Caribbean Capital Markets Outlook 2024
Caribbean Capital Markets 2024
By Adam Greenfader, Chair of AG&T and Amanda Staerker, Luxury Development Specialist.
Background
AG&T recently brought together a group of leading capital experts to discuss the Caribbean capital markets outlook for 2024. The conversation was a closed door session with the names of the participants withheld in order to insure confidentiality. Some of the companies in attendance include CBRE Capital Markets Group, Sion Capital, Greystone, Glide Capital, Regions Bank , Crowdstreet, Citigroup, Ocean Bank, GG Capital Group, Driftwood Capital, Harbour Capital Partners, EnCapital, Ranger Alternative Management, Optimum Bank, and Mullen Capital.
Historic Money Tightening
The U.S. Federal Reserve in 2023 embarked on one of the most aggressive tightening of monetary policies in recent history. The goal was to curtail aggregate demand. The policy was highly successful as growth slowed more than half from 4.9% in Q3 to 2.1% in Q4. While this deceleration in growth should dampen inflation, the consensus about the effects of the tight U.S. monetary policy on the Caribbean in 2024 was mixed.
The Cost of Capital
The good news is that new construction deals are still getting done in the Caribbean. The bad news, is that the cost of capital is going-up. During the conversation, several recent term sheets were discussed, with the group agreeing that a typical hotel construction loan in 2024 might have an 11.5% interest rate with a 55% loan to cost.
Stronger Sponsors and Guarantees
As rates are going up, Caribbean financial institutions also seem to be seeking stronger sponsors and guarantees. The group felt that working with known sponsors was a top priority. In other words, developers that have experience in the Caribbean region with the specific product type. More importantly, there was ample talk about creating multiple layers of capital protection. This includes full recourse loans (i.e., personal guarantees) as well robust completion guarantees and bonds. One participant was quoted as saying, “we are looking for every single type of guarantee possible today.”
Land Lift is Dead
Lenders seem to only want to underwrite the original cash basis of the land today and not give the sponsor any credit for the increased value.
Condo-hotel Presales
On the hospitality side, one participant mentioned that they like to see condo-hotel projects because pre-sales can mitigate risk. In addition to demonstrating market acceptance, condo-hotel presales reduce the overall total capital requirements. The discussed presale requirements varied from 35%-65% of the total project.
Syndication of Loans and Risk Bifurcation
As lenders seek to mitigate risk, Caribbean capital sources are taking smaller bites of the proverbial capital stack. On the debt side, hotel deals are getting done by bifurcating or dividing the loan into parts. It is common in today’s market for banks to be syndicating their loans or splitting them up with other financial institutions. One of the participants mentioned that they recently closed a 200-million dollar hospitality construction loan by dividing the loan into two parts: capital for the hotel and a separate debt instrument for the condo-hotel uses.
Mission Driven Projects
While there is a general slowdown of construction lending in general, mission driven developments still are attractive. Mission driven developments can be defined as projects or locations that have unique stories to tell. Below are the four of the top mission driven locations:
1. Mexico, the group discussed how “Near-Shoring” is driving massive investment in industrial facilities from international companies such as Tesla that want to be closer to the U.S. This includes significant involvement from the Chinese. One of the participants stated, “there is 10x the amount of capital for every opportunity in Northern Mexico today”.
2. Guayana, mentioned as “the fastest growing economy in whole word”, the rush to build hospitality is palpable. Lack of supply is so limited in the capital of Georgetown for example, that older assets like the Marriott is getting ADRs upwards of $450 per night. There was caution, however, if with new supply that rates would hold into the future.
3. Costa Rica continues to provide amazing lifestyle offerings with its “blue economy” however while there is much interest to finance projects in this location, identifying truly “shovel ready projects” seemed to be a top of mind concern for some of the participants.
