In this insightful conversation during the COVID19 pandemic, Adam Greenfader and Rich Holman, Chairman of Lifeafar, explore USA longstanding relationship with Puerto Rico manufacturing, the consequences of the elimination of Section 936, and how 1.2 million Puerto Ricans living in Florida may decide the the 2020 US Presidential election.
Other topics discussed:
Act 20/20 Tax Incentives
Puerto Rico Opportunity Zones (98% of the island)
The positive consequences of Hurricanes Irma and Maria
San Juan- “The Future of Tourism and Hospitality: Increasing Capacity and Competing in a New Caribbean Market”, will be the main topic to be discussed by a panel of experts on the subject, each one representing a sector in the ever-changing world of tourism and hospitality.
The chairman of the board of the PRBA, Eng. Emilio Colón- Zavala, stated that: “Through this panel, the Puerto Rico Builders Association (PRBA) will provide the space for a wide and varied discussion, which will cover the new trends in the Modern Tourism industry, as well as the importance of efficiently positioning Puerto Rico as a competitive destination in the Caribbean. Tourism with less than 7% of the islands GDP, is slated to become one of the pillars of our economic development and it is urgent to incorporate into our offer all new trends that continue to develop and evolve in the Hospitality Industry”.
The panel moderated by Adam Greenfader, Managing Partner of AG&T, will have the participation of:
Carla Campos- Executive Director, Puerto Rico Tourism Company
Pablo Maturana- Managing Director Development South America & The Caribbean, Hilton International
Rachel DeLevis- Policy Associate, AirBnB
Federico Stubbe- President, PRISA Group
Federico Sánchez- President and CEO, Grupo Interlink
Eric Berman- Chief Investment Officer, Lifeafar
This panel will be held on October 30, as part of the Forty-Sixth Annual Convention of the Puerto Rico Builders Association: “A Challenge to Build the Future”, which will take place at the Puerto Rico Convention Center on October 29 and 30.
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About the PRBA
The Puerto Rico Builders Association is a private, non-profit organization. Established in 1951, its main purpose is to represent leading developers and investors of housing, commercial, office, industrial and tourism projects. The Association also represents investors, suppliers, banks professionals and companies associated with development and construction in Puerto Rico. Its main objective is to promote and lead the planned, safe and sustainable development in order to serve as the island’s economic engine, in collaboration with Puerto Rico’s public and private sector.
Big shout out to many of you who flew in from across the country and Puerto Rico to attend our third Caribbean roundtable in Miami. It was evident from the discussions and presentations, that the Caribbean region continues to offer a wealth of opportunities as well as challenges. Our theme at yesterday’s roundtable was centered around ULI efforts in resiliency and rebuilding.
The panel discussion started with a report by Mr. Tom Roth of Grass River Property on Puerto Rico. Tom travelled the island last year as part of the ULI Advisory Service Panel thanks in part to the the support of The Kresge Foundation and our local District Council. The ULI Advisory Services Panelists spent a week in the Municipality of Toa Baja, Puerto Rico, to provide expert advice on enhancing recovery efforts after the catastrophic and deadly 2017 Hurricane Maria. Tom Roth’s presentation during our roundtable highlighted some of the lessons in dealing with rebuilding, seizing the opportunity to build on higher ground, and the availability of Federal funds for rebuilding homes for Puerto Rican familes.
While at this moment it is still very dangerous to access Abacos, Bahamas, Gene Budler of DCK presented some real time images of his recent relief trip to Abacos. The images of the destruction are truly unbelievable with tons of waste, destroyed homes, and obliterated life infrastructure. As the relief cycle continues, we will be tracking the situation. There is a clear need for stronger, better planned, and more resilient construction. It is our hope to be able to help the Bahamas with some solutions to the massive rebuilding efforts. If you are interested in helping there are multiple organizations. One such group recommended by Gene is MedStar out of Houston, Texas.
As part of our on-going effort to increase our engage with the Caribbean, we are planning a Caribbean study cruise in 2020. The idea of the cruise is to bring together some of the top minds in resiliency for an comprehensive educational summit. In addition to the seminars, we plan on visiting several islands that have been affected by the recent hurricanes. If you are interested in helping organize the study cruise please reach out to either Max or myself. As a reminder, this roundtable is open to non-members as guest to start but is a benefit for ULI members. To join please visit: https://americas.uli.org/membership/join/ If you have any questions, please call 1-800-321-5011 or contact Max Helden.
