Could this be the year for Puerto Rico?

Adam Greenfader
 
 

Could this be the year for Puerto Rico?

 

It had been almost 12 months since my last visit to Puerto Rico. Thanks to the COVID lockdown expectations were low. The last time I visited, more than 2 years after hurricanes Irma and Maria, the devastation was still overwhelming.  Streets were lined with garbage, electrical lines in disrepair, and thousands of homes had roofs covered in blue tarps. This combined with more than ten years of economic recession made has made Puerto Rico extremely pessimistic. As I landed in Luis Munoz Marin Airport, I was thinking,  “Would the ensuing earthquakes and COVID pandemic ravage the economy even more…”

 

I travelled the entire island from coast to coast –  100 x 35 miles, in a two week period. I drove from San Juan to Aguadilla, Mayaguez, Ponce, Humacao, Fajardo, and Ocean Park.  The roads were in good condition, the street lights working, and many buildings newly painted.  Notwithstanding the COVID crisis, the economy was bustling.  Most palpable was the positive attitude and feeling of the people. I spoke with many colleagues and friends and was told that much of the hurricane insurance had circulated through the economy.  The 8-12 billion in Federal relief from CDBG-DR is expected by early 2021.  Homemade signs seeking construction workers can be seen throughout the island that read, “Se Solicita Carpinteros y Albanilles”.

While the tourists were clearly absent ‘en mass’, a handful of new boutique hotels, especially in San Juan, have been recently delivered between 2019-2020. Much of this new hotel activity is due in part to the Tourism Tax Incentive. The tax incentive provides up to 40% of the total project’s cost back to sponsors…incredibly, some of it can be used for funding as part of the initial capital stack.  While this is not common anywhere in the world, Puerto Rico’s is not a typical Caribbean destination. The total economic activity (GDP) in Puerto Rico is less than 7% for all tourism related activities.  This includes, hotels, trades, conventions, excursions, etc..   This is an astonishing low number for an island that is surrounded by warm water, beautiful beaches, and lush landscapes. Read more about why Puerto Rico is like this at: https://agandt.com/contact-why-puerto-rico-now/

These tax incentives combined with a team of dedicated individuals in the Destination Marketing Organization (DMO) –  Discover Puerto Rico and other Public Private Partnerships (Invest Puerto Rico) is helping to make Puerto Rico a thriving tourism destination. The island currently boats some of the top hotels in the Caribbean with ADR’s over $1,500 per night.  Much of this demand is generated by the Act 20/22 (now Act 60).  For the last five years, hundreds of high net worth US individuals have moved to Puerto Rico to take advantage of zero Federal capital gains.  Act 60 has resulted in over 500 families and hundreds of new business moving to Puerto Rico.  There seems to be no end in sight for these new Americans living in Puerto Rico.  

Dorado Beach

This week Puerto Rico also inaugurated for the first time in over 20 years, the same political party. The PNP or US Statehood party won the election with a mandate for political stability, reduced corruption, and closer ties with the United States. While the island’s economic crisis is far from over, the COVID pandemic has put Puerto Rico back in the spotlight for its manufacturing proficiency. The island of Puerto Rico is one of the world’s leading pharmaceutical destinations – producing more than the top 5 US States combined. As thousands of jobs come back to the USA-Puerto Rico, invariably many will end up where the cost of labor is 15% less expensive, and there is a 60 year culture of robust manufacturing.

 

So is this the year for Puerto Rico?  Strong yes if you are involved with affordable housing, luxury resorts, alternative energy and critical manufacturing.

While we at AG&T do not have the proverbial ‘crystal ball’ on the island’s long term economic growth, things feel like they are on the right track and we will have more clarity with the resolution to the island’s bond crisis, the electrical authority privatization (AEE), and the completion of the responsibilities of The Fiscal Oversight and Managemnt Board for Puerto Rico. 

New Hotel Announced in St. Maarten

Site Plan of Hotel

INDIGO BAY–Two prominent real estate development firms have partnered with Cay Bay Development (CBD) NV, the master developer at Indigo Bay Development, to propose the development of a US $220 million luxury hotel resort and condos in St. Maarten.  AG&T provided advisory services and a group of independent real estate brokers led by Adam Greenfader at Oceanfront International Group at Douglas Elliman coordinated the transaction. 

 

 

The proposed high-end hotel development at Indigo Bay Development,  is expected to feature certain luxury accommodations and five-star amenities, including 94 hotel rooms and suites, and 130 residential homes. Additionally, the proposed hotel development is expected to feature large water ponds and greenery areas in keeping with its eco-centric vision, as well as an extensive public parking area for public beach access to Indigo Bay.

  “The timing for such a development could not have come at a more opportune time, as country St. Maarten is tasked with creating new and innovative strategies to counter the global economic crisis due to the pandemic,”.

