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. 

Tax Incentives for Strategic Recovery

See video on strategic tax incentives and recent fiscal policy for the territories and Puerto Rico.

Francisco Luis, Partner at Kevane Grant Thornton and Adam Greenfader, Caribbean Chair / AG&T discuss “ Bringing back manufacturing to USA – Puerto Rico. “ 

In this in-depth conversation about Tax Policy and Incentives,  Mr. Luis discusses the GILTI and BEAT provisions of the 2017 Tax Code and some of the implications of the House Resolution 6448; otherwise known as ” The Territorial Economic Recovery Act.

Other topics include,  ‘Opportunity Zone incentives’ and the ‘Tourism Tax Credit’ as part of the recently passed Act 60.

Francisco Luis has over twenty-nine years’ experience in public accounting, including the “Big Four” and private consulting practice. 

He engages in the design and development of tax planning and consulting strategies. This includes tax services in the area of mergers and acquisitions, business reorganizations, partnership transactions, tax incentives and exemptions, individual and corporate tax issues, personal financial matters, and others. Moreover, since the designation of Puerto Rico as an Opportunity Zone, Francisco has been actively participating as guest speaker on several conferences and activities lecturing about this new incentives regime.

His experience includes participation in multiple international and global business transformation engagements, including post-acquisition implementation and executing strategies focused on reducing global effective tax rates, mostly interplaying with the Puerto Rico tax incentives. Francisco has significant experience assisting clients before the Internal Revenue Service and the Puerto Rico Treasury Department, among others. He also possesses extensive tax compliance experience.

Membership

  • Puerto Rico State Society of Certified Public Accountants
  • American Institute of Certified Public Accountants

Travel and Tourism and the COVID19 Pandemic

Headshot of Brad Dean

The Covid 19 pandemic has brought worldwide tourism to a standstill. In this ULI Caribbean Conversation, we speak with Brad Dean, CEO of Puerto Rico’s Destination Marketing Organization (DMO).  Brad shares some insights about what some of the top private and public minds in the industry are thinking, planning, and prepping for travel 2.0.

” I think this down time gives the travel and tourism industry our George Bailey moment. “We have all seen that without travel it’s pretty ugly….there is a lot greater value to travel than most of us ever realized..travel lifts spirits, it connects people, it leads to progress, exclaimed Brad Dean.”[/vc_column_text][/vc_column][/vc_row]

AG&T is a real estate development and consulting company founded in 1998 with headquarters in Miami, Florida. Our  track record spans over 55 real estate development projects in Puerto Rico, Sint Maarten, Costa Rica, Panama, Mexico, Dominican Republic, and various other Caribbean islands.

Manufacturing 2.0 with Manuel Laboy

Join Manuel Laboy, Secretary of Economic Development of Puerto Rico and Adam Greenfader, ULI Caribbean Chair as they discuss “ Bringing Back Manufacturing to USA – Puerto Rico. “

In this in-depth conversation, Mr. Laboy discusses the current opportunities in pharmaceutical manufacturing, Puerto Rico’s history in Life Science,  inventory, infrastructure, and potential pitfalls. Other topics include,  Puerto Rico Tax incentives, HR # 6443,  Opportunity Zones, Public Private Partnerships, and the recently enacted regulations allowing foreign cargo to Puerto Rico; “ a game changer”, according to Manuel Laboy. 

 

 

Manuel A. Laboy Rivera is the Secretary of the Department of Economic Development and Commerce (DEDC) in Puerto Rico and Executive Director of the Puerto Rico Industrial Development Company (PRIDCO) with the mission to attract new investment, promote the creation of new jobs and strengthening of small and medium enterprises. He is also responsible for the formulation and strategic implementation of the Puerto Rico economic development plan, including competitiveness-related reform, infrastructure projects and the innovation of technology agenda. Mr. Laboy is a licensed professional engineer with 19 years of experience in various industries and sectors, including manufacturing, chemical production, life sciences (pharmaceutical, biotechnology and medical devices), construction, public utilities, export services, renewable energy, infrastructure, technology and project management.

