The Washington Diplomat / April 2002
By Larry Luxner
MEXICO CITY -- Seven months after the destruction of New York's World Trade Center, one might suspect that flashy, ostentatious office towers which dwarf everything else around them have become about as popular as all-inclusive vacation packages to Afghanistan.
Tell that to Arturo Aispuro, vice-president of development at REISO Services S.A. de C.V., the Mexican subsidiary of Reichmann International. The Canadian real-estate giant -- famous for glitzy projects ranging from Toronto's First Canadian Place to London's Canary Wharf -- is now racing to finish Latin America's tallest structure in the heart of Mexico City.
When completed in December, the 55-story Torre Mayor will poke 225 meters (738 feet) into the sky. That'll eclipse by only one meter the twin towers of Venezuela's Parque Central, which currently holds the record.
"The height of our building is certainly its most impressive characteristic, but for us it's not the most important," said Aispuro, who's managing the $250 million project for Reichmann. "We're trying to create a new symbol for Mexico City, and we truly believe that the city has made the right decision in trying to stop flight to the suburbs and bring business back to the center."
That, in fact, is the main objective of the Mexico City Tourism Authority, which says that over $900 million in new investment has already been committed toward the restoration and revitalization of Mexico City's two most visited tourism corridors. The first and much larger corridor stretches from the Fuente de Petróleos, a monument marking Mexico's expropriation of the oil industry, to the Zócalo in the Historic Center. The second extends from the Cathedral to the Básilica de Guadalupe, Mexico's holiest Catholic shrine.
In all, the two tourism circuits encompass 122 of Mexico City's major attractions, 30 tourist-category hotels and 158 restaurants. In addition, they include 60% of the city's five-star hotels and account for 24% of the spending generated by domestic and foreign tourism.
The master plan for the tourism corridors, developed by architects and urban planners from the National Autonomous University of Mexico, calls for Phase I to be completed in 2003, and Phase II in 2006.
Besides Torre Mayor, major investment projects include a 250-room, Quinta Real hotel complex along Reforma; a Fiesta Inn Hotel; the $80 million, 457-room Sheraton Centro Histórico and Convention Center located on Parque Alameda to open this month, and a number of other, smaller hotels and office towers.
"Mexico City is the country's premier tourist destination and its historic, architectural and cultural riches are a reflection of the entire nation," says Julieta Campos, president of the Mexico City Tourism Authority. "We want to preserve our cultural and historic patrimony, re-establish the heart of our great city and encourage a nascent trend of our residents moving back to the downtown."
But that's easier said than done, according to Jorge Gamboa de Buen, general director of Grupo Dahnos, which is developing a $120 million hotel-office-residential complex a few blocks from Torre Mayor.
"The problem in Mexico City is that, because of the social structure, it's difficult to convince middle and high-income people to go back to the center," says Gamboa, pointing out that no new residential buildings have been constructed in the downtown area since the 1950s. "Most developers are afraid of building something that won't be successful. We're doing this because we believe in the city, and in the plan that the government is trying to put together. Although a lot of people will be very skeptical in the beginning, we think we will succeed."
He adds: "Our development is a mixed-use development like the ones you see in Chicago, New York and London. It will be a piece of the city."
Francisco Ruíz Herrera is director-general of strategy and tourism development at the Mexico City Tourism Authority. He says a 1.75% hotel tax generates around $8 million a year in tourist promotion funds, and that Mexico City has around 25,000 rooms in four- and five-star hotels.
But there are "still possibilities to grow much more," he says.
"Total hotel investment in Mexico City will be around $300 million this year," said Ruíz, with arrivals projected to grow by 7% in 2002. "Here, our tourism is half business, half leisure. Any four- or five-star hotel that establishes itself here is guaranteed at least a 50% occupancy rate. Another reason hotels are growing so fast is that prices are stable. To construct a hotel now is relatively cheap, and whatever you build now, you will recuperate your costs later."
In addition to hotels, shopping malls, restaurants and historic buildings, Reforma is also home to the sprawling U.S. Embassy here, which ranks as one of the largest American diplomatic missions anywhere in the world. Even though security and safety concerns will compel the State Department to move the embassy to the up-and-coming suburb of Santa Fe in the next few years, certain consular functions will remain at their present location because Reforma is, after all, in the heart of town.
Mexico City's efforts to revive its downtown area will depend, to a large extent, on the country's economic situation. And since passage of the North American Free Trade Agreement (NAFTA), Mexico's economy is more intertwined than ever before with that of the United States.
