The inefficient real estate marketplace in Puerto Rico can create compelling opportunities for investors seeking value. Local tax incentives layered in with Opportunity Zone benefits can drive highly attractive return projections. But investing on the island does not come without risk.

Ari Kresch, strategic advisor for Island Paradise QOF, joins the show to discuss how he finds value in Puerto Rican real estate, the vast majority of which is located within an Opportunity Zone.

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Episode Highlights

• Real estate asset values in Puerto Rico, compared to comparable assets on the mainland, and why ROI can be “off the charts.”
• The impact that different tax incentives have on relocated and investing in Puerto Rico.
• Ari’s background as an entrepreneur and founder of 1-800-LAW-FIRM.
• The importance of building personal trust when dealmaking in Puerto Rico.
• Why finding real estate deals in Puerto Rico is can be an expensive and intimidating process, compared to a more modernized mainland market — and the opportunity that this inefficiency creates for investors with hustle.
• The pipeline of distressed assets that Island Paradise QOF is acquiring to transform into luxury hotels.
• Why Ari likes hospitality assets.

Featured On This Episode

• Opportunity Zones in Puerto Rico (OpportunityDb)
• Puerto Rico Act 20 and Act 22 (The 20/22 Act Society)
• Puerto Rico Act 60 (formerly Act 74) Tourism Tax Credits (Kevane Grant Thornton)
• ‘An educated consumer is our best customer’ (Eagle Times)

Today’s Guest: Ari Kresch, Island Paradise QOF

• Ari Kresch on LinkedIn
• Island Paradise QOF
• 1-800-LAW-FIRM
• Contact Ari: [email protected]

About The Opportunity Zones Podcast

Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy Atkinson: Welcome to the Opportunity Zones Podcast, I’m Jimmy Atkinson. My guest today is Ari Kirsch, Partner at Island Paradise QOF, an Opportunity Zones Fund that purchases distressed assets in Puerto Rico and transforms them into world class hotels. Ari joins me today from his office in San Juan Puerto Rico. Ari it’s great to see you, thanks for joining me today, welcome to the podcast.

Ari Kresch: Well it’s great to be part of it and to feel the energy that is centering around Puerto Rico.

Jimmy Atkinson: Yeah Puerto Rico has been the focus of several of my podcast episodes to date we’ve had several guests from Puerto Rico join the show over the last several years and it really is an incredible story what’s happening in Puerto Rico and just the fact that for those who may be new to Opportunity Zones, almost the entire island of Puerto Rico falls within an Opportunity Zone. It’s a special case down there, Congress gave them a special exemption.

To the normal 25% rule and allowed all of the islands low income census tracts to be designated as opportunity zones in an effort to help the island recover economically.

From the destruction that was brought on by Hurricane Maria and and some subsequent earthquakes over the last few years right around the time that opportunity zones were getting enacted, this is it today all right, I want to discuss with you, first and foremost, about how you’re able to find value in Puerto rico’s opportunity zones at the title of today’s episode, how would you characterize the value that you’re able to find on that island of Puerto Rico you’re down there, right now, how do asset values compare to comparable assets on the mainland.

Ari Kresch: Well I’ve lived in Michigan and I lived in New York City for a significant portions of my life and the comparison doesn’t exist, you know when you when you go into risky neighborhoods you know you will expect to get a better return on investment, but over here.

The the fact that there’s not a lot of capital that’s available to you know, invest in properties, make it kind of a game that a lot of people can play so our winds are off the charts over here.

But of course the way but i’ve always invested in real estate as i’ve always i’ve always tried to make my money on the by. So if you can get a good deal and you buy it.

Then you’re kind of cushion for things, though, if things don’t work out exactly the way that you wanted to in Puerto Rico there’s a lot of uncertainty in terms of the way things work out. So. Sure, I moved here more than five years ago I moved here before Maria, before the mass immigration from the mainland to Puerto Rico act 20 and 22 these are special tax advantages that are given to individuals that have high net worth.

You know, to to attract them to Puerto Rico and there was another APP called X 20 and bring businesses that export services here, they were enacted, but it was only a trickle when I first came in and my attraction to this place was not that.

It was icing on the cake my attraction to Puerto Rico was the people are spectacular the island is out of control beautiful it’s you know it’s got mountains it’s got beaches it’s got arid areas it’s got rain for us it’s got all everything that you can imagine, puts the warm as people in the world that’s what attracted me here, and then, as time went on.

