Following the Peso devaluation of 1983, the city and private individuals decided to create a market out of the existing City Hall building in an effort to diversify the economic base of Laredo. The idea was to create a magnet to attract and keep the tourists that pass through Laredo on their way to Mexico. Financing consisted of monies from the federal, city, and private sectors. The federal money consisted of an EDA grant and an OCS grant, both of which were used for the actual buildings. UDAG phase 1 consisted of street and sidewalk improvements along with storefront revitalization of approximately 3 city blocks including the streets around the Mercado.
The site improvements came from a UDAG grant for phase 2. Phase 3 consists of a pedestrian mall connection between the Mercado district and the San Agustin Plaza district. Currently the site houses the Laredo Center for the Arts.