"We made the decision to build Torre Mayor back in 1993, when the Mexican economy was doing well," said Aispuro, noting that Reichmann began the project as a 50-50 venture with local construction conglomerate ICA. "We suspended the project after the peso crisis in December 1994, a delay that cost us $15-20 million. Then in 1997, when the economy was growing again, we decided to restart it."
In the interim, however, ICA ran into financial problems, and sold its interest in the project to Reichmann for an undisclosed amount -- leaving Torre Mayor as one of the very few 100% foreign-owned real-estate ventures in Mexico. Aispuro says it'll take 10 to 15 years for Reichmann to break even on its original invesetment.
When it finishes Torre Mayor, Reichmann will devote its attention to two more projects: Centro Fiesta Alameda, a $300 million joint venture with the Mexico City government that will include a 250-room hotel as well as offices and shops, and an office complex in the city's up-and-coming Santa Fe district.
"We are absolutely confident that the economy is coming back again," said the executive. "Reforma is the most important corridor in Mexico City. This location in particular is the heart of the city. We're close to advanced transportation systems and two or three main subway stations."
So far, the project has two confirmed tenants: Deloitte Consulting, which will lease 10,000 square meters (107,600 square feet) on the first nine floors, and Marsh & McLennan Companies Inc., which is leasing 8,000 square meters (8,600 square feet). Together, those two multinationals represent 25% of the building's usable space.
"The financial market is doing quite well right now," said the 42-year-old Aispuro, who's an architect by profession. "We have leased a quarter of the building with just two companies. We expect to fill it up completely within two and a half to three years."
The Reichmann executive says he's negotiating with at least two more U.S. multinationals and three large Mexican companies to lease space in Torre Mayor.
"We are trying obviously to attract Mexican companies, but it's pretty difficult because their mentality is totally different. We need to convince them that this is a high-quality building," he says. "This is the first building in Mexico City that really offers world-class quality. But in Mexico, most developers build the building and then sell it, so they don't have to worry about maintenance. In Reichmann's case, we own the building, so we'll be responsible for maintenance. That makes a really big difference, and that's why we care about quality and safety issues. And the best quality has a cost."
That cost ranges between $25 and $34 per square meter, compared to around $40 per square meter in downtown Miami.
"Right now you can find a pretty good-quality building in Mexico City for $22-23 a square meter," says Aispuro. "We offer more quality, but fundamentally more productive space. We were talking a year ago with Citibank, and explained that with the same floor they would be saving 15-25% of their current expenses. The floors are almost free of columns. Space will be more efficient, and with more efficency they'd be more productive."
While Citibank has since decided to go elsewhere, other multinationals will undoubtedly opt to lease space in Torre Mayor. Aispuro predicts that 60-65% of the building's 25 or so expected tenants will be non-Mexican companies, and that 7,000 people will eventually be working in the building every day.
Some problems will undoubtedly be created by the steel-and-glass skyscraper rising in their midst.
"When you build towers so big, it has a positive impact, but it also puts demand on water, parking and traffic," said Ruíz of the Mexico City Tourism Authority. "The government has to resolve these problems. We will have to widen the streets around Torre Mayor and maybe build a few bridges."
Yet most people say Torre Mayor will only benefit Mexico City metropolitan area, which has 17 million people and is the second-biggest city in the world, after Tokyo.
"I think it's very good for Mexico City to have buildings like these," says Francisco Cordero, marketing director at Jones Lang LaSalle, a local real-estate firm that's developing its own office-mixed use project at Reforma 115. "Torre Mayor is going to fill up pretty quickly, and the best thing about it is that it's bringing Reforma back to life. It's going to be a landmark."
Once Torre Mayor is finished, it'll likely be Mexico City's tallest skyscraper for a long time. According to Aispuar, the city decided to reduce the maximum height of buildings along Reforma in 1997, but grandfathered the Torre Mayor project since it was already in the planning stages.
About the only things, other than a repeat of the 1994 peso crash, that could really derail the project at this point are the potential threats of earthquakes and terrorism. Aispuro says he's prepared to deal with the first.
"The structure of this building was designed to exceed the Mexican code and several international codes, like the ones in California," says Aispuro. "We've incorporated new shock absorbers that would be able to withstand a quake similar to the one that devastated Mexico City in 1985."
With regard to terrorism, Aispuro says he's not too worried -- even in the post 9/11 world.
"We have assured our potential clients that we are not on Osama bin Laden's list," he wisecracks, then gets serious. "One of the companies that suffered the most in the World Trade Center attack was Marsh, and they want to be at the top of Torre Mayor. My impression is they want to show the world they're not afraid."