On the southeast coast of Mexico’s Baja Peninsula, surrounded by rugged desert and pristine beaches, the state capital, La Paz, overlooks a protected bay off the Sea of Cortez. Unlike Cabo San Lucas, the splashier resort 100 miles to the south, this old colonial settlement, founded by the Spanish in 1535, retains much of its historic character. Even with 250,000 inhabitants, it still looks like the small port town where John Steinbeck set his 1947 novella The Pearl. Along the water, a recently rebuilt promenade gives it a distinctly urban edge. This is where Grupo Habita, the design-savvy hotelier, discovered a landmark villa built around 1910 for a prominent family whose enterprises included harvesting pearls from oysters. “It was almost as if the house was waiting there for us,” recalls founder and managing partner Carlos Couturier, “to tell a new story.”