We are looking to plan a December networking event for this group and then will schedule the next content-oriented roundtable for 2020.
Thank you all again for your participation and to our very kind sponsor Paramount Miami World Center for hosting the event and lunch. You can learn more about our ULI Caribbean Engagement at https://seflorida.uli.org/get-involved/caribbean-engagement/
Investor Sentiment For Rebuilding The Caribbean Region Remains Strong
Miami, Florida – The Bisnow Caribbean Hospitality and Tourism Summit held on August 1, 2019 at the Intercontinental Hotel in Miami drew over two hundred investors, developers, hotel operators and other industry professionals.
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.
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.
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.
Governor Announces Puerto Rico’s First Hyatt Regency
The Weekly Journal Staff 6-4-19
Gov. Ricardo Rosselló announced that Gran Meliá Hotel was bought by Monarch Alternative Capital in partnership with Royal Palm Companies and Ambridge Hospitality. Together they will rebrand and relaunch the hotel as the Hyatt Regency Grand Reserve. The governor announced that the developers are contemplating a 10-year master plan. This will include six hotels in the Grand Reserve (Coco Beach) peninsula in Río Grande, of which three are expected to be opening by 2022. “Transactions such as these that are happening now validate that our commitment to tourism is a successful one, and there is a positive environment for investment,” Rosselló said at the 41st International Hospitality Industry Investment Conference by New York University (NYU). The governor added, “we have managed to streamline processes to grant tax benefits and permits, which proves that this administration maintains a bureaucratic battle so that the private sector may have better investment opportunities.”
New Project
The Hyatt Regency Grand Reserve Resort will have five new restaurants and will create roughly 200 new jobs. The average rate is expected to fluctuate by $300 per night. During his presentation, Rosselló revealed blueprints and mockups for the property. He stressed that Puerto Rico’s “fertile and positive” environment for investments in the hotel industry. The Hyatt Regency Coco Beach Resort is part of a $120 million deal made possible through an agreement with the Puerto Rico Tourism Co. (PRTC), which granted tax credits conforming to the P.R. Tourism Development Act (Act No. 74-2010). Of the total investment, $100 million correspond to development costs to elevate the property to Hyatt’s luxury standards. The PRTC has been working on this business deal along investors for several months. PRTC Executive Director Carla Campos assures that Tourism is focused on increasing the island’s hotel inventory in the short term, emphasizing Puerto Rico’s “competitive and incomparable” investment advantages.
After damages caused by Hurricane Maria in 2017, Monarch Alternative Capital, which already had interests in the peninsula, seized the opportunity to acquire the Gran Meliá Resort, with 486 rooms, 135 bedroom units, and 14 more terrain acres. In order to proceed with the transaction, Monarch made a conjoint agreement with Royal Palm Companies and Ambridge Hospitality. According to Campos, this project makes part of a “long-term master plan” that seeks to add 2,500 new rooms to the island’s hotel inventory and 1,500 new jobs. “This will result in a total investment of roughly $1.5 billion, when the six hotels are finished,” she added.Both the governor and the PRTC executive director stressed Puerto Rico’s strategic position as a connector between the United States and Latin America and the island’s structural reforms, which they claim positions Puerto Rico as the most competitive U.S. jurisdiction for hotel investment.
The officials also highlighted the investment tools that provide a combination of tax benefits at state level, in addition to the competitive advantage of being almost entirely eligible for certain benefits and exemptions under the Opportunity Zones incentive as included in the U.S. Tax Cuts and Jobs Act of 2017.
On May 8th, the ULI CARIBBEAN ROUNDTABLE celebrated its second ROUNDTABLE meeting of the year. The turnout at Wework in Brickell City Centre was large and enthusiasm for the region palpable. Present at the event were industry leaders in finance, debt lending, construction, architecture, affordable housing, hotels and green building.
Big shout out to the Kresge Foundation (https://kresge.org) and all who participated in the Toa Baja Puerto Rico Resiliency Panel. The panel was but another example of the capacity of ULI to bring real solutions to real world problems.