In an economy whereby hospitality and tourism are at the centre of its recovery, it is expected that the development of a high-end branded hotel in St. Maarten would provide an enormous boost to this endeavour by enhancing several areas in tourism.

 

Hotel Concept at Indigo Bay

 

According to the release it can enhance St. Maarten’s global attractiveness as a prime tourist destination; increase hotel accommodation by approximately 20 per cent; increase the number of annual visitors to St. Maarten by 32,000 based on hotel occupancy of 65 per cent (double) and an average stay of five nights; and attract high value tourists who may choose St. Maarten as a vacation destination as opposed to accessing surrounding islands through its air and sea ports of entry, it was stated in the release.

The proposed world-class hotel development, once completed, will be managed by an internationally-recognised hotel brand, which will lend itself to greater global recognition, the release said. The projected marketed average daily rate (ADR) for hotel rooms at the proposed new hotel development is expected to be substantially higher than the current average daily rates on St. Maarten.

The CBD and the principals of the proposed hotel development seek to assure that the interest of the citizenry and of the environment are paramount to their endeavor.  Six acres of the overall hotel site of about 18 acres is projected as a green zone, including the retention ponds that were originally constructed at Indigo Bay Development by CBD. 

For more information about Caribbean hotel opportunities contact us 

Coming Back with FirstCaribbean Investment Bank

Isabel de Caires

Isabel de Caires at FirstCaribbean Investment Bank discusses how the bank is working through these unprecedented times of the COVID19 pandemic. For more information about how to finance your project in the in the Caribbean contact AG&T.

 

 

The State of Tourism in Latin America and Caribbean with IDB Invest

Rogerio Bass

ULI Caribbean Conversation

“The role of multilateral development banks (MDBs) in supporting the tourism sector in Latin America and the Caribbean”.

Conversation with with Rogerio Basso, Head of Tourism at IDB Invest and Adam Greenfader, Chair ULI Caribbean Council / Managing Partner AG&T.

  • * State of affairs of the tourism sector prior to COVID-19?
  • What makes this crisis different than prior ones?
  • What tourism players are doing to mitigate the impact of the pandemic?
  • Top three actions to better face this crisis?

 

Rogerio Basso leads all initiatives related to tourism in Latin America and the Caribbean for IDB Invest, the private sector arm of the Inter-American Development Bank Group. In his capacity as Head of Tourism, he is responsible for origination, investments and for executing IDB Invest’s tourism strategy in the region, offering a variety of financial instruments including debt, mezzanine and equity. Rogerio has executed numerous tourism transactions in the region spanning from hotels to conference centers.With over two decades of experience in banking, private equity, development, and strategy consulting within the hospitality and real estate sectors, Rogerio has held a variety of positions across top global firms, working across a variety of domestic and foreign markets, with a strong focus in Latin America. Prior to joining IDB Invest, he was CIO at Key International, a Miami-based real estate investment platform active across many industry sectors. He also served as EVP Acquisitions & Development for Terranum Hotels, an owner and operator of hotels across Latin America, sponsored by Colombia-based Santo Domingo Group and Sam Zell’s Equity International.

 Rogerio holds a business degree from the College of William and Mary and a master’s degree from the School of Hotel Administration at Cornell University.

Mixed-use project delivers on wellness in Puerto Rico

 

 

 

 

AS PUBLISHED IN HOTEL BUSINESS  BY  ON

PONCE, PUERTO RICO—Ponce Paradise—a 900-acre resort, healthcare village and marina located here—is giving guests all the conveniences and amenities of mixed-use, but with a twist.

Adam Greenfader, managing partner, AG&T, the development firm behind Ponce Paradise, said, “There is a trend in hospitality development for travelers searching for a destination that offers a wellness package or amenities.”

Conceptualized by LandDesign and Winstanley Architects & Planners along with AG&T, the teams consulted engineering and aquatic architecture professionals to make the vision a reality, bringing together a mixed-use development and a wellness destination.

“Economies of scale seem to indicate mixed-use projects will be getting larger. The live-work-play concept is really taking hold as more people want to be in the center of it all,” Greenfader said.

Ponce Hospital and Wellness City

Still in its early design and community involvement phase, Ponce Paradise will comprise a hotel and spa, wellness community, farm-to-table agricultural setup, a micro-grid, residential neighborhoods, a town square and a university medical center, with a total investment of approximately $1 billion.

Specifically, the 166-acre Wellness City will have research, university and care facilities, which will include a branded hospital, rehabilitation centers, outpatient, recovery rooms, assisted living facilities, nursing home, short-term residential units and condominiums. The wellness lagoon will have restaurants and retail, and a plaza will be home to a worship center, park and entertainment venue. 

