Parque Arauco S.A.

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Parque Arauco S.A.

Avenida Kennedy 5413
Las Condes, Santiago
Chile
Telephone: ( + 56) 2 299-0500
Fax: ( + 56) 2 211-4077, 211-4131
Web site: http://www.parquearauco.cl

Public Company
Incorporated: 1981
Employees: 300
Sales: CLP 24.89 billion ($44.65 million) (2004)
Stock Exchanges: Santiago
Ticker Symbol: PARAUCO
NAIC: 531120 Lessors of Nonresidential Buildings; 531312 Nonresidential Property Managers

Parque Arauco S.A. is the one of the largest operators of shopping malls in Chile and Argentina. It manages two commercial centers in Santiago, the capital of Chile, and a third in Viña del Mar, the nation's chief beach resort. Through its holding in a similar Argentine company, Alto Palermo S.A., Parque Arauco has a stake in several shopping centers in Buenos Aires and provincial Argentine cities. The company receives revenues both in the form of rent and a percentage of the net sales of its retail tenants.

Parque Arauco in Chile: 1982–99

The powerful Said clan in South America was founded by Isa Said, who came to Peru from Jerusalem and made a fortune in commerce. His five sons did much to develop the textile industry in Peru and Bolivia, managing extensive cotton plantations and cotton-yarn factories. One of the five was Salvador, the father of nine children, among whom only one, José Said Saffie, was male. Because Salvador was an invalid, José was enrolled early into the extended family's operations. During the 1940s, the Said clan moved to Chile to develop a textile industry there, and José Said took an active part in their first business, Industrias Químicas Generales. In the 1960s, José Said and his uncle Jacobo founded Banco del Trabajo, which grew to be one of the five largest in Chile. In the 1980s, he, along with partners, bought another bank, BHIF, and a big industrial company, Envases del Pacífico S.A., as well as founding one of the nation's largest beverage companies, Embotelledora Andina S.A. In addition, José Said entered the field of computers.

Among José Said's ventures in the early 1980s was Parque Arauco, a real estate development firm founded in 1979 and incorporated in 1981. The following year, he and his associates, who included Tomás Fürst Freiwirth and the Martínez Perales brothers, opened Parque Arauco Shopping Center in the Alto las Condes neighborhood of Santiago. The choice of location, on the outskirts of the city, was based on the availability there of cheap land. This large mall came to include 200 shops, branches of Chile's largest department stores, a branch of the nation's largest supermarket chain, a food court, a clinic, and a 14-screen cinema. Because its adjoins Avenida Kennedy, this mall is often called Parque Arauco Kennedy to distinguish it from the corporation.

Aided by an overvalued peso and an economic free-trade policy, Chile was awash with cheap foreign goods at the time of the opening of Parque Arauco Kennedy, and those who could afford to buy filled the new mall. However, the economy was falling into deep recession. Parque Arauco did not establish another shopping mall until 1988, when it opened Shopping Center La Florida, also on the outskirts of Santiago. This commercial center was later renamed Plaza Vespucio. About the same time, the company introduced Mall Arauco Maipúon a 165,500-square-meter tract of land in Santiago's Maipú neighborhood. This commercial center did not fare well and was eventually converted into a mall for outlet stores.

The partners in Parque Arauco decided to divide their Chilean holdings in 1997. The Said group acquired Fürst's 12 percent holding and turned over to Fürst its 14 percent share of Plaza Vespucio, which became the core property of Fürst's rival venture, Grupo Plaza (or Mall Plaza). The Said group now held 38 percent of Parque Arauco's shares. The Abumohr family, also active in textiles and, like the Saids, of Arab origin, held 10 percent. Two pension funds held a combined 24 percent. Parque Arauco Kennedy was Chile's largest shopping mall at the time, with annual sales of $500 million, while Plaza Vespucio ranked third, at $380 million. A medical tower and 1,000 new parking spaces were being constructed at Parque Arauco Kennedy, and a 42-story office building was being contemplated at a cost of $100 million. For Mall Arauco Maipú, Parque Arauco was considering building another medical tower and a high-rise apartment building. In 1999, Parque Arauco, in partnership with the Almacenes Paris and Ripley department-store chains, completed Marina Arauco Mall, a shopping center in Viña del Mar, Chile's main beach resort, at a cost of $120 million. Parque Arauco malls accounted for 24 percent of Chile's shopping-center revenues in that year.

Parque Arauco found itself in conflict with its tenants, who through their retailers' association began legal action against the company. According to the association, while commercial-center tenants in North America paid no more than 10 percent of their sales revenue to the operators, the ones in Parque Arauco malls had seen their payments for rent, common charges, and promotion increase from 16.93 percent in 1996 to 22.98 percent of sales in the first semester of 1999.