You know more people started coming and people started coming here to vacation and they just did not have a very developed tourism.

You know properties, and so the demand was way higher than the supply and people were renting out their apartments they were renting out anything that can get their hands on an airbnb they fill them up and their rates or out of control.

So that’s what got me interested in pretty much liquidating anything that I had outside of Puerto Rico and just putting all my eggs in Puerto Rico because you can have a diversified portfolio in Puerto Rico.

Jimmy Atkinson: huh yeah that’s great I mean Puerto Rico seem to be a really great.

Of what very well kept secret for a really long time I think more and more people, especially within the opportunities own world.

Are kind of figuring out that Puerto Rico is a pretty special place to be in a special place to.

develop there’s some challenges that go along with developing and I want to get into those challenges, and how they relate to the opportunities in a minute, but first I want to zoom out, and I want to get your story or I want to hear more about you are a crash.

How you initially built up your career you’re the founder of one 800 law firm in addition to.

All of what’s going on with you on the island of Puerto Rico right now in the developments you’d have going on to tell me a little bit about.

Your career trajectory about how you started one 800 law firm how that led you to where you are today and it sounds like you moved to Puerto Rico about five years ago to tell us a little more about yourself don’t worry.

Ari Kresch: Okay, well, I started my legal career in 1978 I graduated law school in 1977 I moved to New York City, I worked for the legal aid society for a couple of years I didn’t know anybody in New York.

And nobody would give me a break it was tough to get a job I didn’t go to one of the top tier schools, so I decided to open up my own practice and I became a self educated marketing guru.

Over the years I was marketing legal services and different areas, and then I kind of figured out, if I can get the phone to ring more than I can service those areas I had two choices, I can either hire staff, for which I didn’t have the money to do it, or I could.

enter into joint ventures with other law firms that were high on town, but low on business, so I started developing my own marketing strategies, I looked in other industries, I was probably the very first national advertiser in the legal space I use some tricks that would allow me to.

Market legal services on a national basis cost effectively by using a vanity vanity phone number one 800 law firm.

So, essentially, the way that works is I could buy 10 second commercials on national TV that would cost me literally a fraction not a third, but maybe.

10% of what a 30 would cost on national TV, so my entry point if you know your name is.

You know, whatever your name is, if you have to repeat the number and telling your law firm it takes 30 seconds, at least.

I didn’t even have to tell them i’m a lawyer, I tell them one 800 law firm and I tell them what you know you get into a car accident call one 800 law firm.

And I got a 10 second commercial they can run nationally and the phone was ringing off the hook, and there was a lot of law firms that wanted to partner with me to share in that traffic, you know and as time went on, you know different things were popular you know.

yellow pages became popular and then billboards and TV commercials and then Internet and keywords and whatever so.

depending upon the sliver of time in history, the one 800 had greater advantage lesser advantage, but at this point in time it’s more it’s less of.

it’s more of a brand people recognize it i’ve been doing this, since 1994 as 100 law firm so there’s a comfort, knowing that the business has been around for 30 years so so you know that’s my story and and essentially.

Five or five and a half years ago.

You know i’m a kind of an adventure seeker I love the tropics I love new experiences and I had a great staff in Michigan, which is where my main office was and I decided to treat myself and my family, which at the time consisted of a wife and my youngest of five daughters.

She was in 10th grade I said tessa i’m considering moving to Puerto Rico and she was in ninth grade at the time, and she says.

She says dad are you crazy China in high school I have friends and I said to her wouldn’t you like to see what you’re saying no to and she said, fair enough so when you aim to trip, for her to shadow a student at St john’s school.

She goes she shadows a student she walks across the street, to the airbnb that we were staying at I said how was it and she says was great I started telling her about the adventure that we had planned for the next day, he says dad I can’t go I said, why not, he says, I have France.

So, and he went back to school and the truth is that the way they embraced her is crazy, I mean.

When I like to say that in Puerto Rico Puerto Rico the trust factor comes immediately when you meet somebody and if you violate that trust they’ll hate you forever.

And the United States, it takes they don’t trust you to begin with, and it takes a period of time for them to develop that trust in you so at my age I can’t afford the latter.

I like Puerto Rico.