4. Puerto Rico was highlighted by many as being the “safest and most lucrative hospitality market in the Caribbean today.” There was a general agreement that the U.S. island of Puerto Rico currently has very low supply of inventory (tourism GDP is at 6.75%) as well some very lucrative tax incentives under act 74. “In Puerto Rico, you get a 40% tax credit that you can sell, there is no other place in the Caribbean that gives you that kind of IRR boost”, quoted a major hotel investor.
Conclusion
During normal times, the Caribbean region is generally a challenge. The region is highly regulated and has a low risk tolerance from traditional lending. Today, the fear caused by the 2023 bank failures and new capital regulations under the Basel III agreements, should force traditional banks to hold more cash reserves. It was suggested that there is approximately 1 trillion dollars of U.S. commercial paper that will be coming due in the next 12-24 months. There was concern from the group that if interest rates remain at current levels, many borrowers will have to make-up their interest reserves with new equity. One banker in the group, who recently underwrote their entire portfolio stated, “I am not sure how many projects will be able to come to the table with more money.” There is hope, however, for the Fed’s recent announcement of three rates cuts in 2024.
So, while many financial institutions have put their pencils down, other groups are proceeding cautiously today in the Caribbean. There is a consensus that there will be new opportunities in the future for private capital, family offices, private debt funds, and fintech to fill the 2024 Caribbean capital stack.
About AG&T
AG&T is a real estate development and consulting company based in Miami, Florida with a track record that spans over 52 real estate projects in Puerto Rico, the Caribbean, Central America, and the United States. Core services include Hospitality Development, Investment Sales, Strategic Planning, and Capital Advisory (Equity | Debt). www.agandt.com
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Continue readingPUERTO RICO’S POST-PANDEMIC REBOUND, WITH ADAM GREENFADER
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The Puerto Rico Symposium in Miami With Historic Announcement
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The Governor of Puerto Rico Pedro Pierluisi made the historic announcement at The Puerto Rico Symposium in Miami that Puerto Rico was officially out of bankruptcy. The message was well received by over 250 industry leaders from both the public and private sectors. The event was organized by The Urban Land Institute South East Florida / Caribbean and The Puerto Rico Builders Association.
![Governor Pedro Pierluisi](https://agandt.com/wp-content/uploads/2022/05/IMG_4442-1024x662.jpg)
The Symposium was kicked-off by Scott McLaren, President ULI SE Florida / Caribbean. Scott spoke about the longstanding relationship and collaboration between ULI and the Puerto Rico Builders Association. He highlighted the work on the ULI National Advisory Services Panel on social, economic, and physical resilience in Toa Baja, Puerto Rico. https://seflorida.uli.org/toa-baja-puerto-rico-panel/
Scott Maclaren finished his remarks by recognizing Vanessa de Mari, the new President of the Puerto Rico Builders Association and the first women president in the organization’s 70 year history. The Symposium was dedicated to this historic accomplishment. In attendance were some of Puerto Rico’s top government leaders. This included the Honorable Pedro Pierluisi, Governor of Puerto Rico, Manuel Laboy, COR3 Executive Director, Maretzie Diaz, Deputy Director PR Housing Department CDBG-DR, Natalia I. Zequeira, Commissioner of Financial Institutions, and in attendance, the Secretary of Housing of Puerto Rico, William Rodríguez Rodríguez. The keynote address by the Honorable Pedro Pierluisi, Governor of Puerto Rico’s highlighted the island’s economic accomplishments, the end of Puerto Rico’s population exodus, and the conclusion of the bankruptcy which was officially announced the day of the Symposium.
In the private sector, Ricardo Alvarez-Diaz, CEO, Alvarez-Diaz & Villalon discussed some of progress of the island’s rebuilding after the 2017 hurricanes Irma and Maria. The reconstruction of the island was a constant theme throughout the day with specific examples of over 900 started projects.