Manuel Laboy has a Bachelor’s Degree in Chemical Engineering from the University of Puerto Rico-Mayagüez Campus, a Master’s in Business Administration from the University of Turabo in Puerto Rico. He is also a member of the College of Engineers and Surveyors of Puerto Rico, and holds a Certified Safety Professional certification from the Board of Certified Safety Professionals.

To learn more contact  Adam Greenfader Managing Partner of AG&T, a real estate development and advisory services company. 

 

The Elimination of Section 936

Zaida Feliciano Queens College

The repeal of Section 936 resulted in lost manufacturing jobs for the USA and a 15 year economic crisis for Puerto Rico. 

As we sit today in the middle of a world pandemic, a few things seem certain. COVID 19 is a health crisis that has forever changed our relationship with globalism. It is time for a new understanding of how manufacturing keeps us all safe. This is especially true of the pharmaceutical industry. With shortages of basic supplies, medicines and protective gear, is it time to bring critical manufacturing back to the United States?

In this AG&T Thought Leadership conversation, we speak with economics professor Zadia Feliciano (see bio)of Queens College and explore the consequences for the USA and Puerto Rico of eliminating the manufacturing tax incentives –  Section 936.

In her groundbreaking work on Section 936, entitled, “US Multinationals in Puerto Rico and the Repeal of Section 936 Tax Exemption for U.S. Corporations“, professor Feliciano and Andrew Green, “analyze the effects of the phase out and elimination of Section 936 on the number of establishments, value added, employment, and wages in Puerto Rico’s manufacturing.  

Unfortunately, the elimination of Section 936 helped push critical manufacturing AWAY from the USA. Critical manufacturing left Puerto Rico (USA) and  sought cheaper markets in Mexico, Ireland, Latin America and China.

Moving Forward.

The Food and Drug Administration has for some time been expressing concern that the United States is too dependent on China within the medical supply chain. Puerto Rico has 49 FDA-approved pharmaceutical plants in place, and produces not just one quarter of all U.S. pharmaceutical exports, but also significant amount of medical devices.

Puerto Rico’s manufacturing industry is in need of support, but is also in a position to blossom, similar to other areas of the country that used to have a strong manufacturing base. In the area of pharmaceuticals, Puerto Rico has the advantage of an educated workforce and many people experienced in the industry. Puerto Rico produces 25% of the pharmaceuticals exported by the United States. This is more than any State. The Island has the cold chain logistics for pharmaceuticals in place. The learning curve would be lower for Puerto Rico than for many other U.S. regions. The time to act is now.

To learn more about how Puerto Rico can help USA manufacturing. 

Time to Bring Critical Manufacturing Back To Puerto Rico?

Luis Fortuno

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As we sit today in the middle of a world pandemic, a few things seem certain. The Corona Virus health crisis has forever changed our relationship with globalism and our new understanding how manufacturing keeps us all safe. This is especially true of the pharmaceutical industry. With shortages of basic supplies, medicines and protective gear, is it time to bring critical manufacturing back to the United States

The answer seems to be a resounding, “how fast.” But how do we do this, now that most of our manufacturing has been shipped to foreign locations? The answer might be right here at home. 

Puerto Rico has played a historic role in America’s manufacturing since the 1940’s.  In this conversation with Luis Fortuño, partner at Steptoe and Johnson (Governor of Puerto Rico 2009-2013), it is clear that since Operation Bootstrap, Puerto Rico has been a major contributor to The United State’s pharmaceutical manufacturing. 

The island has three key elements that make it very attractive for manufacturing.

  1. Puerto Rico has a vast network of exsisting mission ready manufacturing plants.
  2. The manufacturing work force on island has decades of proven track record.
  3. The universities (RUM in particular) develops top recruits for international firms in engineering, life science and technology

So what happened? 