Jimmy Atkinson: Now that’s a great story and great to get that family by in and i’m sure you don’t miss those winters in Michigan the winners down in Puerto Rico and the Caribbean are much nicer i’m sure.

Ari Kresch: You know I just I didn’t know it at the time I didn’t know how how oppressive the weather was I just didn’t think about it, you know I just figured out strategies, you get an attached garage.

to your home you go into the batcave and get out and over here I embrace every opportunity that I can be out in nature, amongst the palm trees at the beach in the mountains.

In the rain forest, you name it I just embrace every opportunity, the sweat wins, you know people say, well, what about the electricity, what about the hurricanes, and I say what about it, you know what I rather have that are there is no storms and it’s, not even a comparison.

Jimmy Atkinson: yeah that’s a good point to make, so you move there about five and a half years ago, those just shortly before opportunity zones were enacted at the end of 2017 when did you first hear about opportunities zones Aryan What about that new tax policy and investment vehicle attracted you.

Ari Kresch: Well, it was only when I first heard about opportunities zones.

It was only an intellectual exercise i’ve got five finally Finally, our legislators have come up with something intelligent.

that’s going to really revitalized areas, because how often have you heard Jimmy where somebody couldn’t afford to sell a property because they couldn’t afford to pay the taxes on their game.

truck so now they enacted a mechanism where you can defer taxes or you know at the time, I think it was that know 10 years when they first inactive or.

You know, whatever you don’t have to so they defer the taxes they give you a discount on those taxes and plus they give you a jumpstart on a new investment so they encourage investment in.

economically depressed areas and they give you an opportunity to allow properties that maybe need to be put in the hands of others, so I thought it was a great thing conceptually but it didn’t even occur to me that I would ever get involved in that stuff until.

I saw some of the beautiful properties are important Rico and I said, you know I can trade up, I can I can I can trade my properties in Michigan for over here and.

participate in this game, and you know it has been a really fun game, you know to me.

I love.

Music beautifying this area, you know when you speak to Puerto Rican contractor and you know, one of the things that I do.

differently than a lot of the people that are here is I interact email speak Spanish I make an appoint to interact with as many Puerto ricans as I possibly can.

And my assistant is Puerto Rican and they really do appreciate that when I got involved in a deal.

That was a minister Jimmy if you tell me this doesn’t make any sense i’m going to agree with you, but this is a true story.

there’s a property in the heart of San tourists a, which is a really beautiful area and it was for sale, for what I think, a very low price, and it was on the market for three or four years.

And I got to know the family, I learned about the father you built the building a years ago and I asked the broker, I said and I closed on it.

And I said to the broker, this has been on the market for three or four years, why what am I missing Why did it not sell before me, and he says Irene until you came along the sellers never felt comfortable with their buyers.

feel comfortable, but you have to feel comfortable for just write a check what’s the difference, you know feel comfortable when it says welcome ordering.

Jimmy Atkinson: Of dinners is a part of it is just you having that.

Are you’re likable guy you got likeable personality like interacting with the with the local Puerto Rican people down there on the island, I think you’ve been able to build that trust, as you mentioned in the in the first part of our conversation today I think that’s great what.

There, there are some challenges right to developing and Puerto Rico to finding deals in Puerto Rico to to to getting construction done on the island, can you speak to some of the challenges that you’ve encountered.

In some of the deals that you’ve done in Puerto Rico over the last couple years.

Ari Kresch: Yes, the one thing that.

Puerto ricans don’t really.

Like so much is arrogance, you know Americans coming over here, knowing better than they do and telling them what to do so there’s a certain element of humility that comes along with working with contractors and people so.

I think it’s really, really super important.

To understand.

The human interaction is of paramount importance when I speak to a contractor, I always try to do it in person.

We try to get personal.

Whenever I negotiate on the building, I always ask to speak directly to the owner and have a movie never do that every night states who cares nobody cares but over here they don’t they don’t they don’t shun it, they say they they embrace it every single time and if these meanings.

The weirdest conversations happen, you know the meaning of life, what legacy, they want to live leave why they’re trying to sell it, you know and all kinds of things come up and learn I learned a lot I love it I love the stories as much as they love telling them.

Jimmy Atkinson: that’s great and it’s essential it sounds like to talk to some of those owners and hearing some of those stories in order to get a deal done.

