Puerto Rico aims to become ‘Dubai of the Caribbean’

SAN JUAN, Puerto Rico  – The Commonwealth of Puerto Rico’s economy has never been this attractive to an infinite number of local and foreign investors until a couple of years ago.

The island’s major challenges, prior to the tourism investment renaissance of the last 18 months, have included a growing structural deficit covered by excessive borrowing, decreased Government Development Bank liquidity, growing debt levels and large unfunded pension liability. But according to the president of the Government Development Bank for Puerto Rico, Jorge Irizarry, fiscal reform is in full implementation and spending has decreased the structural deficit from US$1.4 billion in fiscal year 2006 to US$350 million in 2008. Furthermore, “The tax reform has been implemented and is substantially on target, thus increasing revenues in spite of the US economic slowdown and the sales tax that produces almost twice the revenue of the excise tax it substituted. A government restructuring plan for economic growth is being implemented,” he said emphasizing private sector growth and involvement is on an upswing.

As a result, Moody’s recently changed its outlook for Puerto Rico from negative to stable. Likewise S&P has improved its outlook to stable from negative, although it downgraded the rating to BBB-, taking it to the same level as Moody’s. “The change to stable outlook by both agencies assures the stability of our current ratings,” added Irizarry during the first Puerto Rico Tourism Investment Conference held at the Puerto Rico Convention Center, the biggest by far in the entire Caribbean.

Despite the island being in recession since late 2006 (with the US’ growth at a much slower pace than previous year), high oil price and a politically contentious environment, Puerto Rico has proven to have a vibrant tourism sector, a tax reform that gives tax relief for individuals from 2008-2009, a banking sector currently normalizing after a loss of market cap, let alone, a US$1 billion investment in new construction expected next year.

Puerto Rico’s Chief of Staff Jorge Silva-Puras recommends today’s stable environment of the island that enjoys the benefits and protection of the US legal and regulatory systems, as well as the openness to trade and investment. He said, “The Commonwealth’s development plan encompasses accelerating the island’s knowledge-based economy, promoting local entrepreneurship and diversifying and improving the industries.” By encouraging local entrepreneurship, Silva-Puras stressed availability of financing and training, improved access to local and international markets and the speed of granting permits and evaluations – an ongoing issue that’s been widespread complaint by previous micro- and macro-investors on the island.

Since the Puerto Rico Tourism Development Company (PRTC) created a Tourism Development Division, which is similar to Mexico’s FONATUR, as a result of a major reorganization of the company in January 2006, tourism in Puerto Rico has seen major progress in the hotel real estate scene. Development of new hotels and tourism infrastructure has increased across the island. Through a five-year strategic tourism development plan, the PRTC maximizes the industry’s economic potential to the fullest.

In parallel, a Tourism Master Plan is being created, including an inventory of all the tourism offerings available on the island, recommendations for new districts or regions suitable for tourism development and a profile of industry trends in order to cement Puerto Rico’s leadership in the Caribbean.

PRTC executive director Terestella Gonzalez Denton announced the development of Puerto Rico’s tourism regions at a pace never seen before. The vision is through organized regions. “Of the 78 municipalities, we have designated five tourist regions with its own particular branding and strategic plan. They are Porta del Sol in the West, Porta Caribe in the South, the San Juan Metro Region, the North-central region and the Eastern region,” she said. The San Juan Metro area, which has the most financial district and business centers in the entire Caribbean, and part of the Cuidad Mayor (main city), will be transformed into a cosmopolitan, world-class city. “With the planned future of the region, the development of the San Juan Waterfront which includes a mega-yacht marina, a waterfront promenade, boutique hotels, restaurants and shops earmarking an investment of US$200 million with an estimated US$1.4 billion in return, San Juan will arise a sophisticated world class tourism zone catering to high-end and corporate markets,” she said.

The East, which boasts tourist attractions such as the only rainforest in the United States and the Caribbean, will see the arrival of 29 new properties, seven marinas, a botanical garden, the world’s best beaches, keys and other attractions sprawled over 55 miles along the coast, said Denton. She added there will be five hotel corridors to come online on the Eastern region, while the Southern region of Porta Caribe will attract more culture-based tourism through the improved museums, cruise ship ports, Puerto de Ponce, Mercedita Airport and several convention centers now on the drawing board.

Thanks in part to the Puerto Rico Development Act created by the PRTC, which ushered a 100 percent income tax exemption, 100 percent exemption from property taxes and 100 percent sales tax exemption and tax credits for new construction. Tax credits are available for each hospitality project which equals the lesser of 10 percent of total eligible cost of the hospitality project, eligible cost as determined by the PRTC or 50 percent of the cash capital invested in the hospitality sector.

Indicators show a genuinely healthy tourism industry for Puerto Rico. To date, there are 17,787 new hotel rooms built and added to inventory. A further 1000 new more rooms are scheduled to be delivered this 2007. The island has earmarked US$777 million in new developments in hotels, generating 2,106 new jobs and 4,275 indirect jobs. Improving service standards, the division of tourism quality and education affairs has been re-organized with the intention of raising the importance of the area; also to strengthen the skills of the island’s workforce; to create and promote quality client service, English-language skills and staff entrepreneurial skills. To boost the project, campaign Mi Isla Preciosa was launched to engage the community in positive attitude and caring for the island.

Kenneth Blatt, of COO Hotel Division for the Caribbean Property Group, certainly believes the El Dorado area will be a star tourism destination. “The project would not have materialized had it not been for the significant support the PRTC has given us and all parties across the board.” Further, Blatt thinks a casino component to any Puerto Rico hotel investment will help boost the bottom line.

Equally convinced about the trend and boom in Puerto Rico is Segundo Garcia Caban, partner at Blusierra Management Group who announced during the forum that his company has set up the first ever REIT in Puerto Rico. This, after having witnessed marked improvement in the general investment climate.

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