Special thanks to our two speakers at the ULI CARIBBEAN ROUNDTABLE -Mr. Rogerio Basso, Head of Tourism at IDB Invest and Mr. Andrew Dicky – Executive VP JLL Hospitality. Financing projects in the Caribbean brings its own set of challenges and opportunities. It was great to look under the proverbial “hood” and examine how capital approaches Caribean hospitality lending.
Save the Date –On August 1, 2019, The Puerto Rico Builders Association will be hosting its 3rdAnnual Bisnow Caribbean Hospitality Investment Summit in Miami. If you are interested in Speaking/Sponsoring there are a few spots available please reach out to Jorge Montilla jmrm@mcvpr.comfor more details.
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:
To discuss a list of hospitality projects that are getting funded in the Caribbean Region, share details on projects and the funding
Bahamar project and case study
Sources of hotel financing and the interplay of mezzanine financing
The synergy of luxury cruise ships and private islands
The business of Cannabis in the Caribbean
The effect of Hurricanes on hotel supply and competition
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.
The ULI Hospitality and Recreation Council met this month to discuss some of the recent trends and opportunities in the hotel industry. Big shout out to the whole leadership team – to Robbie Carver and Ari Tenzer specifically for putting together an amazing panel of speakers.
Puerto Rico this year was top of mind at ULI Hospitality and Recreation Council. Several speakers highlighted new opportunities in hotel investment and other tourism activities. While it is part of the HRDC guidelines to keep specific project information confidential, I would like to shed some color on recent events happening in Puerto Rico that is leading to this renewed interest and demand.
Limited Tourism Supply – to date there are about 14,000 hotel keys in Puerto Rico. Most of the supply that was damaged in the hurricanes has been improved. Occupancy rates hover 80% and ADRs have been increasing every year for the last five years. A recent market study by the Puerto Rico Builders Association, shows a demand for 30,000 keys in next decade.
Liquidity – in the last six months the resolution of Puerto Rico debt has made significant progress with better than expected returns on the top tier bonds of Geo & Cofina.
Pro-Business Government – For the first time in almost two decades, the island has a government that is actively seeking private investment.
Tax Incentives– The Tourism Hospitality tax incentive provides up to 40% back on capital investment for hotel and other tourism related projects.
Other Tax Incentives– Law 20/22 has has resulted in 1,200 high net worth families moving to the island as well as 175 service companies, and 75 independent financial corporations.
Better branding – In 2018 the DMO (Destination Marketing Organization) was launched with the goal of bringing better and more consistent messaging to Puerto Rico’s tourism and industry.
Puerto Rico USA – After the 2017 hurricanes, 82% of the US recognizes Puerto Rico as being “part of the United States.”
80+ Billions of dollars – This robust allocation will stimulate the economy in the short term and hopefully provide a launching pad for long term economic growth through CDBG-DR, FEMA, HUD, LHTC, SBA, and other programs.
Opportunity Zones – applies to approximately 97% of the island of Puerto Rico. This should de-risk equity investment and reduce the gap in cap rates between stateside and island investment opportunities.
Public-Private Partnerships – The P3 laws in Puerto Rico are some of the most modern in the world allowing direct pass-through of payment from consumer to sponsor. The current administration has placed a strong reliance on unsolicited P3 bids – in other words it is recommend that you submit your own idea of a tourism related project.
New Infrastructure – The soon to come sale of the electrical authority (PREPA) and other antiquated government facilities will dramatically reduce costs across the entire economy. This will make the hospitality sector in particular more competitive.
Florida Product Councils (FPCs) are small groups of ULI members that commit to meet at least two times per year with fellow real estate professionals to share best practices, grow their network and discuss development practices that influence and change our communities.
AG&T and the Builders Association of Puerto Rico invited to participate at the Hotel Opportunities Latin America (HOLA) Conference in Miami.
Some take aways from today’s meeting in Miami.
The LATAM hotel industry is seeing a lot of over supply with a few exceptions in the emerging countries.
Big hospitality growth in Colombia(14%), Costa Rica(15%) and Peru (18%) .
Mexico and Brazil still lead in overall Latin American hotel supply pipeline.
As for new development, risk management is the word of the day. As is expected, all inclusive resorts seem less concerned about the new disruptors like Airbnb, but all are keeping their eyes on elections in several key countries.
Argentina and Brazilian markets continues to draw hotel groups but there is uncertainty about exit timetable.
Investors in several LATAM countries move beyond capitalization rates and focus primarily on desired yields.
