Tuesday, April 1, 2014



We have read many news of billions of dollars in investments like these in the past years and they have never delivered what they promised. They only use Puerto Rico to evade the IRS and scam the US Tax payer. These "investors" have not lifted Puerto Rico from poverty, unemployment, crime and all that follows an impoverished country area.MJ


Eyes of the mega-wealthy firmly focused on Puerto Rico
xavira@caribbeanbusiness.pr; dennisc@caribbeanbusiness.pr;cbprdigital@gmail.com
Edition: March 27, 2014 | Volume: 42 | No: 11
Dozens more wealthy investors also looking at the island for opportunities
Eyes of the ultra-wealthy firmly focused on Puerto Rico. Latest moves by offshore investors are only the tip of the iceberg, could represent huge economic driver for the island

A string of significant investments in Puerto Rico by hedge-fund and private-equity investors who are mostly based in the tri-state area has intensified in recent weeks, signaling a definite, long-term interest by big-time investment titans on the island. Total investments carried out by offshore investors so far tally around $1.5 billion. These investors are buying at bargain prices because of the present recession in Puerto Rico. 

Such developments are only the tip of the iceberg when it comes to offshore investments, several sources have told CARIBBEAN BUSINESS, with the main lure being Acts 20 (Law to Promote the Export of Services) and 22 (Law to Encourage the Transfer of Investors to Puerto Rico) of 2012, essentially the island's main calling cards in its bid to attract offshore investment.

Law 22 establishes incentives in which outside investors who turn Puerto Rico into their primary place of residence pay only 4% of taxes on earned income, no taxes on profit distributions and dividends, and zero taxes on commercial property for the first five years, with the incentives guaranteed for at least 20 years. To become eligible for the tax breaks, a person must live in Puerto Rico for at least 183 days a year and prove that a preponderance of his or her social and family connections is here. Any person who moves to the island signs a contract with the government that guarantees the tax breaks through Dec. 31, 2035. The investment tax breaks are guaranteed until 2036. 

Only congressional action—or granting Puerto Rico statehood—would put a stop to the tax breaks.

Another piece of legislation, Law 273 of 2012, also known as the International Financial Center Regulatory Act, seeks to broaden the scope of banking activities for international financial entities organized in Puerto Rico and establishes additional tax incentives for this sector. The Puerto Rico government primarily through Economic Development & Commerce Department (DDEC by its Spanish initials) Secretary Alberto Bacó, has aggressively pushed these incentives and has a list of some 300 offshore investors interested and ready to move to the island, sources close to the matter said, with the number of investors growing on a daily basis.

"Get on a plane now and business class is filled with representatives from Blackstone, Goldman, D.E. Shaw and every private-equity firm I know," said Prouty during a keynote speech at the Puerto Rico CIO & IT Leadership Conference in early February. "The movement is pretty impressive. We get three to five new entrants every week, and I think it's accelerating," said the head of the 20/22 Act Society—a support group for those who have the tax decrees—who wished to remain anonymous. "There are about three or four billionaires [besides Prouty] among the group of those moving to the island."

Under the provisions of Law 20, hedge funds have to move a significant part of their operations to Puerto Rico as well as channel assets through local banks to qualify for 0% tax on all investment income and 4% tax on service income, such as management fees.  "Currently, there are many hundreds of millions on deposit at local banks and in the future, this will become billions," the 20/22 Act Society head said. "This is money that is legitimately coming here and staying here. For sourcing purposes, you have to have your assets here." Other sources pointed to Paulson and Prouty as not only the most high-profile representatives in this latest wave of investments, but also the most outspoken champions of Puerto Rico's potential as a place in which to invest.

Meanwhile, Prouty has turned his lobbying for a Puerto Rico resurgence into almost a full-time job in itself. "Did you know that several times a week my phone rings and on the other end are potential Law 20/22 candidates wanting to learn more about moving to Puerto Rico? In those calls, I speak of the virtues of life here in Puerto Rico, the quality of the educational system, the kindness of people and the cultural richness," Prouty said. "I tell them that there is a lot of misinformation about Puerto Rico particularly when it comes to crime—that no, there are no shootouts on [Condado's] Ashford Avenue—that they need to stop watching reruns of 'Scarface.'"

When it comes to Paulson's Condado Trio acquisition, it is but the latest big-time Puerto Rico investment by the Wall Street investor, who first achieved fame in 2007 when he successfully bet that subprime mortgages would tumble. Such a wager netted about $15 billion in profits for his hedge fund and turned him into one of the 100-richest people in the world, with an estimated wealth topping $11 billion.

In 2010, Paulson made his first incursion into the Puerto Rico business landscape when he bought about 6.7 million shares of Popular Inc., right before a consolidation process mandated by federal bank regulators prompted Banco Popular to acquire Westernbank, another financial institution. Since then, Paulson's firm has steadily bought additional stock, eventually owning 8.8 million shares, or 9% of the company, with an overall stake valued at about $230 million. Paulson's investments in the Condado Trio are by no means slated to be his last on the island, with total investment by Paulson & Co. alone expected to total as much as $2 billion by the end of 2015, DDEC's Bacó said. "We expect to have more good news to announce soon," he added.

