RIO DE JANEIRO—Most Olympic cities hope that hosting the Games will bring instant benefits. But this Brazilian city is betting on more—that the Games can help recapture the gold of its early 1960s heyday, when bikini-clad Brigitte Bardot vacationed here and "The Girl From Ipanema" was a global sensation.
Rio never lost the breathtaking beauty and verve that attracted the French star Ms. Bardot five decades ago. But everything from its bay-side downtown to ocean-side hotels went into decline after the federal government left for Brasilia in 1960, followed more recently by banks, which departed for São Paulo.
Now, four years before it hosts the 2016 Games, an Olympian effort is under way to make over the city, which also will host the World Cup finals in 2014.
Workers are tunneling through a mountain to bring train service to the southern beaches where many of the events will take place. Hillside shanties are getting aerial tramways. Four new highways are either under construction or will be soon. Engineers are giving Rio's dilapidated port district a $4.5 billion face-lift that makes London's Canary Wharf look small.
And, yes, a few sports stadiums will go up.
Rio's estimated $10 billion face lift represents an enormous opportunity for big Brazilian construction firms carrying out the work, such as Odebrecht SA, as well as local and international developers, such as New York-based Tishman Speyer, that are building office towers and other projects on a bet that Rio's economy will grow. In some cases, builders will keep a hand in their projects after the Games leave town.
Rio's fledgling comeback began well before its Olympic bid, with Brazil's decadelong economic expansion that has propelled its economy into the ranks of the world's biggest. Enormous oil discoveries off Rio's coast helped attract a flood of new investment to the city.
Still, when Rio was selected in 2009 to host the Olympics, many questioned whether the city would be able to overcome seemingly intractable problems of decaying infrastructure, high crime rates and a labyrinthine regulatory system that could slow improvements. Three buildings in downtown literally collapsed this year, a symbol of how far Rio needs to go.
While a revitalization effort already was in the works, city officials and even construction workers say the Olympics have charged the overhaul efforts with urgency.
"There's the added motivation that we are doing this for the country and for history," said Marcelo Julião, a 28-year-old engineer working on a tunnel dig for Brazilian construction giant Odebrecht SA.
The some $10 billion in financing comes from a mix of federal, state and local money, as well as private investments by developers. Rio auctioned air rights to developers in order to raise funds to overhaul the port.
Rio's other financing method includes allowing construction companies like Odebrecht and Andrade Gutierrez SA to taking stakes in their projects. For example, Odebrecht and other firms building the stadiums for the main Olympic Park on a triangle of land jutting into a lagoon south of the city earn the right to develop half the land once the Games end.
Real-estate developers such as Hines and Tishman Speyer, and local giants such as Multiplan SA are also piling in. Tishman Speyer has recently completed three Rio projects, including a glass paneled Ventura Corporate Towers. The firm has broken ground on a building near the port project and is talks to build another building there.
"Brazil is developing so fast the existing stock is only now starting to meet the quality level that multi-national companies need and expect," said Rob Speyer, president and co-chief executive of Tishman Speyer.
Rio's renovation still faces big challenges. The city's geography—squished between mountains and sea—means there isn't a lot of space to grow. Relocating shantytowns for projects is producing conflicts. The overburdened airports will be difficult to improve, while the city's hotel stock is so run down—though still high-priced—that Olympics fans will stay in cruise ships.
Optimism for Rio's future also is causing some headaches. Land prices have tripled in some areas since 2005 as developers flush from some $19 billion in recent public stock offerings compete to buy project sites. Soaring land prices make lower margin projects like middle-class housing and hotels less attractive. Meantime, office and upscale apartment rents have soared to New York levels and beyond in some Rio ZIP Codes.
But Rio's Olympic-scale ambitions are acting as a catalyst. Consider a project, called Porto Maravilha or Marvelous Port, which was in city plans for years. Officials have wanted to turn 1,350 acres—about 1½ times Manhattan's Central Park—of rundown waterfront warehouses into a promenade of parks, office space, museums and cruise-ship docks. To do it, engineers from a consortium of firms including Odebrecht and OAS must dismantle about 2½ miles of elevated highway and relocate it underground.
It only is coming to fruition in the frenzy over the Olympics, which will pack the port with cruise ships doubling as hotels. The projects' immediate effect on the district around it is easy to see. Rio's first skyscraper, a 1930s Art Deco gem that lost its luster when the port-side elevated highway was built next to it, is being refurbished by its owners.
On a sweltering afternoon in March, Eoin Slavin, an executive at Rio-based development firm Landis, wandered the mostly forgotten working-class neighborhoods in the shadow of the elevated highway searching for prospects.
"Once the highway is gone, all this is going to be waterfront property overnight," he said.
The biggest impact of the Olympic renovation will be to accelerate Rio's growth toward the southern beaches of Barra da Tijuca, which still has unbuilt space, and where the Games will be centered. Three highway projects, including speeding travel to the international airport, plus a subway stop will better connect Barra to Rio's bustling beach communities of Ipanema and Copacabana. The main Olympic Park, where a cluster of sports complexes and a new hotel will be built, will also be in Barra.
It is a cultural shift. Barra's broad avenues, shopping malls and gated communities were built around car transportation and can evoke Orange County, Calif. Rio's magic lies in strolling the beach-side promenades of Ipanema and Leblon, or people watching from one of their many cramped outdoor bars—the pastime enshrined in the classic 1962 bossa nova ode to Rio, "The Girl From Ipanema."
"The future is Barra, it's inevitable," said Isaac Peres, chief executive of Multiplan, a shopping mall developer that helped pioneer Barra some 30 years ago with its first mall. "But when I want to take a walk on the beach, I still go back to Ipanema or Leblon."
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