“Well, it was really a confluence of many events, some global and others local”, according to Mr. Fortuño. The North American Free Trade Agreement (NAFTA) created incentives for companies to move to Mexico and Canada. Countries like Ireland and China created elaborate tax and other incentives to attract business. Section 936 of the Tax code expired – which was a critical component of incentivizing manufacturing on the island. To learn more, read Why Puerto Rico Now. 

Notwithstanding, Puerto Rico’s economic crisis, the island’s antiquated energy grid, and a wasteland of destruction caused by hurricanes in 2017, Puerto Rico is still in an ideal position to help USA quickly ramp up critical manufacturing production.  In fact, the island today currently out preforms States like California, Indiana, North Carolina, and Pennsylvania.  

Are there any Potential Roadblocks?

As part of the 2017 Tax Act, the new tax on Global Intangible Low-Taxed Income (GILTI) was proposed as a way to target profitable firms that are based abroad – known as controlled foreign corporations. For tax purposes, Puerto Rico is treated as a foreign jurisdiction and the 2017 Tax Act is bad news for companies doing business on the island. Patent-dependent sectors like pharmaceuticals and medical equipment and supplies account for nearly 35 percent of the total employment in manufacturing. Pharmaceutical companies alone employ approximately 90,000 Puerto Rico residents. 

Where do we go from here?

Today there are several initiatives to help bring manufacturing back to the United States, Puerto Rico and other economically depressed areas. One such initiative is HR 6443, authored by Puerto Rico’s Resident Commissioner, Jenniffer González-Colón and sponsored by Donna Shalala (D-FL), Representatives Rob Bishop (R-UT), Darren Soto (D-FL), Ruben Gallego (D-AZ), and Peter King (R-NY).  

See article below. 

Puerto Rico’s Resident Commissioner leads bipartisan legislation that would secure the National Supply Chain

Together we will get through these very challenging times. This too shall pass.

Interested in telling your story about Puerto Rico or the Caribbean? Join us at AG&T Network. 

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

Strong turnout at the first 2019 ULI Caribbean Roundtable Panel

Strong turnout at the first 2019 ULI Caribbean Roundtable Panel.
Presentations by Emilio Colon Zavala, President of the Builders Association of Puerto Rico, Ricardo Alvarez Diaz of AD&V, Robbie Karver of EY and chaired by Adam Greenfader of AG&T. Big Shout out to Julie Medley, Mallory Baker, Max Helden and the whole ULI Southeast Florida team for putting this amazing event together.

 

 

 

Some of the biggest takeaways:

  • Growth is forecasted at a 8.1% with growing airlifts. In spite of the tumultuous 2017 hurricane season, the occupancy rates were around 65% in 2018 and should peak back up to 70% across the region in 2019.
  • Access, Access, and Access continues to be the principal driver for hospitality. 
  • “The Caribbean region today is seen as a maturing destinations with more diversified land offerings”, quoted Robbie Karver.
  • Looming recession talks in US was downplayed for the Caribbean region as the lack of a significant of new supply (compared to 2008) should help bolster the region.
  • Caution was noted about citizenship programs (CIP) for several Caribbean governments not necessarily generating revenues as expected.
  • Smart money is looking at Puerto Rico with lots of incentives for tourism development, tax benefits for those wanting to move/start business on the island (law 20/22), and billions of dollars of recently approved US Federal grants. 95% of Puerto Rico is an Opportunity Zone. 
  • Institutional capital seeking better rates than on the US mainland although Caribbean hospitality lending is ‘cautiously optimistic’ with focus on shorter ramp up period of less than three (3) years.
  • There is strong demand for world class Marinas and for Big-Big yachts.
  • Resiliency is getting into new developments and is having very little negative effect on the IRR.

Other Events 

The roundtable conversation highlighted a series of events that will be taking place in 2019 (email adam@agandt.net for a full schedule).