Parque Arauco in Argentina: 1992–99

Parque Arauco entered Argentina at the beginning of the 1990s, when the nation was emerging from a decade of economic crisis. In 1992, the company acquired a 25 percent share of Centro Comercial Mendoza Plaza Shopping, located in one of Argentina's main provincial cities. Then Parque Arauco became a major investor in Argentine real estate in association with Inversiones y Representaciones S.A. (IRSA), an enterprise which had the participation of New York-based hedge-fund operator George Soros's Soros Fund Management LLC. In 1994, IRSA and Parque Arauco became partners in Sociedad Anónimo del Mercado de Abasto Provedor (Samap), a joint venture to convert the former main produce market in Buenos Aires to a modern shopping mall. Parque Arauco donated its share of the Mendoza shopping center to Samap, while IRSA turned over its holding in Nuevo Noa Shopping, a mall located in the northern city of Salta. In 1997, when Samap was renamed Alto Palermo S.A., IRSA held 51 percent, while Parque Arauco held 35 percent.

Nueva Noa, later renamed Alto Noa, was a 94-store shopping center that opened in 1994 and included a food court, a large entertainment center, a supermarket, and a multiplex cinema. Mendoza Plaza, opened in 1992, was a 144-store shopping center with a department store, a supermarket, a food court, a multiplex cinema, and an entertainment center. Acting on its own, Parque Arauco developed high-rise apartment towers in Mendoza and Salta.

In 1997, Samap acquired Alto Palermo S.A. from the Pérez Company S.A. holding company. This real estate development firm held three Buenos Aires shopping centers: Alto Palermo, Alto Avellaneda, and Paseo Alcorta, plus 50.5 percent of a fourth, Buenos Aires Design. Developed by Pérez Company, Alto Palermo Shopping Center was a 152-store mall in the upper-middle-class neighborhood of Palermo in Buenos Aires. A $45-million structure clad in glass, marble, granite, and chrome, it was spread out over four levels and included an entertainment center, a food court with 20 restaurants, and a 647-car pay parking lot. A novelty when it opened in late 1990, Alto Palermo was visited by one million people in its first two weeks. Alto Avellaneda, opened in 1995, was a 156-store shopping center just south of Buenos Aires and included the first Wal-Mart in Argentina, a multiplex cinema, an entertainment center, a bowling alley, a food court, and 2,700 free parking spaces. Paseo Alcorta, opened in 1992 in Palermo Chico, one of Buenos Aires's finest neighborhoods, was the largest in Argentina: a three-level balconied shopping center with transparent walls and glass roofs, covering 105,000 square meters, with 122 stores, a Carrefour hypermarket, a multiplex cinema, a food court, and a view of the Río de la Plata. Opened in 1993 in Centro Cultural Recoleta, Buenos Aires Design was a shopping center with 59 stores specialized in interior and home decoration.

Abasto Shopping Center was completed in 1998 at a cost of about $112 million. Located in the heart of Once, a formerly Jewish neighborhood that was also the stamping grounds of Carlos Gardel, Argentina's legendary tango dancer and singer, it occupied five levels, with 189 stores, a food court, a multiplex cinema, entertainment facilities, and a children's museum. Alto Palermo built a residential apartment complex nearby. In 1998, it purchased Patio Bullrich, a shopping mall located in an elegant neighborhood, for $72.3 million. Once a livestock auction house, Patio Bullrich reopened in 1988 as the first shopping center in Argentina. It was located in the prosperous Recoleta neighborhood, facing, on one side, the wide Avenida del Libertador. It preserved intact the metal structure of its 19th-century predecessor and had four levels, 93 stores, a movie complex, an entertainment area, and a food court.

Key Dates:

1979:: Parque Arauco is founded.
1982:: Parque Arauco Kennedy is opened on the outskirts of Santiago, Chile.
1988:: La Florida (later Plaza Vespucio) is opened on the outskirts of Santiago; Mall Arauco Maipú opens in Santiago.
1992:: Parque Arauco enters Argentina with a one-fourth share in a Mendoza shopping center.
1994:: The company takes a stake in an Argentine mall-development firm.
1997:: The firm acquires Alto Palermo S.A., owner of three malls, and takes its name; partners divide their Chilean holdings.
1998:: Alto Palermo completes one Buenos Aires mall, Abasto, and buys another, Patio Bullrich.
1999:: Mall Arauco Marina is completed in Chile's premier beach resort, Viña del Mar.
2003:: A food and entertainment center within Parque Arauco Kennedy opens.
2004:: Alto Rosario Shopping, an Argentine mall in which Parque Arauco is a partner, is opened.

