Puerto Rico: A retailer’s paradise
Puerto Rico is a retailer's paradise, so say retail industry experts. Despite a six-year recession, retail sales on the island remain high, and that fact hasn't been overlooked by stateside retailers and shopping-center developers.
"While sales in the [mainland] U.S. have been slower because of the nation's weak economy during the past few years, local sales have remained stable," said James J. Farrell, executive vice president of development & redevelopment at DDR, owner & managing company of 546 shopping centers in 41 states, Puerto Rico and Brazil, to CARIBBEAN BUSINESS during an exclusive interview. "Occupancy rates in our facilities average 96% and average per-square-foot sales are higher than on the U.S. mainland."
Motivated by these facts, DDR (formerly Developed Diversified Realty Corp.) announced plans to redevelop four of its shopping centers in Puerto Rico—Plaza del Sol and Rexville Plaza in Bayamón, Plaza del Norte in Hatillo, and Plaza Escorial in Carolina.
"These redevelopments are being driven by strong tenant demand for high-quality space, and with limited new construction on the island, our centers continue to offer a compelling choice for expanding retailers," said Paul Freddo, senior executive vice president of leasing & development for DDR.
DDR is making a gross investment of more than $50 million in these centers, and projects to generate a return that exceeds the company's 10% return-on-investment threshold for redevelopment. The projects will be funded with retained cash fl ow and capital recycled from the continued disposition of nonprime assets.
The redevelopment at Plaza del Sol, a 676,000-square-foot mall that features a Wal-Mart, Home Depot, Bed Bath & Beyond and Caribbean Cinemas, is expected to begin this year and be completed by year's end. The project includes relocating the existing food court and converting the former one into about 25,000 square feet of space in the mall's highly desired and trafficked central corridor. The redevelopment and remerchandising effort is expected to further increase current sales per square feet to more than $500.
Plaza del Norte, a 671,000-squarefoot mall that also generates more than $500 in sales per square foot and includes such brands as Wal- Mart, Sears, Toys "R" Us and T.J. Maxx, will be redeveloped to include a 30,000-square-foot expansion and renovation of the existing J.C. Penney Co. store. The project also includes the addition of a Rooms To Go, the combination of three small retail-space units to accommodate a PetSmart, carts and kiosks, and significant interior and exterior renovation. The project is expected to be completed in early 2013.
Improvements at Rexville Plaza include the addition of a CVS pharmacy and a Marshalls in the space currently occupied by an under-performing Pueblo supermarket. In addition, the redevelopment and remerchandising strategy will greatly enhance the property's cash fl ow and significantly upgrade the physical components of the asset. The project is expected to be completed soon.
The project at Plaza Escorial, which currently features a Wal- Mart and Sam's Club that together generate annual sales of more than $250 million, will include the addition of a PetSmart, which will open before year's end in the space formerly occupied by Borders. This location will represent PetSmart's fourth location in a DDR center in Puerto Rico.
"Investments in the industry during the past few years on the U.S. mainland have been slow and retailers want to expand," Farrell said. "Retailers talk to each other, and those without presence on the island have learned about the excellent sales performance of those already established here. Puerto Rico has become the choice for expansion."
DDR owns or manages value-oriented shopping centers with a total of about 126 million square feet of retail space. The company's assets are concentrated in markets with stable populations and high-growth potential. DDR is a self-administered and managed REIT (real-estate investment trust), operating as a fully integrated real-estate company traded publicly on the New York Stock Exchange.