(Bloomberg) — The grand opening of the Mall of San Juan was a celebration of Puerto Rico’s rosy future. There was confetti, a bomba band and roving politicians, including the governor and the mayor, glad-handing under the atrium’s blue-tinged skylight.
“There was so much enthusiasm,” says Alberto Baco Bague, the secretary of economic development and commerce, who was in attendance that day in 2015. “It was a moment of such hope and brightness.”
Today the complex, which briefly housed the Caribbean’s only Saks Fifth Avenue and Nordstrom stores, is one of the more costly symbols of dashed dreams in the U.S. territory. Only five years old, it’s on the roster of the country’s troubled shopping centers, with more than a third of the retail space deserted. The developer, Taubman Centers Inc., says it has ideas to turn things around. For now, the Mall of San Juan is 631,000 square feet of cautionary tale.
It’s rare for such a high-profile development to come undone so quickly. But the mall finds itself at the nexus of several concerning trends: the exodus of wealth from Puerto Rico, the long decline of the American mall and the litany of disasters — both natural and man-made — that are keeping tourists away.
Looking back, it’s easy to say the mall never had a chance on an island where almost half the population lives below the poverty line and the median household income is slightly above $20,000, compared to nearly $62,000 across the U.S.
In an investor presentation in August 2014, the real estate investment trust said it expected the mall to perform in the top half of its 22 properties, which include the Beverly Center in Los Angeles and the Mall at Short Hills in New Jersey.
After all, tourism was going strong. The government had poured more than $3 billion into the sector to advertise and build or remodel hotels. The mall site was a quick taxi ride from the port where the big cruise ships docked. The government was courting mainland wealth. It offered new incentives in 2012, the year Taubman broke ground, slashing taxes on interest, dividends and capital gains, enhancing the island’s haven status.
One fan of where Puerto Rico was trying to go was John Paulson, the billionaire hedge fund manager, who took stakes in posh hotels and predicted the island would become the “Singapore of the Caribbean.”
Baco Bague, who used to run the Puerto Rico Economic Development Bank, saw the mall as a crucial piece of the plan to give the island new economic footing as a white-beaches paradise for high-end remote workers, service-based industries and jet-setting tourists. It “was a very important piece to complete that ecosystem,” he says. “A modern, luxurious shopping center that could compete against any in the world.”
Even if that was plausible, it came too late. The financial crisis was underway by the time Taubman finalized its plans. The recession began in 2006, as changes to the tax code spurred an exodus of pharmaceutical companies and factories, and the population shrank as the economy contracted. (More than 500,000 people — about 14% of all residents — have left since 2010, according to the U.S. Census Bureau.)
In 2015, the year the mall opened, Puerto Rico’s governor acknowledged that the territory couldn’t pay its debts. Two years later, Puerto Rico filed the biggest municipal bankruptcy in U.S. history. Four months after that, Hurricane Maria did an estimated $90 billion in damage, wiping out the power grid, and the clean-up is far from complete.
While the mall withstood the storm’s fury, there was substantial water damage. Mold developed. Dozens of stores had to be rebuilt and some didn’t reopen for more than a year.
Taubman and the Mall of San Juan were defeated before they could really get going, says Jose Caraballo-Cueto, an economist and professor at the University of Puerto Rico.