks in this type of business. "You must make sure you stay in budget, if not, the hotel wont be profitable in the future," Pages said. "Hotel business is costly and it will forever be part of your life, you just cant build it and run."
According to Pages, owning a hotel is like owning a small town. "There must be a place to eat, do laundry, park cars, sleep and all done with excellent service."
Small hotels in big urban cities
Back in 1989, Jesus Ruiz, a native of San Sebastian, had the urge to build a hotel in Aguadilla, despite the economic failure of others in the area.
"In over 30 years, a new hotel had not been built in Aguadilla," said Ruiz, president of IHP.
Ruiz, who owned an office supply store in Aguadilla, opened his flagship propertyParador El Farooriginally with 32 rooms.
El Faro turned out to be a success, then Ruiz decided to add 20 rooms. He also bought and renovated a 33-room hotel called Hotel Borinquen, also located in Aguadilla. He later changed the name into Parador Borinquen.
"My youngest son Eric convinced me to invest in more hotels, but in different areas," Ruiz said. IHP's motto has always been to be where the tourists flow. And they are happy to take in the overflow from the big, luxury hotels.
Ruiz's next conquest was to buy and renovate El Consulado Hotel in Condado, which gets an overflow crowd from the nearby San Juan Marriott Resort & Stellaris Casino.
El Consulado, formerly known as the consulate of Spain, is a 29-room hotel across the street from La Concha Hotel.
IHP goal is to fill a market niche. It offers moderately priced rooms for budget-minded vacationers in the center of towns throughout the island.
In an effort to cut costs, IHP has centralized operations at El Faro Hotel, where a new $260,000 switchboard connects all the hotels. The $60,000 laundry originally started behind IHPs El Consulado Hotel is now next to El Faro, lowering costs.
To make sure IHP stays environmentally friendly, Ruiz renovates old buildings and converts them into hotels.
"My eldest son Ernesto, whom I consider an environmentalist, hates for anyone to tear down trees to build hotels," Ruiz said. "That is why I chose to fix up old buildings rather than build new hotels."
To add more rooms to El Consulado, IHP bought a small house at La Magdalena Street in Condado, behind the hotel, which will give the property 20 rooms.
IHP currently has plans for Old San Juan. The company intends to open at the Plaza de Armas location, formerly known as El Hotel Central. Adjoining the State Department, the $2.9 million, 53-room hotel will include eight small stores in the first floor as well as a coffee shop.
"We want to create a chain of small, mid-priced hotels," Ruiz said. "Our vision is to have a hotel in every important town of the island."
At the inauguration of the Plaza de Armas Hotel in mid-2001, IHP plans to launch a discount card: those who purchase it get a discount at any of their properties.
IHPs newest arrival is the 35-room, $2.9 million Mayaguez Plaza, which opened five months ago. It is located on McKinley Street, in the center of Mayaguez. In order to provide parking for guests, Ruiz bought the old Inmaculada School and tore it down.
Next in line is the Ponce Plaza. It is planned as a $3.9 million, 58-room hotel in the former Casa Sauri, an old mansion across from Ponces cathedral at the Delicias Plaza.
The top floor of the Ponce Plaza will be available for activities. Construction is slated to begin in 2001.After that, Hotel Sierra de Cayey will be completed, nestled in the mountains leading to Jajome, using the former Valdivieso home as a restaurant. The 48-room structure, which should begin construction toward the end of next year, will cost $2.6 million.
Plans for more hotels dont end here for IHP. Ruiz is eyeing another property in Dorado, which would boost his number of hotels to eight.
"Obtaining the Dorado property would complete my goal of owning a hotel in every major city where tourists want to stay," Ruiz said.
IHP hopes to find a ninth property, this time in Isla Verde, in the future.
"The key to success in this business is to have financial backing from a bank, if you dont, the chances of surviving are slim," Ruiz said.
This Caribbean Business article appears courtesy of Casiano Communications.