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.