  • MAY 2, ULI MEMBER APPRECIATION SOCIAL & POST TOA BAJA PANEL UPDATE (Puerto Rico).
  • AUG 1 CARIBBEAN HOSPITALITY SUMMIT – PR BUILDERS (Miami)
  • OCT 23-25 ULI Mexico – Latin America Conference (Cancun)
  • NOV 14 PUERTO RICO BUILDERS ASSOCIATION CONFERENCE (Puerto Rico)

Vision Awards

ULI will be highlighting development projects of excellence at its Annual Vision Awards Event which will be held on September 5that the JW Marriott Marquis. If anyone would like to submit a Caribbean project please contact Mallory.Barker@uli.org

Coming Next

For the next roundtable the following items were discussed as potential areas of interest:

  1. To discuss a list of hospitality projects that are getting funded in the Caribbean Region, share details on projects and the funding
  2. Bahamar project and case study
  3. Sources of hotel financing and the interplay of mezzanine financing
  4. The synergy of luxury cruise ships and private islands
  5. The business of Cannabis in the Caribbean
  6. The effect of Hurricanes on hotel supply and competition
  7. Sargassum seaweed and its adverse effects on the region

This first meeting was open to ULI members and guests.  Subsequent roundtables will require membership for participation.  Please email Max.Helden@uli.orgif you need details on joining.

Undaunted By Puerto Rico’s Financial Mess, Hospitality Industry Blazes Ahead

Bisnow Article by deirdra.funcheon@bisnow.com July 24

“As you can imagine, things are a bit crazy here,” said Emilio Colón-Zavala, president of ECZ Group and head of the Puerto Rico Builders’ Association, this month — even though it has been almost a year since Hurricane Maria slammed his homeland.Puerto Rico is still recovering from hurricane-related infrastructure failures (the water system was long-neglected and the electric company has had five CEOs in a year) as well as a decade-plus financial crisis.

The commonwealth owes creditors a whopping $124B, and bondholders are fighting over who will be repaid. Investors are looking to scoop up distressed properties or take advantage of generous tax incentives, and cryptocurrency entrepreneurs have invaded with a vision to remake the island and run it on bitcoin. Meanwhile, residents still struggle; the average family income is about $20K.  Amid these challenges, the hospitality industry is putting on its best face and charging sunnily ahead. Most hotels in the commonwealth are back open or will resume operations by the time high season begins in September; some already had record occupancy for spring break.  Colón-Zavala and other experts will discuss these converging factors — and the state of the hospitality industry throughout the Caribbean — at Bisnow’s Caribbean Hospitality and Investment Summit in Miami Aug. 23.

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Carla Campos, executive director of the Puerto Rico Tourism Company (a government agency), said the hospitality industry was seizing this moment to come back better and stronger. As of May, she told Travel Weekly, 12,000 of Puerto Rico’s 15,000 hotel rooms were operational and the other 3,000 were being remodeled. She said the reopening of the St. Regis, El San Juan and the Ritz-Carlton in October would be recovery milestones. The hurricane made Americans more aware that Puerto Rico is “a U.S. territory and you don’t need a passport to go there, that there is easy access from U.S. cities,” Campos said. “That puts us in this position to seize the opportunity to capitalize on this increased awareness and convert it into awareness in travel.” In addition to her agency, a Destination Marketing Organization — a private nonprofit corporation responsible for the promotion abroad of Puerto Rico as a tourist destination — was established with legislation last year and will be funded with $25M annually. Brad Dean, the former head of Myrtle Beach Chamber of Commerce, will run the DMO and recruit both leisure and business travelers. 