The development will not only promote health and wellness but sustainability as well. About 60% of the site is untouched and will remain in its natural state, according to the Puerto Rico Conservation Easement Law. Additionally, the developed area has acres of green space, waterways and parks.

“Wellness tourism has been estimated as a $563 billion industry in 2018,” Greenfader said. “Puerto Rico is ideally situated to capture a large part of this market due to its central location, airlift and cruise traffic, U.S. medical doctors and great infrastructure.

“There are many medical treatments that can be done in Puerto Rico for a fraction of the cost—and you get to enjoy an amazing Caribbean vacation experience,” he added.

There are, of course, some challenges. “Less than 7% of Puerto Rico’s GDP is tourism based. For a Caribbean island with great beaches, people and infrastructure, this in incredibly low. The city of Ponce, in particular, has a convention center, port and airport that are highly underutilized,” Greenfader said, highlighting the project’s necessity.

He said the first challenge is to get the Municipality of Ponce and the Fiscal Board controlled by the U.S. Congress to fully use its assets. The second challenge—which is common in any large mixed-use project—is to provide the right combination of uses.

“The last challenge is financing,” he said. “In Puerto Rico, there are $20 billion of Community Development Block Grants for Disaster Relief. We trust some of that will be allocated to critical projects such as Ponce Paradise.”

Following meetings with the municipality, major medical associations, cruise lines and community leaders—each with their own concerns—Greenfader is confident that they will be able to address each group while also honoring Ponce’s natural surroundings.

Master Plan for Wellness City and Hospital

 

“Our job as project sponsors is to balance the concerns of each group with the stewardship of the environment,” he said. “The project must make economic sense but also be a valuable contributor to the local region, protecting and enhancing natural assets.”

Greenfader said that as hospitality as a whole faces its own challenges, differentiators like mixed-use developments are gaining more momentum.

“Airbnb and other disruptors have proven that the market is changing and that guests are seeking new experiences. Budget allocations, the desire to be together in large groups and ease of booking a reservation are just a few reasons the hotel industry is adding more residential units,” he said.

According to Greenfader, residential space generates revenue that can assist with the financing capital stack, while also creating a rental pool of additional units for the high seasons.

Ponce Paradise plans to offer three residential options: single-family homes, smaller vacation rentals and affordable “shotgun-style” housing, all with their own facilities and security.

Its attention to health, however, is the real differentiator, with nature serving as both the basis for its design and Ponce Paradise’s mantra.

“Everyone realizes that wellness is holistic; we don’t just treat the physical but the whole mind, body and spirit,” Greenfader said. “Doctors know that a patient’s success rate is often a result of a positive mental attitude. A cold, sterile room doesn’t necessarily lend itself to great health. Great architecture, beautiful landscaping, water vistas, amazing smells, community, etc., can make the difference between success and failure in a person’s treatment.”

Wellness extends far beyond simple offerings here. “Doing yoga with goats may not prove to have ‘legs,’ but resort wellness has just begun to take off. The reasons are simple: Industrialized nations are getting older, people are living longer, and with two billion new tourists coming from India and China, there are many more potential people for this market niche,” he said. “Some experts say the wellness resort industry is expected to double within the next 20 years and become a $1-trillion industry.”

The sustainability factor is also attracting hoteliers, especially in an area that’s been struck by natural disasters.

“Developers are starting to realize that a weather-related crisis can have a devastating effect on operational risk,” he said. “If a hotel cannot withstand hurricane-force winds, floods and mold, then it will suffer huge downtimes and repairs. In fact, hotels may not ever come back online at all.”

Greenfader said that hotel buyers are now evaluating their portfolios for climate risk and realizing that initially spending 15-20% more in construction costs to make a project resilient and sustainable makes good business sense.

“Developers also realize that if they can stay open during a crisis, their occupancy will be 100% or more,” Greenfader said. “During a relief and rebuilding period, hotels host thousands of relief workers, insurance adjusters and other critical workers. It’s a win-win to be resilient and sustainable.”

This couldn’t be more clear than at the current time, when Puerto Rico is beginning to recover from a series of earthquakes, which Greenfader noted had hit the south particularly hard—especially structures built before 1990, when codes were updated to bolster construction for seismic activity.

“The earthquake reaffirms that a project like Ponce Paradise needs to build a resilient infrastructure into its master plan and be forward-looking in its design,” he said. HB

Puerto Rico Ready for Development

Ponce Paradise

A Beachfront Acre For $30K In An OZ? Welcome To Puerto Rico

Published by Deidra Funcheon, Bisnow Miami

Puerto Rico was already struggling from decades of fiscal mismanagement and had just declared bankruptcy over its $123B debt when it was hit by two hurricanes in September 2017 — only to run into a botched disaster response. The way some see it, though, rock bottom is behind Puerto Rico, and the island is in the early stages of an upswing. “Puerto Rico is setting an incredible pace for economic recovery,” said Brad Dean, CEO of Discover Puerto Rico, a destination marketing organization that promotes the commonwealth. “Airport arrivals are exceeding pre-Hurricane Maria levels, as are lodging revenues. Given the quick rebound, reinvestment in hotel product and tremendous potential for the island’s tourism industry, this is Puerto Rico’s time. From an investor’s perspective, there’s never been a better time to invest in the island’s tourism industry.”

