Some Investors Bet on Puerto Rico Hotels
Puerto Rico’s worsening debt crisis only seems to whet the appetite of a small but devoted group of distressed investors.
Hedge-fund manager John Paulson last week added to his hotel collection on the island by acquiring San Juan Beach Hotel out of bankruptcy. He paid $9.5 million for the 96-room hotel in the Condado district of capital city San Juan, according to bankruptcy court filings.
He plans to invest an additional several million dollars to transform the property, which closed its doors to the public earlier this month, into a boutique luxury hotel, according to people familiar with Mr. Paulson’s plans.
The upgrade is following a familiar script for hospitality investors on the island. They believe even if a number of dated or low-rent hotels have been struggling, higher-end and revamped properties can still draw an affluent beach-seeking crowd. Rooms at the super-lux Ritz Carlton Reserve, for example, start above $1,000 a night with suites listed on its website for $2,500.
“We’d like to raise it to the luxury level,” says Laurence Gottlieb, Fundamental Advisors’ chief executive. With a new lobby, renovated rooms and amenity upgrades, the firm hopes to raise room rates at the hotel by as much as 50% from where they are now. Nightly rates start at $179 on the hotel’s website.
Puerto Rico’s economic situation has gone from bad to worse in recent months. The government said recently that the commonwealth wouldn’t be able to pay all its $72 billion in debt. Credit-ratings firm Moody’s Investors Service offered a gloomy assessment last week when it said that Puerto Rico should not expect a federal government bailout.
Some property investors are pulling up stakes. Most notably, Blackstone Group LP has been a seller. The New York investment firm sold San Juan Resort & Casino to Fundamental Advisors this month, while its marquee Puerto Rican hotel, El Conquistador, is on the market. Blackstone also owns the Condado Plaza Hilton, which recently shut down its casino operations.
Blackstone acquired the Puerto Rican hotels as part of a portfolio purchase a decade ago. Since the firm usually sells property investments within five to 10 years of acquiring them, that timetable is the primary motivation to sell, say people familiar with Blackstone’s thinking.
There are risks to owning hotels there. In particular, hotel analysts warn that if the economic slowdown sparks riots or a bigger rise in crime, it could create an atmosphere that would frighten away tourists.
But so far, even as the economy has struggled, the island’s hotels have seen their income grow. Revenue per available room for the first six months of 2015 was $163.65, up 7.7% over the same period last year and up 31% from five years ago, according to hotel data tracker STR Inc.
“No one ever checks the balance sheet of the place where they are going on vacation,” said Mark Lipschutz, chief executive officer of CPG Real Estate LLC, in an interview last year. His investment firm owns the Ritz Carlton Reserve that opened on the Dorado coast in 2012.
Investors also credit the Puerto Rican government, which has focused in recent years on promoting the island as a tourist destination where U.S. citizens don’t need a passport or to go through customs. In previous decades, Puerto Rico boasted a larger industrial base and didn’t feel the same urgency to advertise its crescent-shaped beaches, rain forest and centuries-old fortresses.
For Mr. Paulson, San Juan Beach Hotel marks his fourth hotel on Puerto Rico, including the St. Regis Bahia Beach Resort and the historic Vanderbilt Hotel, which opened in 1919 and underwent a roughly decadelong renovation process that finished in 2014.
“Tourism is a big contributor to Puerto Rico’s economy and we are seeing steady growth in the luxury market,” said Ingrid Rivera, executive director of the Puerto Rico Tourism Company, in a statement.
Write to Craig Karmin at craig.karmin@wsj.com
ENLARGE
Fund manager John Paulson boosts his stakes; Blackstone cuts back
Some Investors Bet on Puerto Rico Hotels
Hedge-fund manager John Paulson last week added to his hotel collection on the island by acquiring San Juan Beach Hotel out of bankruptcy. He paid $9.5 million for the 96-room hotel in the Condado district of capital city San Juan, according to bankruptcy court filings.
He plans to invest an additional several million dollars to transform the property, which closed its doors to the public earlier this month, into a boutique luxury hotel, according to people familiar with Mr. Paulson’s plans.
The upgrade is following a familiar script for hospitality investors on the island. They believe even if a number of dated or low-rent hotels have been struggling, higher-end and revamped properties can still draw an affluent beach-seeking crowd. Rooms at the super-lux Ritz Carlton Reserve, for example, start above $1,000 a night with suites listed on its website for $2,500.
“We’d like to raise it to the luxury level,” says Laurence Gottlieb, Fundamental Advisors’ chief executive. With a new lobby, renovated rooms and amenity upgrades, the firm hopes to raise room rates at the hotel by as much as 50% from where they are now. Nightly rates start at $179 on the hotel’s website.
Puerto Rico’s economic situation has gone from bad to worse in recent months. The government said recently that the commonwealth wouldn’t be able to pay all its $72 billion in debt. Credit-ratings firm Moody’s Investors Service offered a gloomy assessment last week when it said that Puerto Rico should not expect a federal government bailout.
Some property investors are pulling up stakes. Most notably, Blackstone Group LP has been a seller. The New York investment firm sold San Juan Resort & Casino to Fundamental Advisors this month, while its marquee Puerto Rican hotel, El Conquistador, is on the market. Blackstone also owns the Condado Plaza Hilton, which recently shut down its casino operations.
Blackstone acquired the Puerto Rican hotels as part of a portfolio purchase a decade ago. Since the firm usually sells property investments within five to 10 years of acquiring them, that timetable is the primary motivation to sell, say people familiar with Blackstone’s thinking.
There are risks to owning hotels there. In particular, hotel analysts warn that if the economic slowdown sparks riots or a bigger rise in crime, it could create an atmosphere that would frighten away tourists.
But so far, even as the economy has struggled, the island’s hotels have seen their income grow. Revenue per available room for the first six months of 2015 was $163.65, up 7.7% over the same period last year and up 31% from five years ago, according to hotel data tracker STR Inc.
“No one ever checks the balance sheet of the place where they are going on vacation,” said Mark Lipschutz, chief executive officer of CPG Real Estate LLC, in an interview last year. His investment firm owns the Ritz Carlton Reserve that opened on the Dorado coast in 2012.
Investors also credit the Puerto Rican government, which has focused in recent years on promoting the island as a tourist destination where U.S. citizens don’t need a passport or to go through customs. In previous decades, Puerto Rico boasted a larger industrial base and didn’t feel the same urgency to advertise its crescent-shaped beaches, rain forest and centuries-old fortresses.
For Mr. Paulson, San Juan Beach Hotel marks his fourth hotel on Puerto Rico, including the St. Regis Bahia Beach Resort and the historic Vanderbilt Hotel, which opened in 1919 and underwent a roughly decadelong renovation process that finished in 2014.
“Tourism is a big contributor to Puerto Rico’s economy and we are seeing steady growth in the luxury market,” said Ingrid Rivera, executive director of the Puerto Rico Tourism Company, in a statement.
Write to Craig Karmin at craig.karmin@wsj.com
ENLARGE Blackstone Group sold the San Juan Resort & Casino to Fundamental Advisors this month. Photo: El San Juan Resort & Casino
Fund manager John Paulson boosts his stakes; Blackstone cuts back
Some Investors Bet on Puerto Rico Hotels
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