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Barcelona to get Olympic-sized center

By Jon Springer

BARCELONA, Spain -- Hines was not the first shopping center development firm to look at an 84-acre parcel along the banks of the Mediterranean Sea and envision this city's first modern retail/entertainment complex.

But location is nothing without precise timing, which is why Houston-based Hines will be the first developer to bring such a project to fruition.

Construction began in April on Diagonal Mar, a mixed-use facility including a 936,000-square-foot retail/entertainment complex on the coast of Barcelona. Hines, perhaps best known as the developer of the Houston and Dallas Gallerias, acquired the property in August 1996 after the previous owner, a joint venture between Spanish and U.S. developers, failed to get the project off the ground due to construction and financing problems.

Like many large-scale European shopping center developments, Diagonal Mar was a long time in coming. The land it stands on became available as a result of massive changes the city underwent as it prepared to host the 1992 Summer Olympics. Between 1988 and 1991, Barcelona spent some $7 billion on new infrastructure, including a new airport and a beltway road around the city.

City officials also moved the city's warehousing and industrial concerns northward, away from the coast, in order to create an Olympic Village as well as new pad sites that would spark waterfront redevelopment.

Kepro, the Barcelona-based joint venture company of U.S.-based Prime, Kemper Insurance and local developers, acquired 84 acres east of the Olympic Village in the late 1980s and prepared to build a shopping complex there in time for the '92 Olympics. While Kepro was able to get approval (itself an eight-year process) and master planning in place for the project, a lack of available labor and resulting delays shut it down.

"They were trying to get the project under way in the face of these massive efforts for the Olympics," explained Jay Wyper, Hines' executive director for Diagonal Mar. "Every architect, every engineer, every contractor and every subcontractor in the city was working seven days a week, 12 hours a day, trying to get the Olympics done, and these poor guys were trying to develop and get approval for a giant project in the city."

According to Mr. Wyper, Hines was also attracted to the site in the late 1980s, but, citing the above reasons, decided against pursuing it at that time. "I think it was a good concept," he said, "It was just before its time."

The Kepro project was eventually closed down by its lender, Kemper, which was summarily acquired by a Zurich, Switzerland-based insurance company, Zurich Insurance. Zurich then sold Kemper's real estate interests, including the Kepro project, approvals and all. That reopened the opportunity for Hines, which re-examined the project and closed the deal with Zurich in August 1996.

"We had been in and out of Spain in the mid- and late-1980s looking for development opportunities. We had been getting involved in projects in Berlin, Paris, Moscow and Prague, but kept coming back to Spain feeling that sooner or later we were going to find the right project," said Mr. Wyper.

"We had actually looked at Diagonal Mar in '88 and always kept an eye on it. So though it looked as if things moved quickly, it wasn't a cold shower. We had done our homework."

Diagonal Mar will be the first center of its size ever for Barcelona, which until now served its 3.5 million people primarily with small downtown centers and retailers. Baricentro, a 672,000-square-foot enclosed mall in suburban Barcelona, is the second largest center in the region.

"Shopping centers in Barcelona didn't exist 10 years ago," said Mr. Wyper. "The concept of a concentrated shopping center inside the city is relatively new; and because the city is so dense, there are tremendous barriers to entry. That's probably what attracted us most. Finding a site where you can do a large urban shopping center in Barcelona is next to impossible these days."

Barcelona is a perfect city for such a center, said co-developer Jean-Louis Solal, citing its good weather, cultural and sports activities, and location on the Mediterranean, which makes it a hub of cruise ships and an important port city. "It's been a model city for planning and urbanism since the 19th century. Every 20 blocks you have a district, every four districts you've got a market, every eight districts you have a park, every 16 districts you have a hospital."

Furthermore, the area is underserved by retail and has a relatively young population (44% under age 40) with money to spend. The average income in Barcelona is 45% higher than in the rest of Spain, Mr. Solal said. Population within a five-minute drive of Diagonal Mar is 277,000; 2.3 million people live within a 20-minute drive.

