The recent rash of Category Four and Five hurricanes off the US coastline has dealt more destruction to Puerto Rico than the previous 80 years of hurricane damage combined. Mother Nature did with just two hurricanes, Irma and Maria, billions of dollars in long term damage within a few days of each other. Many of the families on those islands may never fully emerge with anything resembling a home again. Many of these families worked on their land or worked at their business for decades to own a small piece of the American Pie.
Many of these families that make up Puerto Rico’s 3.4M population may have to leave the island just to find food and water, increasing the $73B tax burden and $53B pension overhang on those who stay on the island. If nearly 1M people are forced to leave, that will leave Puerto Rico will over $61M per person in debt. The recent cries to wipe our Puerto Rico’s debt are not an option. The current debt burden is not sustainable under any plan.
Although this problem has stemmed from massive borrowing over the past 20 years, Puerto Rico now has $11.3B billion in what was pre hurricane, rated municipal bonds, many of which are owned by Americans retiree’s who looked for a safe after-tax income to help fund their retirement. In essence Puerto Rico’s problem is also American’s problem. While this small island consisting of just over 3,500 square miles has packed an impressive $104B GNP in past years, this revenue stream is now in danger of falling off markedly as tourism and the ability to produce goods and services are now compromised. The recent hurricanes have now taken an island whose future was bleak at best, and now cries out for new thinking. The is a big problem and will need a big solution.
This Common Wealth of the United States is now heading into default with little or no borrowing power to finance their way out of recent disasters. The island has reached the point of no return on paper and needs billions of dollars to replace and repair their electrical and power systems. Governor Ricardo Rossello faces new financial challenges almost beyond comprehension.
Puerto Rico needs a huge out of the box solution and they need it now. The need new revenue, reoccurring revenue, downstream tourism, new jobs, and most of all, they need a reason to believe. They also need it now.
How does any Governor get new capital into an island that is broke? The governments of many localities do not have the financial power to just go ahead and provide disaster funding for every owner that lost their home. What the is the solution for so many who have lost so much? The answer lies in the only remaining asset these governments have any control over:
What the can Puerto Rico offer the world right now:
1) Prime Ocean views.
2) The ability to rezone.
3) The ability to create a New Enterprise Zone.
The island has the capability to spark huge development if they do it the right way. I will outline below why it needs to be done in the right order, with the right kind of development.
It can take years to approve zoning for beach front development in the United States. The Coastal Commission, local town councils, state and federal regulations, tougher handicapped, fire, and earthquake standards all combined with sky high land cost have almost made continued US development of large beach front properties on the west coast nearly extinct and if these trends continue it won’t be long before the east coast shuts down. The highest and best use of higher density ocean villa’s is hands down a time share development because you can sell the pizza for $1.25 instead of $1.00. Higher margin, same development headache.
The only reason the east coast is still in play is because it has a lot more coastline given the double coined layout of Florida providing the state with two coastlines. Although more restrictions are slowing this down, Florida still has more available ocean front property than the west coast inside the US. Move past the middle of either coastline and the northern half loses the bragging rights on warm weather and the year round sunny beach days that consumers covet and Puerto Rico has in spades. This leaves US developers with just the southern half of the country to find prime real estate development designed for ocean loving retirees and tourist eager for the beach life.
This is the time to create a large 600 plus acre Enterprise Zone inside of Puerto Rico. The state and local governments need to ascertain what area’s can be condemned and rezoned mid-rise development. They can buy out every home wiped out and replace it with a voucher to purchase a condo, home or single family home for each family located in the Enterprise Zone that lost their home. In essence these families will sell their current pile of rubble for a new home voucher that can be used to replace their home in a newly developed residential Enterprise Zone.
This voucher can then be used to buy one of the above home choices on the outer banks of the Enterprise Zones so these families can have their dreams rebuilt. These vouchers need to combine for 10% discounts and be good for 25% down, leaving families with a low interest rate that is affordable. The national banks need incentives to write these mortgages down by 100 to 200 basis points so people with low income can afford to make the payments. This program should also be tied to a job bank that gives priority to those that live or work or both in the Enterprise Zones. A sinking fund should also be set up from a portion of the current donations to help fund these programs which provide permanent relief.