Colón-Zavala said in addition to remodels, new construction is on tap. A JW Marriott, Aloft San Juan Convention Center, Aloft Ponce and Four Seasons Cayo Largo are all in the works. “We have already like $1.9B in projects in the pipeline,” Colón-Zavala said. “It’s going to be like a 4,000-room increase — like 5% of hotel inventory. We have 15,000 hotel rooms in Puerto Rico and the pipeline is almost 25% more.” That means builders are in high demand — “You get proposals left and right,” Colón-Zavala said — but contractors are being selective about which jobs to take for fear of not getting paid in a timely manner. Private insurance has been slow to pay claims, and some government agencies don’t have funds due to the commonwealth’s financial crisis. FEMA is still active, and is siphoning workers from other jobs by paying 25% to 50% more, Colón-Zavala said.From an investment standpoint, Colón-Zavala said people from around the world have been interested in Puerto Rico; there is a lot of interest from China. Investors should look not just at hotels and resorts, but also at public-private partnerships in infrastructure, Colón-Zavala said. He said private companies have recently been awarded concessions to run a ferry service, a major highway and airport operations. 

Numerous solar companies have also descended on the region. “A year ago, people would not buy solar with batteries because of the expense that it represented,” he said. “This year, it’s the other way around — you would be crazy not to buy a battery with your solar panels.”    Sion Capital founder Jonathan Kracer, who advises real estate investors and will also speak at next month’s event, wrote recently that there is forward momentum pulsing through the 30 major Caribbean islands. All-inclusive resorts are doing brisk business, and low-cost airlines from all around the world have increased flights to the region. Kracer told Bisnow that following last year’s hurricanes, “I was surprised by the lack of a cohesive communications strategy to change traveler misconceptions about the conditions in the Caribbean. Only about eight islands of the [about] 30 in the Caribbean were most impacted by Hurricane Irma, and the perception of damage impacted demand volumes in the whole region.” Ultimately, though, he said that better construction techniques and stricter building standards would bode well for the region. Right now, he said the best move for investors would probably be “acquiring older independent assets or damaged properties from the recent hurricanes, and renovating and professionally managing them … As tourism is the most important economic driver for the region, the Caribbean is very resilient and will bounce back.”  

Another panelist, Rogerio Basso, principal investment officer for multilateral development bank IDB Invest, said “We have a heightened appetite to explore greenfield operations in the Caribbean and are also seeing growing interest from regional banks to fund hospitality transactions. Rising interest rates, however, are putting pressure on developers to not overextend themselves on debt and ensuring projects have sound fundamentals to withstand market trepidations.”

Hear more about tourism, hotels and investment in the Caribbean at Bisnow’s Caribbean Hospitality and Investment Summit Aug. 23. 

Puerto Rico After The Hurricanes: Investors And Bitcoin Cowboys Are Circling

By Deirdra Funcheon as Published in Bisnow South Florida

Puerto Rico has been desperate for aid that has been too slow and insufficient following hurricanes Irma and Maria in 2017. But a few on the island say the attention followed might ultimately be a net positive for the commonwealth. “The bottom line is that Puerto Rico in the next two to three years is expected to see strong growth — 3 to 3.5% of GDP,” said Adam Greenfader, principal of Miami-based AG&T Development and Advisory Services. “It hasn’t had growth in 12 years. A depression is defined as negative economic growth for three quarters, so for all intents and purposes, Puerto Rico has been in a depression for 12 years.”

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Greenfader married into a family that facilitates Section 8 housing throughout Puerto Rico. He then became a developer there himself. Currently, he serves as the liaison to the Puerto Rico Builders’ Association and the chair of the Urban Land Institute’s Caribbean Council. Greenfader points out that while last summer’s hurricanes devastated the commonwealth, jobs had already been scarce for more than a decade as the government faced a crippling debt crisis, owing $123B and declaring bankruptcy last spring. Though an estimated 150,000 Puerto Ricans fled to the U.S. mainland after the hurricanes, between 60,000 and 70,000 residents had already been leaving each year of the crisis. Puerto Rico’s current population is about 3.5 million, down from a peak of about 4 million, Greenfader said.

