Puerto Rico’s hotel Industry takes centerstage this week in Miami.

Puerto Rico takes centerstage at the Caribbean Hospitality Investment Summit (CHRIS) held this week at the Hardrock Hotel in Miami.

El Convento Hotel

The Puerto Rico Builders Association, one of the sponsors of the CHRIS event, was honored to congratulate Hugh Andrews, CEO, IHE as he received the Lifetime Achievement Award. The award was presented by Vanessa Ledesma Acting CEO and Director at Caribbean Hotel and Tourism Association.  Vanessa, herself a great friend and native of Puerto Rico, discussed with Hugh Andrews his vast accomplishments that include the development of such Icon hotel properties as the Conquistador Hotel, El Convento, Las Casitas, and Vanderbilt Hotel.

The Vanderbilt Hotel

STR in its annual report, listed Puerto Rico’s year over year recovery from 2019 as one of the Caribbean’s  top destinations. This includes maintaining strong airlift throughout the pandemic, maintaining high ADRs, and an impressive 82% Occupancy rate. The recently delivered Aloft San Juan hotel was named as top CHRIS hospitality development of 2021.  Adam Greenfader, Managing partner of AG&T and Florida Liaison Chair of the Puerto Rican Builders Association,  spoke on the success of the P3 program in Puerto Rico. He mentioned in the Public-Private Collaboration panel that the island will be soliciting a P3 bid for the management of the 9 remaining local and national airports.

Kenny Blatt, Principal/Managing Partner of CPG Real Estate, spoke extensively on Puerto Rico’s hospitality industry. He discussed the island’s capacity to greatly expand its hospitality and tourism sectors.  Blatt’s was enthusiastic about the transformation at Dorado Beach, A Ritz-Carlton Reserve and its evolution since 1958.   His key takeaways on Dorado Beach’s success include working with local partners as a critical best practice. Blatt praised the Stubbe family and PRISA group repeatedly as “ the greatest developers any resort can ever have.”

El Conquistador Hotel

The Puerto Rico Builders Association will be celebrating its 70 year anniversary at its upcoming conference on October 27-28, 2021. For more information visit https://constructorespr.com

Could this be the year for Puerto Rico?

Puerto Rican Flag
Adam Greenfader, Managing Partner, AG&T

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://www.agandt.com/wordpress/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.

 
Grand Reserve
Grand Reserve

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. 

ULI | Heitman Report

CLIMATE RISK AND REAL ESTATE

Excerpts from the 2020 ULI | Heitman Report.

ULI partnered with Heitman, a global real estate investment management firm, to assess the potential impacts of climate change on the long-term viability of real estate assets. Derived from a series of interviews with leading institutional investors, investment managers, investment consultants and others, the report provides members with an inside look at how real estate investors are factoring climate risk into their investment decision-making and management processes.

See full report at : https://knowledge.uli.org/en/Reports/Research%20Reports/2020/-/media/b81db4bbc77845f7834f24b0e974dd7a.ashx

ULI publishes this updated report amid a global pandemic and economic uncertainty. For many, it may feel as if the priority of addressing climate change is dissipating as we face the immediate challenge of COVID-19.  Although it is still too early to draw conclusions about the long-term implications of COVID-19 for our cities and the real estate industry, such a wide-scale humanitarian crisis throws the connections between environmental, social, and governance (ESG) issues and our economies into sharper focus.

However, just as the coronavirus has exposed many weaknesses, it has also shown us that we have the ability to adapt and change our behaviors quickly and radically.

Globally, most major economic hubs are in coastal, river delta, or other high-risk areas. These locations present many advantages, relating to connectivity, trade, quality of life and placemaking. These cities house more than half the global population, with much higher percentages of residents in some regions. About 80 percent of U.S. residents live in cities, for example, 39 percent of the European Union population lives in metro areas with 1 million or more inhabitants.

In 2020 (as of October 7), there have been 16 weather/climate disaster events with losses exceeding $1 billion each to affect the United States. These events included 1 drought event, 11 severe storm events, 3 tropical cyclone events, and 1 wildfire event. Overall, these events resulted in the deaths of 188 people and had significant economic effects on the areas impacted. The 1980–2019 annual average is 6.6 events (CPI-adjusted); the annual average for the most recent 5 years (2015–2019) is 13.8 events (CPI-adjusted).

Many of the most economically powerful coastal cities face significant climate risk. However, these cities offer some of the most attractive investment environments, meaning that the risk is worth the return. “We have a dilemma that some of the most attractive markets are also markets that are affected more by weather-related risks,” noted one real estate investment manager. However, a few investors indicated that they are beginning to suspend acquisitions or take steps to reduce their real estate footprint in city markets where they harbor climate-risk concerns. The phases after a big disaster, according to one interviewee, were to see the market buoyed up by subsidies and insurance, followed by rebuilding and speculative demand. This short-term “sugar high” of disaster support, insurance claims, and opportunistic investment likely masks underlying negative and fiscal impacts that could be exacerbated by future climate-related events (or other shocks).