From what it sounds like well, what can you tell us a little bit more about the pipeline of assets that you are developing requiring and Puerto Rico for the island paradise qualified opportunity fund.

What types of assets are you acquiring and maybe you can give us an example or two of some of the assets that you’re putting into the fund.

Ari Kresch: All right, well, the first thing I want to tell you is that.

If you really want to be successful, you have to kind of forget everything that you that you practicing the United States to find properties, because they don’t work over here.

You know mls is not very developed, you know, sometimes brokers will not cooperate with other brokers, because they want to keep the commission’s for themselves.

The other thing is that the best deals do not happen from things that you discover on the Internet, the best deals happen walk the streets look at a building find out who the owner is and get involved in their story, and the reason that that’s true is because, and I call it hair is hair.

On ownership on a high percentage of the properties here, there are certain inheritance laws that make things a little bit complicated so somebody dies.

These over property to their kid there’s no problem for the kid to live in that property and then we can no longer lives in the property maybe a nephew or cousin or this or that.

But in order for that property to be conveyed there’s a lot of work that needs to be done in assembling no marriage certificates affidavits how many children that they had and most people are intimidated by this process and most people can afford this so one of the.

Jimmy Atkinson: One of the tool, I think I think sorry to interrupt I think part of the problem also.

From what i’ve heard is some of the property record keeping systems in some of these municipalities in Puerto Rico haven’t been modernized like we’re used to seeing in in the mainland United States is that right as well.

Ari Kresch: yeah yeah a lot of things that you can only find out by going over to the land records office and municipality like San Juan.

depending upon where in San Juan, their property is you go to one of three or four offices, so it gets you know it kind of you know the difference between an efficient market and inefficient market.

and efficient market is like the stock market if you want to sell your shares of apple you’re going to get the same price i’m going to get from my share of that but you’re not going to get the same price for your building is i’m going to get from my building because.

I know how to market better than.

And I know how to access different markets.

And most Puerto ricans are not.

savvy enough to know how to market it and it’s up to an investor to learn how to.

How to enter that marketplace and how to assist sellers and what i’ve done in a couple of my properties is you don’t have to the sellers would never sell their property.

Unless I can help them and and hook them up with a lawyer, that can do all the legal legal work that will allow them to convey the proper.

i’m in the middle of one right now, where you know the disease, they got married in China, they had their children in China, and they brought him over here and whatever it is the whole story so.

He translated documenting the destiny that but it’s all it’s all doable and it’s all doable for money and if they’re.

If they’re intimidated they’re not going to do it, but if they’re reassured by a guy like me who will advance all those costs and he can access opportunities that never would.

So those are the opportunities, those are the challenges they’re kind of mixed together, I forget whether it’s Chinese or something else there, the word for opportunity and challenge is the same thing.

and

You know, the greater the challenge the more i’m attracted to it, especially here in Puerto Rico because.

Every people there is people that are working people and there’s there there’s soulful people in connect with you so it’s fun it’s not like yeah.

You know it’s not like you know other parts of the world where they survive by lying cheating stealing and getting you know, one of mine over here it’s it’s it’s it’s it’s fun.

Jimmy Atkinson: That sounds like fun, I always enjoy my visits down there to Puerto Rico as well well already before we end I just one more point just kind of expound on what you said, I think.

A lot of times you can untapped value when the market is inefficient, like the one you’re describing the real estate market down there and Puerto Rico as long as you’re willing to put in the work scrounge a little bit.

walk the streets get to know the the people that you need to interact with I think that’s that’s where you can really find some good value is your story shows us all.

Are you just to kind of wrap things up, do you tell us a little bit about island paradise qof what the fund is up to the types of deals that you are acquiring and what the investment thesis is.

Ari Kresch: Well, this kind of follow the same trajectory that my law firm that I acquired more business that I could actually handle so I had to figure out a way.

To get that business responsibly handle and in the same manner i’m doing the real estate thing you know there’s a finite amount of money that I.

can access, so I put together a fun with some great people that I met on the island and.

People that probably your viewers are familiar with Ashley dyson is a is a partner, I was.

You know fortunate enough to meet him so that I know that the structure is done properly, and what he saw in me was the ability, because i’m boots on the ground and ability to find deals.

I wouldn’t even recommend deal unless it was a steel, and you know, a steel is an underutilized I want to bring value I don’t want to just recognize.

