Saturday, July 25, 2015

Struggling Hotels In Puerto Rico Receiving Attention

Wall Street, Seeing Opportunity, Invests in Struggling Hotels in Puerto Rico

Puerto Rico’s tourism industry has fallen victim to the island’s struggling economy, hit by one misfortune after another. In March, the San Juan Beach Hotel filed for bankruptcy. This week, the Condado Plaza Hilton was forced to close its casino.

But nearly two thousand miles away, some Wall Street firms see an opportunity in the turmoil.

On Thursday, the island received a lift from one of its biggest cheerleaders, John A. Paulson, the billionaire hedge fund manager, who is investing $20 million for the San Juan Beach Hotel. This week, Fundamental Advisors, another Wall Street investment firm, bought the iconic El San Juan Resort and Casino for $71 million from Blackstone.

Paulson & Company, Mr. Paulson’s $20 billion hedge fund, has agreed to renovate the San Juan Beach Hotel and turn it into an “ultraluxury boutique hotel” over the next few months, the Puerto Rico Department of Commerce and Economic Development said.

Fundamental, a $2 billion firm that specializes in buying distressed assets and municipal debt, will work with Aimbridge Hospitality as well as León, Mayer & Company to revitalize the El San Juan hotel, built in 1957, and invest in the resort’s facilities.

Both Wall Street firms are betting that Puerto Rico will eventually recover from its economic morass. They were originally among a group of multbillion-dollar hedge funds and private equity funds that took an interest in Puerto Rico. Over the last few years, big-name firms like Appaloosa Management, BlueMountain Capital Management and Och-Ziff Capital Management rushed in. Some placed bets on the island’s real estate. Others loaded up on the debts of the central government and its ailing electric utility, Puerto Rico Electric Power Authority.

At one point, Puerto Rico was the hottest trade in the hedge fund world.

Since then, things have taken a turn for the worse. Gov. Alejandro García Padilla, in a widely unexpected move last month, said that Puerto Rico could not pay all of its $72 billion debt. The announcement sent investors scrambling to examine their options. Some cut their losses, fearful that they would incur larger losses if they stuck around.

But others quickly picked up assets that have lost much of their value after years of economic recession, wagering that things could only improve.

“Puerto Rico is certainly in a trough,” Laurence Gottlieb, chief executive of Fundamental, said. The tourism industry in Puerto Rico has floundered after nearly a decade of recession. Casinos, many catering to local residents, have been particularly hard hit. On Wednesday, one of Puerto Rico’s best-known casinos, owned by the Condado Plaza hotel, was closed.

“We are not at all blind to the fact that other hotels are feeling pain,” Mr. Gottlieb said. “It comes with the territory.”

Fundamental, a longtime investor in Puerto Rico, had been seeking an opportunity to buy a hotel like the El San Juan for some time, Mr. Gottlieb said. A fixture in Puerto Rico, the property overlooks the beach in the popular Isla Verde district in San Juan.

The firm is now eyeing additional opportunities in Puerto Rico, and plans to make bets in other sectors, like infrastructure and health care, on the island.

Mr. Paulson has been buying real estate on the island for years. He is building a home there and has acquired some of the island’s most exclusive hotels, including the Condado Vanderbilt Hotel, La Concha Renaissance Hotel and Tower, and the St. Regis Bahia Beach Resort.

The Puerto Rico government is actively courting other foreign investors, too. On Thursday, it heralded the deal with Paulson & Company as a testament to its efforts to bring foreign investor dollars to the struggling local economy.

“Our economic development plan is working, and we will continue to grow the economy, attract investments and create jobs,” Mr. García Padilla said in a statement.

Mr. Paulson has also acted as an adviser to the local government. At his suggestion, officials this year attended the hedge fund industry’s biggest annual event — the SkyBridge Alternatives Conference in Las Vegas — where they met with hedge fund managers and casino executives.

A spokesman for Mr. Paulson declined to comment. A spokeswoman for Blackstone, which sold the El San Juan to Fundamental, and owns the Condado Plaza Hilton, also declined to comment.

“Attracting savvy investors like Paulson and growing the tourism sector are important components of the administration’s economic development plan,” Alberto Bacó Bagué, secretary of commerce and economic development, said in a statement on Thursday


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