The research found a number of misleading correlations, such as flooding having a positive impact on cash solvency and fiscal health, and hurricanes increasing budget solvency. However, the current model of contingencies will not be sustainable with the expected increase in the frequency and intensity of climate change impacts, as well as slow-moving stresses such as sea-level rise, which further exaggerate the effect of peak events. In other words, a weather-related event has not yet adequately “shocked” the system of contingencies as to break it. However, the COVID-19 crisis may prove to be the ultimate shock to the system that breaks it. What happens when that “extreme event” is no longer a geographically or temporally discrete event?

“There are three big mechanisms through which costs are likely to increase going forward: one is insurance, [and] the second area is . . . tax rates and the third is cost of financing as banks start to cost the added risk.

 BlackRock, the world’s largest asset manager, made headlines in January 2020 when Larry Fink, the firm’s CEO, stated in his annual letter on corporate governance that “climate change has become a defining factor in companies’ long-term prospects,” and “we are on the edge of a fundamental reshaping of finance.” The BlackRock announcement signified an increasing industry prioritization of climate change mitigation, or efforts to prevent or reduce greenhouse gas emissions.

Most interviewees also expressed overall uncertainty about future insurance prices and the likely market impacts of shifting insurance policy. In an extreme scenario, some investors envisioned a future in which properties could not qualify for insurance at all and therefore became ineligible for loans.   The annual insurance pricing structure can underpredict risk for longer hold periods, as well as for the underpinning infrastructure. The approach also assumes the long-term availability of underwriting capabilities, in terms of the affordability and availability of products. If sites are unable to obtain insurance, they will not be eligible for loans, leading to major potential valuation consequences.

Long-term focus: In lay terms, catastrophe models simulate “thousands of versions of next year,” not “thousands of successive years.”

All agreed that valuation is currently lagging behind recognition of climate risk and anticipate this changing in the near future. Valuation does not incorporate climate risks because it is “backward-looking”. Models typically do not allow a user to modify future climate conditions, and there are no established best practices to apply insights from climate science to catastrophic hazard risk modeling. Valuation has become more urgent for investors considering longer time horizons. Some investors have also informally discussed properties having “expiration dates” after which they may no longer be safe or suitable for residential or business use without extensive investment in surrounding infrastructure.

Anticipating steep declines in building value because of climate impacts runs counter to how buildings are currently valued. In the current model, value is derived from the residual value of the land and structure, plus discounted cash flows over time that drive net present value and cap rates. However, if dramatic changes lead the value of the structure and land to approach zero, cap rates would change significantly, with a steep decrease in value after purchase, and would need to be offset with increased cash flow and profitability to maintain net present value.

Several discussed efforts to design risk mitigation strategies for vulnerable assets and price these costs into deals. Some also spoke about resilient design as presenting opportunities to differentiate assets and enhance value. For example, one interviewee said they were exploring opportunities to create a “resilience zone” for entire neighborhoods.

Parametric insurance, where insurance payouts are linked to when predefined event parameters such as extreme weather events are met or exceeded, is an emerging option. Industry leaders note that parametric insurance may become more widespread, but it is not an appropriate solution for all scenarios. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) is one example of a regional fund.  #heitman 

 

AG&T is committed to being part of the climate solution. AG&T joined over a thousand leaders from local governments, businesses, universities, and other institutions across the country as part of the “America Is All In” joint statement.  To learn more click here. 

Returns on Resilience in The Caribbean

ULi Speakers

As the world struggles to return back to normal from the Covid19 pandemic, environmental concerns continues to loom as an area of great concern for world and the Caribbean region in particular.   What strategies have institutional capital,  developers, reinsurance companies and owners in the Caribbean pursued to protect their properties from climate-related risks? Do these resilience investments make business sense as a development objective? What has the capital market response been? And how have developers and property owners measured their success? 

Speakers: 

Jan Raes, ABN AMRO  Global Sustainability Advisor  

Esteban Biondi, ATM Associate Principal

Koen Olthuis, Waterstudio NL, Co-founder

Adam Greenfader, AG&T, Managing Partner 

 

 

Topics to Include:

1. What is the capital doing about investing in resilient projects?

2. How are developers integrating resiliency practices into their projects?

3. The $ of Resiliency – Beyond the ULI Heitman Report

4. Aquatic Architecture: is it just a matter of Time?

 

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 

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

See full video here.

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

ULI Caribbean Resiliency and Rebuilding Continues

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.  

 

 

To download the full report: https://americas.uli.org/wp-content/uploads/sites/2/ULI-Documents/ULI-ASP_Report_ToaBaja_PR_Final.pdf

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/