Now the island can approve a bill to fund the needed infrastructure sufficient to reconstruct a new power plant to service the Enterprsie Zones and surrounding neighborhoods. New bonds could be backed by tax revenues from the Enterprise Zones. It is important these zones create a coordinated Master Plan designed to attract the large global time share developers. The land should be sold to them at attractive prices. The large US developers have millions of customers in their current inventory and they need a lot more beach front time share as demand for both west and east coast properties is significantly underserved.
The redevelopment effort needs to accommodate at least 10,000 units over 20 years in order to generate enough tax revenue. Properties need to be beachfront and sold with covenants to break ground on half of the villa’s now and the other half within the next 10-20 years. Land cost should be attractive in order to attract bids that will close quickly. Other key elements of the plan include:
PUERTO RICO MASTER PLAN FOR ENTERPRISE ZONE
1) The Master Plan needs to include a large restaurant row, bowling alleys, golf courses, movie theaters, sports bars and a mix of international, national, and local retail.
2) The Plan should include a Farmer’s Market and local tourist Mall staffed with local owners.
3) The Infrastructure Plan should include either a monorail or bus or tram system that runs up and down the strand to minimize traffic and promote cross shopping.
4) Overall zoning should be an ideal mix of time share, condo’s, and hotel’s with emphasis on time shares. This will drive millions of new users to the Enterprise Zones every week.
5) The Enterprise Residential Zone should encourage both retirement, employee, and local residences with master planned bike trails and local parks leading into the Enterprise shopping districts.
6) The entire strand should have golf cart transport and parking.
7) A special “Puerto Rico” Tiki Village should be developed with Flamingos, Casino’s and a world class aquarium would bring in visitors worldwide.
8) A special “Cir De Sol” stadium for world class entertainment to accommodate concerts and boxing as well.
The bonds will sell because they will be indirectly backed by the largest developers in the world, the top global time share company’s that have access to public capital because of their public status.They also have direct access to the customers that are seeking more prime beach front product, currently unavailable for the most part in many parts of the United States. The Enterprise Zones must contain legal covenants from the government restricting any future like kind development for future time share construction for 40 years to encourage these types of capital commitments.
The Government of Puerto Rico should organize an Enterprise Council comprised of infrastructure experts, global time share developers, local and state government, and local citizens for constructive input into this process.This plan should create ten to twenty year Master Plans where each section of the Plan could be sold off with a pre approved development guide. The one thing Puerto Rico can offer is to get rid of the years of approvals. Once the Master Plan is in place, the government could begin selling off the parcels and recouping hundreds of millions while also guaranteeing their island something more valuable than a loan, reoccurring tax revenue.
The largest time share developers need to buy into this project which is necessary to create the critical mass needed to pull off a project of this size. They also have the in house teams needed to build Cat Four and Five properties that will better stand up to the next destructive hurricane. The Master Plan should include wind tunnels and enough steel and concrete to allow for this project. Since Puerto Rico is not in position to build $1M condo’s and if they were, they would not sell because the island is decades away from having financial stability without plan in place. The market is not there for full time residents. It will be there for thousands wanting a month of perfect sunsets.
By using a time share development solution you can spread the cost of rebuilding Puerto Rico across the United States and provide a much better product that is already needed. Americans can help rebuild this island with their vacation dollars and can always choose to visit other sites if they decide they do not wish to return. They are not taking island risks the way a purchaser of owning 365 days a year takes. Developers will flock to the island if a solid and defendable Master Plan protects their commitment long into the future and if the plan includes the proper infrastructure in place. Puerto Ricans can then hold their head high knowing they are part of a world class solution instead of incurring billions more in debt they are not positioned to pay back. This project provides a solid solution and would allow the surrounding island economies to heal as downstream GNP from the Enterprise Zones pours over into the island economy. For more information about time share demand, please visit our web site at www.masteringyourtimeshare.com.