When asked by CARIBBEAN BUSINESS about the investors who comprise Encanto Group, Lemond only said, "the identities of our investors are confidential." However, Lemond was more forthcoming about the reasons for the group's investment. "We are excited about the opportunity to develop a world-class beach and marina community. The Yacht Club is the only 5-star resort marina on the island and one of the few in the Caribbean, while Solarea offers a luxury beach-living experience unique to Puerto Rico's eastern coast. In addition, we have plans to develop a beach resort adjacent to Solarea in the short term."

Plans for the Puerto del Rey Marina are no less ambitious, with Putnam Bridge planning to invest about $450 million in improvement work at the marina. The project is slated to create 200 to 400 jobs during its construction phase, and 300 to 500 permanent jobs once renovations are completed. "There has never been a better time to acquire irreplaceable, landmark assets at these types of prices," Prouty said. "My fellow investors share a strong conviction that beachfront property located in a country with an U.S. American fl ag in the courtroom and a Walgreens on the corner is a good bet. Couple that with a government bending over backward to attract business while enacting generational reforms and you have the recipe for a comeback. New York had its economic challenges in the 1970s, but how many of us wouldn't kill to go back in time and buy some of those apartments that are now trading at double-digit multiples?"

FANTASY ISLANDWith Paulson and Prouty's investments making news, scores of affluent financiers and retirees are now flocking to Puerto Rico in search of big tax savings that will enable them to substantially grow their investments. "The interest is really brewing. There are about 5,000 people interested in taking advantage of these tax breaks," said one person with a Law 22 tax decree. "Before, there was no movement, but when Bloomberg published a story last year on the tax breaks, interest in Laws 20 and 22 really exploded," said tax attorney Fernando Goyco, partner at Adsuar Muñiz Goyco Seda & Pérez-Ochoa PSC, who has 34 clients seeking tax-exempt status. "Every week, I get about four or five calls from people interested in learning more about Laws 20 or 22."

For example, a trader in New York would have to pay 39.6% on short-term capital gains because this, in the trader's case, would be considered regular income; a 3.8% special tax enacted by President Barack Obama and a 12% state tax on any earnings from investments bought and sold in less than six months. Under Law 22, this person wouldn't pay any tax on this investment, Goyco said. "That's 60% tax on the dollar versus no tax. That's a powerful lure," he stated, adding that this person, as a Puerto Rico resident, would be free from federal income taxes.

People moving to Puerto Rico are wealthy, but not all are jet-setters. Some jumping the pond hark from places such as Gainesville, Fla., and Georgia, sources said.

Contrary to popular belief, there is no net worth requirement to qualify for these tax breaks and anyone who hasn't been a resident of Puerto Rico for the past 15 years can apply so long as they are willing to move to the island. The process is relatively quick, simple and inexpensive. It costs about $1,000 to file paperwork to receive a Law 22 tax decree; the DDEC is taking about 30 to 45 days to grant its approval and a tad longer for Law 20 tax breaks for companies, Goyco said. While this might not be fair to local investors and financiers, the tax breaks are good "because otherwise these people wouldn't be coming to Puerto Rico," Goyco said. "Some of these people are going to get interested in making other investments in Puerto Rico."

Many of the people picking up their bags and starting a new life here are traders, hedge-fund managers and other financiers in their mid-30s to early 50s—who can make the most of the elimination of taxes on dividends and capital gains—as well as affluent retirees. Most of these are opting for homes in Condado, Dorado, St. Regis Bahía Beach Resort and Palmas del Mar, Goyco said. "I've also got two guys with decrees who are surfers and moved to Rincón," the attorney said.

Among those who have changed residences is Damon Vickers, founder of Nine Points Management & Research, who moved his hedge fund and family from Seattle last year, National Public Radio (NPR) reported. "I like making money. We want to go to a place where our money is treated the best, so we might benefit ourselves, and we might also benefit our investors," Vickers told NPR. If anyone is smart money, it is Vickers, based on his curriculum vitae. He was an early investor in Cisco, Applied Materials, Starbucks, Amazon.com, Outback Steakhouse, Whole Foods and Timberland. Vickers was one of the very few to call the top of the bull market in March 2000. He predicted the dot-com collapse, warned investors about Enron and went on to call the second market top in 2008.

Like Prouty, Vickers' friends in the investment realm are watching closely to see how he fares. "These people will spend about $500,000 a year here, and that's before we're talking about the purchase of real estate, etc.," said Paco Díaz, a broker with Trillion Realty Group, the local affiliate of Christie's. "Basically, people are renting for a year to see how it goes, and then decide if they want to buy something to set up a long-term residence here."

"We need to create a consciousness as a country that we can do something extraordinary here. That we could have an airport full of Learjets and we could all get ahead," Díaz said. "I want to see Puerto Rico become an exclusive island—rather than an all-inclusive island where anything goes—because then things are going to be better for all of us." Miguel A. Ferrer, CEO of UBS Financial Services Inc. of Puerto Rico, and Gabriel Hernández, a founding partner of Scherrer Hernández & Co., are also touting these tax breaks and Puerto Rico's other benefits to potential new residents through a website called "Puerto Rico is the Answer"—www.puertoricoistheanswer. com.