Turnaround efforts began years ago. Reforms enacted in 2012 enticed businesses and high net worth individuals to relocate to Puerto Rico by taxing corporate profits at a flat 4% and eliminating taxes on dividends, interest and capital gains for anyone who resided at least half the year in Puerto Rico. For anyone selling a company or large amounts of stock, these measures could result in saving millions of dollars on taxes. Famously, Putnam Bridge Funding CEO Nicholas Prouty invested more than $100M and relocated his family. Billionaire John Paulson bought several hotels. Michael E. Tennenbaum founded Caribbean Capital & Consultancy Corp. Goldman Sachs and various hedge funds moved in and bought distressed mortgages for pennies on the dollar. 

Greenfader said that about 1000 high net worth individuals moved to the island, and about 200 are coming each year. Cottage industries sprung up to cater to these ultra-wealthy.  Then last year’s hurricanes blew through, knocking out power and killing 64 people directly and 4,645 in total, according to Harvard University. Though the U.S. government responded painfully slowly, $18B in aid has been approved from the Department of Housing and Urban Development, and billions more are expected, Greenfader said.

Recovery is slow, but happening. Tesla built a solar array to power a children’s hospital. Doctors are being offered tax incentives to stay in Puerto Rico. Private insurance companies have started to pay claims, so 60% of hotels are now operational, Greenfader said. He believes that when the economy improves, exiles will move back. 

Publicity around the hurricanes certainly brought attention to the commonwealth. Immediately after the hurricanes, only about half of Americans knew that Puerto Rico was part of the United States; that number has since risen to 76%. Following the disaster, dozens of cryptocurrency entrepreneurs relocated to San Juan to buy hundreds of thousands of acres of land, take advantage of the tax structure and set up a “crypto utopia.” Greenfader suggested there is more opportunity for economic recovery: Puerto Rico’s tourism industry makes up only 6.5% of gross domestic product, whereas on many Caribbean islands, that figure is 50% or more. That is by design, he said; in the 1950s and ’60s, laws were structured to keep out the Mafiosos who ran Cuba. It could be increased substantially. 

Furthermore, the island has long had a mishmash system of collecting property taxes, partly because so many homes are built informally or illegally — “People get a paycheck, buy [a] few beers, invite their friends and family over to build a wall at a time,” Greenfader said — and partly because the tax code hasn’t been revised since 1950s. “A property worth a million dollars might pay no more than $2K, $3K in taxes for a year,” Greenfader said. A better system of collecting taxes could be implemented to make the government more solvent.  Although he is optimistic, Greenfader acknowledged the challenges.

While Puerto Rico is a diverse society, where rich and poor have long mixed freely, the influx of people taking advantage of the tax breaks is “adding an upper class the island never had before,” he said, and there has been some blowback. Workaday employees are facing pension cuts and austerity measures as Puerto Rico grapples with its debt. Currently, according to Democracy Now, 55,000 residents are in foreclosure and the government is turning to privatization as the solution for economic woes, which will enrich investors but hurt the working class. In a Bloomberg article Monday about the search for someone to buy the country’s beleaguered electric company, which goes so far as to ask potential buyers how they would like to be regulated, a Puerto Rico resident said, “We are tired of people coming here to get rich and take advantage of us.”  Some grass-roots organizations have taken shape to resist Wall Street — forces that author Naomi Klein explores in a new book, “The Battle for Paradise: Puerto Rico Takes On the Disaster Capitalists.”

Greenfader noted that insurance premiums will likely continue to rise, and the Jones Act, a shipping law that requires goods to stop in a mainland port, makes commodities expensive. Whatever economic policies prevail, at least new construction on the island should be more resilient. Greenfader said builders already adhere to codes that mirror Miami-Dade’s, which were made stronger after Hurricane Andrew in 1992. They use reinforced concrete and no wood. Going forward, he said, there is a commitment to using more sustainable designs, particularly in the energy space, such as solar power arrays and micro electric grids. Today, about 10,000 customers in Puerto Rico who lost electricity after last year’s hurricanes are still without power. 

 
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