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The US territory is looking to build more high-end hotels and infrastructure to quell revenue shortages

Puerto Rico may be mired in a stubborn recession, but this US territory is taking a decidedly upscale turn when it comes to targeting business travelers, vacationers and meeting planners.  

Puerto Rico’s government and private sector are looking to investment in upscale hotels, airport privatization and other infrastructure upgrades, with a specific goal in mind: To make tourism a larger source of revenue overall, in part to quell revenue shortages and budget deficits.

The most recent example of the strategy is the privatization of San Juan’s Luis Muñoz Marín International Airport, the island’s (and the Caribbean’s) largest commercial airport. In July, the government chose Aerostar Airport Holdings LLC — a joint venture of Aeroportuario del Sureste, which operates nine airports in Mexico, and Highstar Capital, an infrastructure investment firm — to take over operation of the facility, as part of a $2.57 billion, 40-year contract. 

New and renovated luxury hotels, meanwhile, are targeting an evolving community of business travelers. “We have gone through major changes in the last 10 years, particularly as it relates to the type of business traveler and the industry they represent,” said Jose Suarez, president of International Hospitality Enterprises, which owns multiple properties, including the soon-to-open Condado Vanderbilt. 

“A decade ago, Puerto Rico's business segment was made up primarily of business travel related to the pharmaceutical industry. It's still an important segment for the island, but today it produces a fraction of the business it used to generate in the 90's. That business has been replaced by the service industry and the federal government.”

Less than a block away from the Condado Vanderbilt is the 15-room Olive Boutique Hotel, the island’s second member of Small Luxury Hotels of the World, which opened in 2012. Also new this year is Dorado Beach, a Ritz-Carlton Reserve, set along three miles of coastline, just west of the capital city. The 1,400-acre property will have 100 guest rooms, 14 one-bedroom suites and 13 private residences

As new hotels enter the upscale scene, existing hotels are laying on the upgrades. The 416-room Ritz-Carlton, San Juan, has undergone a multimillion-dollar renovation, the San Juan Marriott recently debuted a newly renovated lobby lounge, and the San Juan Water Beach Club Hotel has introduced a trendy new restaurant, Zest, on its lobby level. Add to this the St. Regis Bahia Beach Resort, the El San Juan Resort & Casino, the W Retreat & Spa on Vieques Island and El Conquistador, a Waldorf Astoria Resort, and its clear that Puerto Rico is becoming a magnet for upscale brands. 

Investment in the upscale segment is also extending to Puerto Rico’s retail environment. A Bloomfield, Michigan-based real estate investment trust called Taubman Centers announced this year that it would partner with Puerto Rico-based New Century Development Inc., to start construction on the $405 million Mall of San Juan, a 640,000-square-foot retail complex that will also include a 264-room Crowne Plaza hotel and casino.

“There is a lot of emphasis on diversifying the overall hotel product on the island and fortifying our natural competitive advantages in order to elevate Puerto Rico’s positioning as a luxury destination,” said Mirem Ubarri, director of sales and marketing at the Ritz-Carlton, San Juan. “The island is essentially undergoing a renaissance with a new portfolio of hotels opening throughout the island targeting affluent consumers.”

According to Suarez, investment in the luxury segment is “mainly driven by a select group of investors/developers who felt that Puerto Rico was ready to attract its fair share of the luxury segment. The government backed their leap into the luxury segment facilitating financing and speeding the permit process. The impact to the destination is immeasurable. For years, we have tried to position Puerto Rico as a luxury destination, but I think the message was distorted.”

Even with the current growth spurt, attracting further investment may be a challenge, according to some insiders. “Permitting, opposition, lack of financing are some of the hurdles,” noted Suarez. “It is a lot easier to develop hotels in other Caribbean islands or even in the Unites States.”

“It has become a nightmare to do business in Puerto Rico right now,” said Shimmy McHugh, president of S Collection, which operates various entertainment venues and restaurants on the island. “The permit process has become problematic and the implementation of IVU has left tons of business owners with fines for penalties they don’t know existed nor are actual violations. I have seen many people just back up and leave, choosing not to deal with it. It’s a shame.”

 

Airlines and airports

 

Puerto Rico’s airline scene has also shifted in recent years. San Juan’s Luis Muñoz Marín International Airport this year opened a brand-new Terminal A. The new facility serves JetBlue, which has become Puerto Rico’s largest carrier since American “de-hubbed” San Juan in 2008. JetBlue this year announced that San Juan would be its sixth “focus city,” and launched new nonstops linking San Juan with Newark and West Palm Beach; service to Washington Reagan National Airport was to begin on Aug. 23.

“For over two decades we were mostly dependent on the giant American Airlines for service,” said Suarez. “Now the service has been fragmented and routes are covered by multiple airlines. The good part is that obviously competition is healthy and some routes have become cheaper. The negative part is that by losing American Airlines, we don't have the same access to multiple destinations we had before. Fortunately, JetBlue and Delta have increased their service and taken over some of the routes AA cancelled.”

Puerto Rico’s status as a US territory is likely the main reason it is much better connected to the United States than to Latin America. According to Luis G. Rivera Marín, executive director of the Puerto Rico Tourism Company, international arrivals accounted for 6.5 percent of market share in calendar year 2011, with the largest amounts of arrivals coming from Germany, Spain and the United Kingdom (all of which have nonstop flights). 

The only major player connecting passengers to Latin America is Copa Airlines, which this year added a third nonstop daily flight linking San Juan with its Panama City hub. “Puerto Rico passengers reflect a mix of leisure and business travel,” said Hector Busquets, general manager for Copa Airlines in Puerto Rico. “Regarding business travel, Puerto Rico has a fairly sizable number of companies whose headquarters are located in Mexico, Central or South America. Also, U.S. companies whose Latin American headquarters are located within the region travel quite a bit to Puerto Rico as well.”

According to Rivera, Latin America is a target market for developing travel and tourism in Puerto Rico. “We want to develop two areas of commercial exchange when we focus on Latin America,” he explained. “The first is medical tourism. We can offer a less expensive product than our fellow stateside medical facilities at the same quality level and same standards with a staff of physicians who are board-certified. This is a new necessity for South and Central American patients. We also want to focus on shopping, where we have all the popular ‘American’ stores — i.e., Ralph Lauren, Coach, Costco — as well as the high-end stores that Europeans want, i.e., Gucci, Cartier.” 

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