Puerto Rico Funds, Money

Despite the complex government bankruptcy and the critical state of the infrastructure in Puerto Rico, as recovery funds arrive —and the restructure of the debt culminates— the outlook is encouraging for leaders in the business sector, who assure that it is time to invest on the island.

After Hurricane Maria made its onslaught in 2017, the U.S. Congress allocated nearly $20.5 billion in funds from the Community Development Block Grant Program for Disaster Relief (CDBG-DR) to rebuild the island, of which $1.5 billion have been disbursed. The remaining $19 billion have been obligated through the Federal Emergency Management Agency (FEMA) for permanent works.

The former president of the Puerto Rico Chamber of Commerce, Kenneth Rivera, told THE WEEKLY JOURNAL that the flow of federal funds expected for the island's recovery, the debt restructuring process —which should end in December this year—, tax incentives, the growing inventory of luxury properties, and the tropical climate make Puerto Rico an idyllic destination for local and foreign investors.

"Every crisis brings with it a series of opportunities. There were many people and companies that generated a lot of liquidity during the [COVID-19] pandemic and are looking to invest. An interest in Puerto Rico is awakening among investors and it is a good time for them to invest on the island," said Rivera, who is a Certified Public Accountant (CPA).

The Puerto Rico Incentives Code —which includes the Law to Promote the Exportation of Services (Act 20) and the Law to Encourage the Transfer of Individual Investors to Puerto Rico (Act 22)— offers the preferential rate of 4 percent and other tax benefits to foreign entrepreneurs who establish themselves or who reside part of the year on the island.

"For an American citizen, to the extent that he stops paying U.S. taxes, they find it attractive. They move, eliminate high costs, but keep American guarantees and lower taxes... and to that you add that they can keep their lifestyle," Rivera said.

According to the Department of Economic Development and Commerce (DDEC, Spanish initials), Act 22 has lead to 4,400 job creations, real estate investments of $1.3 billion, resulting in $8.8 million from property taxes and $703 million on local consumption.

Moreover, Act 20 has generated investments of $1.2 billion and 16,000 jobs with an average salary of $36,000. 35 percent of businesses exempt under Act 20 are local businesses.

Francisco Rodríguez, CEO of Birling Capital, explained that there is a resurgence of investor interest, mainly in tourism, real estate, and digital companies. He also indicated that the sale of depreciated assets has stood out.

"Many have done well in the pandemic and have capital to invest. In Puerto Rico there are a series of options so that investors can strategically invest their money in assets that have depreciated or that are cheaper," Rodríguez added.

According to Invest Puerto Rico's annual report, in the 2019-2020 fiscal year new business commitments were concentrated in Puerto Rico, which generated close to 3,500 jobs and $58 million in capital investment, as well as a 30 percent increase in its portfolio of opportunities during the fourth quarter of the year.

Growth During the Pandemic

Real estate broker Milton Serrano, manager of Reality Realty, told THE WEEKLY JOURNAL that the development of residential inventory has stood out with the resurgence of projects that had been left unfinished due to lack of funds or that were abandoned after being built.

"Land sales have increased due to the lack of inventory among individuals and developers looking to build complexes of up to 20 units. Likewise, we are developing projects in Ceiba with 127 units, Cabo Rojo with 14 units, Isabela with 31 units and a luxury project in Dorado. These are projects with local capital," Serrano said.

As for the luxury segment market, Serrano pointed out that "it has exploded and is at its best," and attributes the growth to the increase in investors settling in Puerto Rico.

"After COVID-19, there has been a dramatic growth because there was not much inventory and what has happened has created more demand for supply. Sales have skyrocketed in Dorado, Rincón, Río Grande, and Condado, where prices per square foot have also increased," he added.

Meanwhile, investments in the hospitality sector have also increased and new hotel projects have been inaugurated and others are about to join the island's offer. The Puerto Rico Tourism Co. (PRTC) reported that over $30 million have been invested in the metropolitan area and $17.7 million in the western area for the renewal of the offer and the establishment of new hotels.

The Marriott hotel chain projects the opening of three new hotels —under different flags— starting in 2022 in Isla Verde, Ponce and Luquillo, with an investment that exceeds $70 million. These hotels are in addition to the two Aloft hotels recently built in the Convention District and in Ponce.

Positive Stock Performance

Rodríguez added that another attraction of the local market is that publicly traded companies maintain a positive and stable performance compared to their peers in the U.S. mainland. The companies that make up the Puerto Rico Stock Index (PRSI) are Evertec (Evertec Inc.), FirstBank (First Bancorp), Oriental Bank (OFG Bancorp), Banco Popular (Popular, Inc.), and Triple S (Triple S Management Corporation).

He investing in these companies as part of a diversified portfolio.

"It is also time to invest on Puerto Rico's shares. All five companies had strong results in 2020. The PRSI is at 23.14 percent, above the Dow Jones, S&P 500 and Nasdaq indexes. This is something that has rarely happened," Rodríguez asserted.

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