Peso stalls Reichmann comeback

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The Independent Online
THE reclusive Canadian property developer, Paul Reichmann, must be feeling a strong sense of dj vu. A vast project in a foreign capital, complete with a landmark skyscraper and acres of prime office and retail space has come under threat from an economic crash. Only this time it is not Canary Wharf that is at stake but his family's comeback attempt in Mexico City.

The project, by Reichmann International (Mexico), is typically grand. Backed by the American financier George Soros, Mr Reichmann and his brothers Albert and Ralph plan to invest $1.5bn (£1bn) in three sites. The phased project would create about 6 million square feet of expensive office, retail, hotel and residential space in more than 30 buildings covering 28 acres. It would be Latin America's biggest property development, in a city that has the hemisphere's highest rents - up to $60 a square foot.

Chapultepec Tower, at one end of the Avenida Paseo de la Reforma, Mexico City's elegant, palm-lined central boulevard, was to rise to 42 storeys, competing with the nearby colonial fortress. Santa Fe, on a reclaimed gravel strip-mine, would be the terraced commercial and retail centre of the booming western outskirts. Alameda, near the city's historic but dilapidated heart, was to breathe new life into an area devastated by the 1985 earthquake.

For Mr Soros, it was a chance to cash in on the North American Free Trade Agreement. For the Reichmanns it was an opportunity to regain the development crown they lost when most of Olympia & York was forced into receivership by the financial collapse of Canary Wharf in 1992. From there they hoped to expand to Panama and possibly Asia.

But the bulldozers that began work clearing the Santa Fe site two months ago came to a rumbling halt when a bungled devaluation on 19 December sent the economy into free fall. The peso fell 36 per cent against the dollar in six weeks. Foreign capital dried up and domestic interest rates soared from 14 per cent to 45 per cent.

Potential tenants and purchasers pulled out of the property market, slashing rents by as much as 30 per cent. Work on Chapultepec Tower, which was scheduled to begin this month, has now been put off indefinitely.

Mr Reichmann visited the city two weeks ago to consult business and government leaders and apparently came away reassured. Company officials insist publicly that the project has only been delayed. But sources close to the company's New York office reportedly said the Reichmanns were actively considering abandoning it. "It's the story of how lightning can strike twice," said the Mexico expert at a London-based emerging markets fund. "For the Reichmanns it's Canary Wharf all over again."

Vinay Kapoor, the Mexico-based executive vice-president of Reichmann International, disagrees. Although Canary Wharf was nearly complete when London's property market crashed, the Mexico projects have barely begun, so the company is carrying little debt. The investment to date has been substantial, but is only a tiny fraction of the amount sunk into the London Docklands project. The Alameda location, much of it occupied by abandoned buildings and rubble, is to be paid for over several years.

"There will be very little growth in the economy at least in 1995," Mr Kapoor admitted. "But the first phases of our projects won't be complete for two or three years, and by then the likelihood of an economic turnaround is quite high. It's true that demand will be reduced, but so will supply."

Reichmann International is not taking any chances, however. Chapultepec Tower is being redesigned with more Mexican materials, particularly steel, and fewer imports from the US and Canada. The schedule for the Santa Fe site will probably be rejigged to bring commercial space, customised for agreed tenants, forward and push speculative retail projects back.

The government is expected to take at least half of the office space at Santa Fe. Among possible tenants mooted in the press are motor manufacturer Mercedes Benz de Mexico, Hewlett-Packard, the US computer manufacturer; and the local media giant, Grupo Televisa. None of these has been signed up yet.