The first panel, “Why Puerto Rico: Stories of Success, was a testament to the resiliency of the development community. Moderated by Andrew Carlson, SVP Country Manager, of JLL the discussion highlighted the historic growth of the island’s hospitality sector with the construction and/or renovation of over 3,000 new room keys from El Conquistador, Grand Reserve (formerly known as Coco Beach), Sheraton, AC , and many others. The panel included Federico Sanchez, President & CEO, Interlink Group.
![Speakers Panel](https://agandt.com/wp-content/uploads/2022/05/03-15-2022-6-1024x682.jpg)
Dan Kodsi, CEO, Royal Palm Companies, Rafael E. Rojo, President & CEO, VRM Companies. Also in attendance was Brad Dean, CEO, Discover Puerto Rico who highlighted the island’s impressive tourism growth (ADR and occupancy rates) during the Covid 19 pandemic and new expansion of tourism throughout all U.S. feeder markets.
As Puerto Rico seeks to build back its tourism and other industries, the financial sector will invariably play a major role. One of the goals of the Puerto Rico Symposium was to facilitate the conversation of growth in both traditional banking as well as new Fintech, IFEs, and other debt/equity players. Natalia I. Zequeira, Commissioner of Financial Institutions, explained the ease of regulations and process for new financial institutions as Puerto Rico shares many of the same regulations of the U.S. states on the mainland. Ms. Zequeira also mentioned that International Financial Entities (IFE) can now participate in special opportunity projects.
https://www.investpr.org/key-sectors/finance-and-insurance/
Michael McDonnell, Executive Vice President, First Bank, that recently re-opened its construction division, was bullish on the island’s economic prospects and announced that the Puerto Rico will achieve positive economic growth (GDP) this year– something it has not done in over a decade. Banesco USA announced the U.S. Department of the Treasury, will invest more than $8.7 billion through ECIP in institutions across the country – Banesco USA is the only bank recipient located in Florida or Puerto Rico.
Over the last few years, we have all hear about the 80 billion dollars of relief aid that has been allocated to Puerto Rico and is coming. In the “Myth versus Reality panel: Federal Funding Opportunities on The Island,” moderator Ella Woger Nieves of Invest Puerto Rico helped lift-up the proverbial transparency veil. Manuel Laboy, the COR3 Executive Director spoke with detailed facts of the funding by agency with FEMA authorizing 5 billion for temporary work, 21 Billion for 9,000 permanent projects and 800 that are currently under construction today. He also discussed the next wave of over 900 projects that are currently under engineering and design. Much of this work will be channeled through CDBG-DR and the PR Housing Department. Maretzie Diaz, the Deputy Director PR Housing Department, explained the process for companies wanting to participate in the island’s rebuilding of housing and infrastructure. Mahdu Beriwal, Owner/founder of EIM provided first-hand knowledge of the rebuilding work in Puerto Rico.
![](https://agandt.com/wp-content/uploads/2022/05/03-15-2022-188-1024x804.jpg)
Keynote Speaker Pamela Pautenade, Ex. Deputy Secretary of HUD, was also on hand to share her experiences about the collaboration with the Puerto Rico Builders Association during the 2017 hurricanes crisis. In a moving conversation with Ricardo Alvarez-Diaz, Mrs. Pautenade explained the dedication of the island’s public and private sectors and dispelled any rumors about misuse of relief funds.
![Keynote Lunch Address](https://agandt.com/wp-content/uploads/2022/05/03-15-2022-146-1024x731.jpg)
Puerto Rico, like much of the Caribbean is in the process of bouncing back from the Covid 19 pandemic. Adam Greenfader, who chairs the ULI Caribbean Council had a high level sit down conversation with keynote Speaker Andrew Farkas, CEO Island Capital Group. The conversation was focused on social equity and specifically what role the financial sector has in supporting the region with a particular focus on sustainability, ESG, and helping economic migrants return back to their island homes.
In the last few years Puerto Rico has become known as blockchain capital of the world. While thousands of tech savvy individuals have moved to the island to take advantage of federal tax incentives they have inadvertently created a new economic driver for the Puerto Rico.
