Fremont Realty Capital and Caribbean Property Group capitalize on favorable
market dynamics in Puerto Rico

Fremont Realty Capital’s investment in Puerto Rico’s retail real estate market demonstrated its ability to recognize an early investment trend and take an investment position in a large market aligned with the United States economy, yet at the time under-appreciated by institutional property investors. The eventual recognition of the potential of this market by such investors led to a successful exit from the investment.

Fremont Realty Capital formed a joint venture with AIG Global Real Estate and with Caribbean Properties Group (CPG) in May 2001, acquiring a one million square foot retail portfolio consisting of four shopping centers in Puerto Rico.  At the time, institutional investments in Puerto Rico retail properties were relatively rare, especially for U.S. firms.  We identified a unique opportunity for value creation. The investment capitalized on a combination of well-positioned properties, compelling local real estate market fundamentals, strong in-place cash flow, and identifiable opportunities for value-creation. 

Local market conditions were aligned to make this a compelling investment.  On the supply side, the existing inventory of retail space in Puerto Rico was relatively small. High barriers to entry, such as limited highway infrastructure and mountainous topography and wetlands that restricted physical growth, greatly restricted the supply of new shopping centers. On the demand side, Puerto Rico’s population density coupled with a strong shopping demand translated into strong per square foot retail sales. 

The growing awareness of the strength and performance of the Puerto Rico retail market among national retailers and institutional retail investors throughout the United States that Fremont Realty Capital predicted took hold as large retail investors entered the market.  In 2005, the portfolio was sold for a very attractive price to a U.S. public retail REIT.  The success of the investment resulted largely from Fremont Realty Capital’s identification of an opportunity to invest in a traditional real estate sector located in a non-traditional market, and the choice of a strong operating partner.