Buildings and infrastructure are still being repaired and upgraded, and the government has instituted a full slate of tax incentives to lure investors, said AG&T Managing Partner Adam Greenfader, who advises clients from his base in Miami. “You can still acquire assets for 50 cents on the dollar,” he said. “Beachfront land in Puerto Rico today can still be acquired at $30K an acre.” Dean and Greenfader will be panelists at Bisnow’s Caribbean Hospitality & Tourism Summit Aug. 1. Puerto Rico’s economic spiral goes back decades. After World War II, it gave big tax breaks to manufacturers, and to cover for revenue shortfalls, issued more bonds than it could repay. In turn, it implemented austerity measures that did little except drive the population away. Its problems were exacerbated by that fact that it has no voting power in Congress.

Greenfader outlined some key developments toward a turnaround. Puerto Rico’s cash-strapped government has tried to lure investors with laws like Acts 20 and 22, passed in 2012 and designed so that people who move to the island pay little or no federal income tax, even on passive investments. Greenfader said this has attracted 250 to 500 families per year, including big names such as billionaire John Paulson.  Other incentives include one that lets people with tourism-related projects get back 40% or 50% of their acquisition costs.  

 

Development Land
80 Acres in Naguabo, Puerto Rico

 

Puerto Rico’s massive government debt is currently being sorted out by a federal oversight board. “The major bonds, COFINA and GO, have been renegotiated and the bondholders have been put into payment plans,” Greenfader said.  Since the 2017 hurricanes, federal disaster aid — including $1.4B authorized in June — has trickled in. Hotels damaged in the storms were forced to remodel or rebuild and are now offering better products at higher rates. Many are incorporating solar and microgrids to be resilient for the future. The storms raised the profile of Puerto Rico — one study found that prior to them hitting, about half of Americans hadn’t known the commonwealth was part of the U.S. Airport arrivals and tourism revenue have already set records this year. On top of this, Puerto Rico is the beneficiary of community development block grant funding, and 97% of the entire commonwealth — much of it beachfront — has been designated a qualified opportunity zone. “Puerto Rico never had a 1031 exchange, so from a tax perspective, it’s the first time it’s getting capital gains money,” Greenfader said.  

Lifeafar Investments Chief Financial Officer Cole Shephard, who will also be a panelist at the Bisnow event, said his Colombia-based company is already taking advantage of Puerto Rico’s investment climate, raising $16M in an opportunity fund to reposition a 61-room hotel. Shephard said Lifeafar, which started by offering real estate services to expats in Medellín, was drawn by the tax incentives and that the opportunity zone designation was a bonus. He is now doing due diligence on additional properties. “I see the sophisticated money chasing metro San Juan,” he said, suggesting that there is a lot of opportunity for small to mid-market projects outside of the city. Not everything in Puerto Rico is rosy. 

Development Land
29 Acres in Isabella, Puerto Rico

 

As the government has scrambled to generate revenue, sales tax was raised to 11.5%, pensions have been cut, college tuition increased and some 300 public schools closed. Critics have complained that wealthy investors have been protected while ordinary Puerto Ricans suffer. “The locals have had to carry the brunt of these austerity measures,” Greenfader acknowledged. “I’d understand completely, if I see a guy who’s a hedge fund manager with $500M earnings pay hardly any taxes, versus the regular guy paying 35% taxes who’s a salaried worker at Bacardi,” Shepherd said. But Shepherd added that conversations with Puerto Rican officials convinced him they have carefully calculated the tradeoff and found that luring private investment now will help island residents long-term, even though it may take years for the effects to be obvious.

Greenfader suggested that boosting tourism is a winning solution for both investors and residents. Because Puerto Rico since the Kennedy era has been focused on manufacturing, its tourism industry was relatively neglected. The industry now accounts for less than 7% of Puerto Rico’s gross domestic product. In other Caribbean islands, that number is typically between 30% and 80%. Dean’s destination marketing organization, Discover Puerto Rico, was established last year to actively promote tourism. Bisnow’s Aug. 1 Caribbean Hospitality & Tourism Summit will also include Puerto Rico Tourism Co. Executive Director Carla Campos, Hilton VP for Development Juan Corvinos Solans, Puerto Rico Builders Association President Ing. Emilio Colón Zavala and more. 

Event Ended On: Thursday August 1 2019