In our “Fintech & Financial Innovation panel in Puerto Rico, Moderator Nathan Whigham, Founder & President, EN Capital discussed the growth of this huge industry. Rodrick Miller, CEO, Invest Puerto Rico, explained what his group is doing to change the paradigm in Puerto Rico from selling tax incentives to focusing on the island’s quality of labor, education system, and proficiency in bio science and other innovations. Stephen Inglis, CEO, Importal explained his new portal to monetize tax credits and Yael Tamar, CEO & Co-founder, SolidBlock explained how her company is integrating real estate and blockchain.
After a marathon day of conversation it was amazing to see the room still full for our last panel “Growth Industries and Tax Incentives” moderated by Carla Campos and an all-star team including Jorge Ruiz Montilla, McConnel Valdez, Francisco Luis, of Kevane Grant Thornton and Rogelio “Roy” Carrasquillo, of the Carrasquillo Law Group. In this panel, specific programs like the Tourism Tax Incentive were explained in detail and there was robust conversation regarding how these incentives have created new jobs in manufacturing, life sciences, construction, and agro-science.
On behalf of all of us at the Puerto Rico Builders Association and The Urban Land Institute SE Florida/ Caribbean, thank you to all of the people and sponsors that made The Puerto Rico Symposium possible. We are all hopeful that together both the public and private sector can create long lasting sustainable economic growth.
For more information about investing in Puerto Rico visit our web site or contact us.
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Helping Puerto Rico since the 1950’s
70 years ago, when the Puerto Rico Builders Association was formed, the United States was on the brink of entering the World War II. December 7, 1941, would be considered a day that would “live in infamy”. Thousands of Puerto Ricans as American citizens fought in the War and would return home as victors to an island on the precipice of great economic growth. Thanks in large part to Operation Bootstrap, o “Manos a La Obra”, the Puerto Rico Builder’s Association has played a vital role in shaping the island’s long term economic development. The Puerto Rico Builders Association (formerly known as the Homebuilders Association) was formed in a critical period of time when the island was undergoing a massive transformation from an agricultural society into a leading manufacturing hub.
Puerto Rico would see historic growth for more than three decades and the Puerto Rico Builders Association would play a leading role in shaping the island’s zoning regulations, environmental protections, financing, and building codes (often referred to as a Miami’s building code on steroids). Puerto Rico benefited greatly from these concerted efforts by the Puerto Rico Builder Association with one of the highest homeownership rates in the Western world at 68%. Puerto Rico is also the second largest public housing jurisdiction in the United States second only to New York City.
In 2015, The Puerto Rico Builders Association, under the leadership of then PR Builders president, Ricardo Alvarez Diaz Villalon joined forces with the Urban Land Institute Southeast Florida/Caribbean District Council. ULI founded around the same time as the PR Builders Association, is one of the oldest and largest networks of real estate and land use experts in the world. ULI’s mission is to shape the future of the building industry and create thriving and sustainable communities around the globe. Shortly thereafter, Puerto Rico was devastated with two back-to-back category five hurricanes.
Hurricanes Irma and Maria destroyed most of the island’s electrical infrastructure and informal housing stock at a cost estimated over 100 billion dollars. ULI together with the Puerto Rico Builders Association created a task force to study the effects of the storms and how to build back better. Under then ULI president Greg West, the Puerto Rico Builders Association and ULI convened national panel of experts and created a specific action plan for the municipality of Toa Baja.
The Puerto Rico Builders Association and ULI have since held multiple meetings and conference throughout the years in both Puerto Rico and Miami to explore new areas of synergy and improvements to the island’s build environment. ULI’s current president, Scott McLaren was recently quoted, “we strongly value our long standing partnership with your organization and admire the leaders who go above and beyond, especially when faced with such tremendous obstacles.”
Come celebrate 70 with the Puerto Rico Builders Association Puerto Rico on October 27-29 in San Juan. https://constructorespr.com/convencion-2021/