Barcelona has less than half the retail square meters per inhabitant as Madrid, Spain, and about one-third the amount of other cities in Europe, Mr. Wyper said. Only one other shopping center lies within 18 miles of Diagonal Mar.

"The city took a quantum leap in 1992 with the Olympics, which helped it gain international prestige and focused growth on the seafront, where we are located," Mr. Solal added. "We will be right in the hub for all future growth of Barcelona."

To make sure the project did not meet with opposition or delays this time around, Hines recruited local experts, including Mr. Solal, recognized as perhaps the most successful developer of shopping centers in Europe.

Mr. Solal and Hines owner/founder Gerald Hines have been friends for almost 30 years and have worked together on successful
projects in the past. Mr. Solal helped Hines lure French retailers into Hines' Galleria proj-ects in Houston and Dallas.

Madrid-based Larry Smith & Durco, a division of London-based Larry Smith Group (which Mr. Wyper calls the most experienced leasing agent in Europe), was hired to lease the project.

"I think the combination of Hines' retail expertise, Jean-Louis' 35 years of developing shopping centers in Europe, and Larry Smith & Durco's tremendous experience in Spain is a pretty formidable team in terms of experience, understanding the market and putting the whole thing together," said Mr. Wyper. "When we saw we were going to get involved in the project, we reached out to somebody we knew and trusted."

Together, they made changes to the original plan, enlarging the center and giving the project more frontage on Avenguida Diagonal -- Barcelona's most famous street -- as well as access from the city's new ring road, Ronda Litoral.

The resulting project is expected to open in summer 2000. Befitting its international assemblage of developers, the center will be anchored by Alcampo, the French hypermarket, and the U.S.-based movie theater chain AMC. The three-level retail project will sit atop a five-level, 5,000-space below-ground parking lot, the largest in all of Europe.

Future phases of the project call for 2,000 apartment units, office and hotel space, as well as Barcelona's third-largest public park. Architects for the project are RTKL Baltimore; Robert A.M. Stern & Associates, New York; Sereland, Madrid; Tusquets-Diaz & Associates, Barcelona; Communications Arts, Boulder, Colo.; Edaw, San Francisco; Enric Miralles, Barcelona; Tagliabue, Barcelona; Kendall Heaton & Associates, Houston. The general contractor is Formento de Construcciones y Contratas S.A., Barcelona.

One of Germany's largest open-ended property funds, DESPA, has invested $200 million in the center. Construction financing for the project is being provided by a syndicate of banks led by the German bank Westdeutsche ImmobilienBank.

In addition to the three-level, 300,000-square-foot Alcampo and the 20-screen AMC theater, Diagonal Mar will feature approximately 220 shops, including a row of restaurants along a third-floor terrace overlooking the sea. In addition to local retailers, the center is attracting French, Dutch and German retailers who see Barcelona as an expansion target, Mr. Wyper said. American retailers have also shown interest.

"If I were a retailer looking at Diagonal Mar, I would see a great location on the highway, the most important street of Barcelona. We'll be much larger than any other shopping center, which means we'll have more stores and better diversity to attract shoppers; and it's a totally new concept, entertainment combined with a diverse mix of retailing."

The center's merchandising will be built around its anchors. The first floor features "necessities of life," including Alcampo's grocery and food offerings. The second floor will be devoted to fashion and the third floor, featuring the movie theater and restaurants, will be the center's entertainment zone.

"A lot of the retailing ideas are coming from the United States, in how to attract families and give them something to do," said Mr. Wyper, who likens Diagonal Mar to an urban version of European centers such as CentrO in Oberhausen, Germany, and Mr. Solal's development La Part Dieu in Lyons, France.

"Today, the Barcelona population is interested in what you're seeing elsewhere -- families don't want to waste time shopping when they could be doing recreational things with their family. If you can take the kids to a concentrated retail center where they can shop, see a movie, be entertained and have fun, then it becomes something that combines the basic requirements of life and shopping with family entertainment."

"We have a special vision for the concept of the center," added Mr. Solal. "And I think the timing is very good."