Commercial Investment Real Estate May/June 2019 | Page 14

CCIM
Q& A
Puerto Rico’s Promise
by Catherine Simpson Olson
Agnes Rivera, CCIM
CIRE: Before the hurricane, what was
the state of Puerto Rico’s economy and
the commercial real estate market?
Rivera: Puerto Rico’s economy had been in recession before the
hurricane. In May 2017, the governor announced that the island
was going to default on its approximately $73 billion in debt. The
U.S. territory’s fiscal affairs were put under direct federal control
with a bipartisan bill that established the Financial Oversight and
Management Board. This created uncertainty among investors,
and several large real estate deals were put on hold.
To deal with the recession and promote mainland investment
on the island, the Puerto Rican government established Acts 20
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and 22 as tax incentives. Act 20 taxes qualified businesses at a flat
4 percent rate instead of the regular 39 percent in the mainland in
addition to 100 percent exemption on property taxes, dividends,
interest, and capital gains. Act 22, the Individual Investor Act,
gives 100 percent tax exemption on Puerto Rico-sourced divi-
dends, interest, and certain capital gains to investors who reside
on the island a minimum of 183 days a year.
Unlike other tax havens, since Puerto Rico is a U.S. territory,
U.S. citizens don’t have to give up their passports when relocating
there. Puerto Rico is the only place in the U.S. where personal
income from capital gains, interest, and dividends are untaxed,
which has increased investment.
CIRE: What challenges did the industry face in rebuilding
after the storm?
Rivera: Practically all shopping centers and office buildings were
closed for weeks and even months after the hurricane because of
structural damage or because of a lack of electricity and water.
Employees could not get to work because of gas rationing.
Some smaller strip malls are still negotiating with insurance
companies and haven’t reopened, but most shopping centers and
office buildings have.
Experts estimate that 7,000 to 8,000 small businesses closed
after the hurricane, and most of the commercial spaces previously
occupied by these small businesses remain vacant. Main avenues
in San Juan like Roosevelt and Pinero have large percentages of
COMMERCIAL INVESTMENT REAL ESTATE
I
n September 2017, Category 5 Hurricane Maria devastated
Puerto Rico with the worst natural disaster ever to hit the
island. It reportedly caused anywhere from $90 billion to $150
billion in damage, with housing hit hardest.
Before the storm, Puerto Rico was in a
10-year economic recession. The hurricane
only added to the downward trend.
How is the island recovering? To find
out, CIRE spoke with Agnes Rivera,
CCIM, a broker with American Interna-
tional Real Estate LLC in San Juan, Puerto
Rico, and a past president of the Puerto
Rico CCIM Chapter.