The billionaire hedge-fund manager has bought municipal debt of the commonwealth, invested in its hotels and is building a vacation home in one of its most exclusive resorts. Paulson’s firm is working on 10 real estate deals in the territory known for its low taxes, according to Alberto Baco Bague, secretary of economic development and commerce for Puerto Rico.
“Puerto Rico will become the Singapore of the Caribbean,” Paulson, 58, said yesterday at the 2014 Puerto Rico Investment Summit in San Juan, a conference designed to promote the territory and attract investors. “Opportunities to buy real estate here won’t last much longer.”
Paulson & Co., which is based in New York and oversees $22.8 billion, is adding to its Puerto Rico investments as the commonwealth and its agencies wrestle with a $73 billion debt load and an economy that’s shrunk in five of the past seven fiscal years. The three biggest ratings companies cut the island’s credit ranking to junk earlier this year.
Paulson’s firm is on track to invest $1 billion in the territory over the next two years through land purchases and properties to be torn down and rebuilt, Bague said in an interview yesterday. He said Paulson, who helped come up with the idea of the conference, will announce one of the deals within eight weeks.
Armel Leslie, a spokesman for Paulson with WalekPeppercomm, declined to comment on Baco’s remarks.
Under a 2-year-old Puerto Rican law, new residents pay no local or U.S. federal taxes on capital gains, a move designed to lure wealthy residents. Singapore, the most-expensive Asian city for luxury homes after Hong Kong, according to property broker Knight Frank LLP, has a top tax rate of 20 percent and has encouraged hedge-fund firms to set up in the city-state.
Paulson, who briefly considered moving to Puerto Rico to take advantage of the tax law before abandoning the idea, said in yesterday’s speech that he’s seeking to develop sites to serve people he expects to relocate here because of the legislation.
The firm took a stake in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Golf Club in September. Paulson & Co. bought resort complex La Concha Resort and the Condado Vanderbilt, neighboring beach-front hotels in the capital city of San Juan, last month for $260 million, including costs to complete construction of the Vanderbilt.
He’s the largest investor in the biggest bank, Popular Inc. (BPOP), and according to a person with knowledge of the matter, bought more than $100 million of Puerto Rico’s municipal debt. Paulson’s new residence will be a vacation home at the St. Regis resort, said the person, who asked not be named because the information is private.
Paulson is best known for making $15 billion betting against subprime mortgages as the 2007-2009 financial crisis hit. He considered relocating to eliminate taxes on his gains from money he has invested in his own hedge funds, four people who had spoken to him said in March 2013. He later said he decided against such a move “in light of the media attention.”
Puerto Rico, a self-governing territory, was ceded to the U.S. in 1898. It cannot file for bankruptcy protection as Detroit did in its historic filing in July.
Governor Alejandro Garcia Padilla, who took office in January 2013, has said he intends to repay bondholders on time and in full. Even so, the island’s Government Development Bank, which works on debt transactions, engaged restructuring specialists this year.
The bank said this month it hired FTI Consulting Inc., based in West Palm Beach, Florida, to help Puerto Rico’s public corporations operate self-sufficiently. New York-based Cleary Gottlieb Steen & Hamilton LLP, which worked on Greece’s 2012 sovereign debt restructuring and represents Argentina in debt matters, was also hired, according to the bank.
Millstein & Co., based in New York, was hired prior to a $3.5 billion debt sale in March to help evaluate financing proposals and to analyze the territory’s capital structure. The bonds maturing in 2035 have slumped to an average 89.35 cents on the dollar on April 24 after being issued at 93 cents, data compiled by Bloomberg show.
To contact the editors responsible for this story: Christian Baumgaertel at email@example.com Josh Friedman, Pierre Paulden