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LIFESTYLE CENTER PLANNED FOR SAN JUAN RESORT

BY DEBRA HAZEL

Paseo Caribe will be part of a $200 million mixed-use center at the gateway to San Juan’s historic district. It will include retail, entertainment and a hotel.

Call it the Puerto Rican paradox. An island whose climate would seem ideal for an open-air lifestyle center will only get its first such project in the fall of 2005, when Paseo Caribe opens its doors in San Juan.

The three-level, 150,000-square-foot retail and entertainment center is part of a 1 million-square-foot mixed-use project that will also introduce mainland U.S. retailers to the island — though which ones, no one is saying yet. This $200 million project’s developer is San Geronimo Caribe Project, an affiliate of San Juan-based Lema Developers.

“Our biggest opportunity is to create a beautiful complement of Puerto Rican merchants with American retailers who are not on the island,” said Ken Stephens, executive vice president of The Harberg-Masinter Property Co., Beverly Hills, Calif. The company has been retained to provide predevelopment and leasing services to the project. “We liken it, in terms of being under-retailed, to America in the 1960s.”

The complex will also include two residential condominium towers, a parking deck and a condo-hotel. (The last allows purchasers to use the rooms 60 days each year, with the facilities reverting to Caribe Hilton’s inventory the rest of the time.)

The condo towers will contain 80 high-end luxury units, providing an instant market for the retail.

“There are many people interested in purchasing million-dollar apartments,” said Rodolfo del Toro, an associate broker at Trammell Crow’s San Juan office. “People want to buy.”

But the centerpiece of the project will be the retail component, consisting of a 37,000-square-foot, 10-screen cinema on the third level, about a dozen restaurants and cafés (totaling about 30,000 square feet), some midmarket (or better) fashion chains, a number of jewelers and a smattering of luxury brands. In deference to the housing, the mix will also include vendors of housewares and home furnishings.

Stephens declined to name specific retailers, but says he is talking with one of the major Caribbean theater operators and with various U.S.-based lifestyle center tenants. Now that such tenants have fulfilled their expansion plans in the mainland United States, they are beginning to look elsewhere, including Puerto Rico, for continued growth.

“Right now, Puerto Rico has demand that has not been absorbed,” Stephens said. “There are a lot of very successful malls.”

Another bonus for Paseo Caribe is its next-door neighbor, the Caribe Hilton, which opened in 1949. The hotel was originally owned by the government of Puerto Rico and leased to Hilton. In 1998 Hilton acquired the hotel and brought in Lema as partner on a 300-room expansion, says Daniel Hughes, vice president for the Caribbean of Hilton International, a division of London-based Hilton Group, which owns the rights to the Hilton name outside North America.

“We’ve got a very exclusive beach, and the hotel building,” Hughes said. “Then suddenly, we’ll have all the amenities of the center. It’s going to be much more attractive to stay in our hotel than others.”

The center is being built on what had been the Caribe Hilton’s surface parking lot. Hilton sold the land to Lema, and the hotel will share some of the deck parking that is now under construction. A 23,000-square-foot casino, one of the largest in the Caribbean, will sit in a transitional area between the center and the hotel, extending into both.

Thus, Paseo Caribe is designed to attract both locals and tourists. The center will be situated along busy Ponce De Leon Avenue, where more than 54,000 cars pass daily.

“Some people have described it as the best retail real estate on the island,” Stephens said. “It’s near the affluent residential area in Condado, as well as the cruise ships.”

San Juan’s seven municipalities are all within a 15-mile radius of Paseo Caribe. Thirty percent of Puerto Rico’s population lives within the San Juan metro area, and the rest of the population lives within a two-hour drive. Some 17 percent of households within the trade area earn more than $50,000 a year; an additional 8 percent have annual incomes of more than $75,000.

Paseo Caribe will sit at the major entrance to Old San Juan, a major tourist attraction and one of the oldest cities in the New World. The 4.9 million tourists Puerto Rico draws yearly include 1.4 million cruise ship passengers. In addition to being near the cruise ship ports, the project is just 15 minutes from the airport.

The Hilton has its own private beach; several others, including Condado, Ocean Park and Isla Verde, are close by.

Tenants will be situated in a Main Street format, ending at a waterfront plaza. Plans call for two restaurants to be situated on the water.

Hilton has begun accepting group reservations for the new building for 2005, and the lifestyle center will be completed in the fall of that year. The timing could be particularly good, as tourism continues to recover from the one-two punch of a worldwide economic downturn and the aftermath of Sept. 11.

“We did take a hit, but not as much as other international destinations,” Hughes said. “Puerto Rico was the most aggressive and active with the tourism industry, working very hard with tour operators to promote the destination.”

Stephens says that though this is the island’s first lifestyle center, it won’t be its last.

“As long as there is more retail demand to absorb, we will see more [lifestyle centers],” Stephens said. “This will open the door to open-air retail in Puerto Rico.”

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