A building that somebody you know fixed up and now it’s being rented out as an airbnb and there’s a nice return on your investment that doesn’t do anything for me, for me, taking a piece of bleep building and.

and turning it into something that looks Nice and and you know kind of elevates the look of the streets of Puerto Rico.

So there’s a few things you know, so I look for properties that I can add value to you found an old office building that was.

Eight years old, that was under utilized it was that properly maintained, we got it down to its skin and we’re going to turn it into a luxury boutique hotel with a swimming pool.

On the top floor it’s got views of the mountains it’s got views of the ocean and so that’s one property and other properties in the middle of the jungle as.

mature.

Bamboo so we found a really stupid good deal on it, we bought at rooms, we really can be converted into 160 rooms for $1.4 million and it sits on.

Citing seven and a half acres.

So we have we have.

You know commercial properties that were turning into hospitality, we have some remote properties that were turning in Dallas county hospitality is interesting to me because.

It there it is this market is it’s hungry, I mean there is such a demand for airbnb and a hotel space.

Right now, and in addition to the regular benefits that people get from opportunity zones, the local government is giving you.

They just throwing you know tax benefits at you to invest your money here rather than in Cleveland Ohio so they give you a 40% tax credit.

For investments in hospitality and other businesses to give you 14% tax credit and takes you a few years to get that 40% but that’s over and above everything else.

that’s being done as long as you calculate thing based upon traditional Roi and you don’t even look at that 40% we just consider that as icing it didn’t do very well.

Jimmy Atkinson: yeah that’s incredible I have a 40% tax credit is unlike anything that you can get on the mainland, as far as i’m aware of.

I mean it’s interesting you brought up Cleveland Ohio Ohio the State of Ohio offers a 10% tax credit.

On top of any oC deals in the State of Ohio and that’s a pretty darn good deal, but you do it on a Puerto Rico and they’re doing 40% that’s just that’s a lot of free money that the Puerto Rican government is.

handing over to developers and real estate investors for to try to attract more tourism to the island just just incredible story down there are it’s been a pleasure talking with you today to wrap things up, if we have any listeners or viewers out there who, like the sound of.

Your voice and what you have to say, are you, and they want to get in touch with you what’s the best way for them to do so to learn more about you.

And island paradise qof.

Ari Kresch: Well, if you could flash my email address on the screen it’s it’s my name a crash at one 800 law firm.com a crash K R E s Th at one 800 law firm COM i’d be happy to respond to any questions.

there’s room in our fun to be an investor in any of the deals that I, I spoke about, we have one operational property we’ve got we’ve got we’ve got two hotels that we’re developing along the coast of South in the south western coast.

place called them, you know near boca raton and this hotel was an operating hotel that was destroyed during Maria.

And now, all we have to do is fix it up it’s tried and tested people love it down there, and now you know we just have to fix it up modernize it.

And that’s one of our properties as well and we’ll keep buying more as long as we have interest in that, and I think that you know if you’re a sophisticated investor.

If you remember, they even remember the clothing store called sims sims was a New York clothing company needs to sell I think close out stuff and they had a model that says the educated consumer is our best customer.

I say the same thing.

The educated investor is our best customer because you understand what an advantage, it has to be here over anything you’ve ever done.

Jimmy Atkinson: that’s a great way of putting it I don’t remember sims personally but.

I do like that marketing line.

and not from New York either, but.

Ari Kresch: Actually we’re in other cities that was assembled in Michigan where I was too.

But it was a great store and I don’t know what happened to them, they they went under at some point in time, but that was their motto, and I loved it.

Jimmy Atkinson: That is a good motto good good good model to have and I like to think that my listeners and viewers are educated.

Investors so again, if you want to reach out to me please do so a crash at one 800 law firm calm and, of course.

As always, I will have show notes for today’s episode up on the opportunity db website, you can find those show notes at opportunitydb.com/podcast.

There you’ll find links to all of the resources that Ari and I discussed on today’s episode we’ll be sure to link to our email address and i’ll also have the.

website for Island Paradise QOF posted there as well, and please be sure to subscribe to us on YouTube or your favorite podcast listing platform.

To always get the latest episodes of the opportunity zones podcast. Ari again it’s been a pleasure speaking with you today thanks so much for your time.

Ari Kresch: Well Jimmy I just have to tell you I’m no longer a virgin, it is my first time podcast.