Parque Arauco in the 21st Century

The Argentine recession that began in 1998 culminated in the government's default on its debt and the devaluation of the Argentine peso at the end of 2001. Alto Palermo's market value dropped from $390 million to as low as $40 million. The damage to Parque Arauco's own fortunes led to a shakeup of the company's management. In an interview with the new general manager, Andrés Olivos, for the Chilean business magazine Capital in 2003, Lorena Medel contended that "it was greatly rumored that Parque Arauco had had a grade-10 earthquake. That its finances were delicate, that the shareholders couldn't believe the level of debt that had been permitted to arise with respect to Arauco Salud" (the medical tower). Olivos denied that the situation had ever been grave. He revealed that for Parque Arauco Kennedy the company was opening a "gastronomical boulevard" of 16,000 square meters that would unite in one place restaurants, bookstores, cafés, theater halls, a bowling alley, and outdoor live performances as a one-stop resource for an entire family. Arauco Maipú, he conceded, had failed as a center for outlet stores and had returned to its role as a traditional mall, with key stores, cinemas, and, coming soon, a medical center.

Olivos acknowledged that Parque Arauco had fallen behind Grupo Plaza and Cencosud S.A. in the development of commercial real estate in Chile. "Our strategy," he maintained, "is distinct, and we believe that to enter this headlong race by adding square meters doesn't necessarily add value. A good part of this growth only generates cannibalization, and many of the new investments won't pay off in any foreseeable amount of time." Olivos said that Parque Arauco had a 32 percent share of the market in Santiago, with sales of about $200 million a year, and 20 million customers a year for Arauco Kennedy, 15 million for Arauco Maipú, and 17 million for Marina Arauco in Viña del Mar. He added that the company had 45 percent of the mall market in Buenos Aires.

Olivos revealed that Parque Arauco had signed a contract with the new owners of Arauco Salud that would permit it to recover the $2.5 million debt that had been sustained in constructing the 13-story tower. The company was also contemplating the construction of a dental-office building in Arauco Kennedy. In addition, in late 2003 Parque Arauco completed its gastronomical boulevard.

With the revival of the Argentine economy well underway, Parque Arauco was planning new shopping malls in Rosario, Neuquén, and the Buenos Aires neighborhood of Caballito, the latter two in collaboration with IRSA by means of Alto Palermo. Alto Rosario Shopping, completed in late 2004 in partnership with Coto Centro Integral de Comercialización S.A., was a conversion of an old railroad station within the original structure. It included 123 retail stores, market stands, fast-food stores, restaurants and cafés, a Coto hypermarket, a multiplex cinema, and a children's museum. Alto Palermo also had a plan to enter Córdoba by purchasing land or acquiring one of three existing shopping centers. The sales in Parque Arauco properties were expected to reach $1.1 billion in 2004, with Argentina providing 38 percent of the total. All of Alto Palermo's properties were at least 96 percent leased. Parque Arauco's debt in Argentina had been reduced from more than $200 million in 2002 to about $28 million in 2003.

In a 2005 article, Capital proclaimed that Parque Arauco had "woken up," with its three Chilean malls fully occupied, the success of Boulevard Gastronómico, an enviable financial structure, many new projects for the next two years, and an intention to enter the retail market. The company was planning to construct 40 new Boulevard sites, including areas for fashion, home decoration and supplies, sports, restaurants, and even a skating rink. Olivos said the company intended to begin a $20 million office real-estate project, remodel Arauco Maipú, build, in alliance with the Almacenes Paris and Ripley department-store chains, a new 60,000-square-meter commercial center in Curicó, and even possibly participate in financing retail businesses. He told the magazine, however, that the market was saturated in Santiago for big shopping malls and that Parque Arauco was not interested in entering "the war for square meters." Indeed, he voiced his belief that only three or four malls in Chile were generating enough business to justify the level of investment that had been made in them.

In Argentina, Parque Arauco, besides participating in the construction and opening of Alto Rosario, was about to raise its stake in Alto Palmero from 27 percent to 32 percent with the impending conversion of $200 million in convertible bonds to common stock. Parque Arauco reported net profit of CLP 7.56 billion ($13.56 million) on revenues of CLP 24.89 billion pesos ($44.65 million) in 2004. The company's long-term debt was CLP 101.92 billion ($182.85 million) at the end of 2004.

Principal Subsidiaries

Comercial Arauco Ltda. (95%); Constructora y Administradora Uno S.A.; Parque Arauco Argentina S.A. (Argentina); Sociedad de Inversiones Internacionales Parque Arauco S.A.