In this webinar, Ari Kresch and Ashley Tison discuss the unique opportunities that exist for investors in Puerto Rico.

Webinar Highlights

• What attracted Ari to move to Puerto Rico prior to Hurricane Maria, and why he remains bullish on the island’s outlook;
• The current real estate investment market in Puerto Rico, including the barriers to entry;
• The impact of hurricanes on Puerto Rico’s real estate market, including the positive impacts of Hurricane Maria;
• The “intangibles” that make Puerto Rico a great place to live, travel, and invest;
• How investors have the ability to restore Puerto Rico to its “glory days” of the past.
• The importance of having “boots on the ground” when developing real estate in Puerto Rico;
• Review of the assets currently owned by Island Paradise, including projects in San Juan, Manati, and Cabo Rojo.
• Live Q&A with webinar attendees.

Industry Spotlight: Island Paradise QOF

Island Paradise is a Qualified Opportunity Fund (QOF) that purchases distressed assets in Puerto Rico and develops them into world class, cash-flowing hotels. The fund has identified a portfolio of five assets throughout the island, including properties in San Juan, Manati, and Cabo Rojo.

Learn More About Island Paradise QOF

• Visit IslandParadisePR.com
• Request Data Room Access

Webinar Transcript

Jimmy: Welcome to today’s OpportunityDB webinar, “Developing World-Class Hospitality Assets in Puerto Rico.” Today’s webinar is sponsored by Island Paradise Qualified Opportunity Fund. I’m Jimmy Atkinson, the founder of OpportunityDB. Joining me today are Ari Kresch and Ashley Tison from Island Paradise QOF. Gentlemen, welcome, and we’re gonna get to you momentarily, but first, just wanted to kinda run through the format for today’s webinar. We’re gonna go for about 60 minutes. We should wrap up right around 1 p.m. Eastern Time, and the webinar is gonna be broken into three parts.

First, I’m gonna have a fireside chat interview with Ari Kresch. Secondly, Ashley is going to walk us through the investment offering. A lot of you may know Ashley as the founder of OZPros, but he is also council and on the board for Island Paradise QOF, so he’s very familiar with this deal. And he is the best presenter they got, so we’re gonna make sure Ashley gets plenty of face time today. Finally, we’re gonna save some time at the end for live questions and answers with both Ashley and Ari. So if you have any questions for these two gentlemen, any questions about Puerto Rico or the offer specifically, we do want today’s program to be interactive, so please use the Q and A tool in your Zoom toolbar to submit your questions. And we’re gonna get to those questions toward the end of the hour, we’ll hold them all toward the end.

I also want everybody to know that, yes, today’s webinar is being recorded. We’re gonna circulate a recording of this webinar to everybody by later today or tomorrow. We’ll have that available to everybody, and we’ll make sure we email everybody who registered for today’s event with that recording. A couple of legal notes before we dive in, I wanted to let everybody know that myself and my team members were so excited about this offering that we do have some ownership in Island Paradise QOF. I just wanted to disclose that. Again, the partners of Kingsbury Media, LLC, which holds OpportunityDB, we hold an interest in Island Paradise QOF.

And then finally, one more legal disclaimer, this presentation is not meant to be legal advice, accounting advice, tax advice, investment advice. Please consult with a professional before making any investment decision. But with that said, Ari, Ashley, welcome to you both, and thank you for joining the webinar today.

Ari: Thank you for having us.

Ashley: Yeah, absolutely, Jimmy, it’s a pleasure as always to be on with you.

Jimmy: And great hat once again, Ashley. Ashley, we’re gonna get to you in a minute here, okay?

Ashley: And I love being here with Ari. I can’t wait to hear this fireside chat.

Jimmy: So just sit tight, if you will. I’m gonna do this Q and A with Ari first. So Ari, we’re gonna be talking about Puerto Rico today. There are numerous opportunities, investment opportunities on the island of Puerto Rico. There are over 8,700 opportunities almost throughout the country but several hundred of them are located in Puerto Rico. Nearly the entire island lies within an opportunity zone, I think it’s something like 98% or 99% of the island. But Ari, you’ve been in Puerto Rico for far longer than that. When did you move to Puerto Rico, and what attracted you to the island initially?

Ari: I moved to Puerto Rico…people refer to people that came to Puerto Rico before Maria and after Maria, so I’m one of the before Maria guys. And what attracted me to Puerto Rico is nothing short of, it’s living in paradise. You’ve got the most incredible weather. You’ve got the most incredible people and the most incredible opportunities. And even though Maria was a devastating hurricane, it brought with it, like, unprecedented in my lifetime opportunities. Because the Opportunity Zones, I think it’s a great program that they’ve established to resurrect declining interest in urban areas to attract capital. Puerto Rico was seen as a place that needed a whole island to attract people, and when you take a look at some of the places that you can invest money and say, “This is an Opportunity Zone? This is nuts.”

This is the most beautiful coastline and tropical paradise that you can imagine, and then you have all the advantages of an Opportunity Zone. And then it even gets better than that, and Ashley will be talking about this in greater detail, but it gets better than that, that the local governments are incentivizing people that have capital to invest in the infrastructure here. And then it gets even better than that. The government has gotten all kinds of green lights, the federal government, to invest money in creating the infrastructure. So my prediction is that in five years from now, people are gonna say, “I went to this webinar. It sounded really interesting, and damnit, why didn’t I invest more?” Because it’s so easy for guys like Ashley and myself, who I’m on the ground, I live here every single day, but it’s so easy for us to see the things that so many people, it’s impossible for them to see unless they come here and they see what’s going on.

Jimmy: Great. No, it is exciting times on the island for sure. I wanna talk about real estate specifically now, the real estate market. Here on the mainland, where I’m located right now, the mainland U.S., we’ve had some turbulent economic conditions, turbulent real estate market, rising interest rates, a lot of uncertainty, lot of headwinds. What’s the current real estate investing environment like in Puerto Rico right now?

Ari: In my mind it’s spectacular, and the reason it’s spectacular is because there’s barriers to entry, and all the arenas that you talked about, they don’t have a very evolved financial marketplace here. So borrowing money, and large sums of money on a commercial basis, is very difficult to do. So if you can access funds, the barrier to entry is high, but once you get past that barrier, if you can access private capital, it’s ridiculous. The returns are unprecedented because the people that rely on borrowing funds, they don’t have those opportunities available to them.

And the other major, major component is there’s a lot of people out there in the world that think that now that we’ve entered the age of computers you can sit back on your computer, and you can look for properties, and you can be as cool as I am from your living room and wherever it is that you live, which is, in Puerto Rico, absolutely not true. You need boots on the ground because a lot of the properties are entangled in complicated legal issues. And believe it or not, the craziest thing that’s so beautiful on a certain level, but the craziest thing that I’ve encountered here in Puerto Rico over and over is that sellers care who they sell to. They care who they sell to, and they need to be convinced that the person that they’re selling to is gonna be doing good things for Puerto Rico. And this has happened to me over and over.

We have, one of our projects that you’ll hear a little bit about, the Hawayek property was on the market for four years before we bought it, and we bought it at an insane price. It’s so ridiculously cost effective and it’s right in the middle of Santurce, right on Ponce de Leon Avenue. And I went over to the broker, who’s the largest broker in Puerto Rico, and I say to him, “Ryan, I don’t understand why this building has not sold before we purchased it.” And he said to me, and I couldn’t even believe it, he says to me, “Until you came along the sellers did not feel comfortable with anybody that came to the gate.” Now what does that have to do with anything, with any of your investors that are sitting on the line and think, “That’s crazy talk?” But that’s the way it is here.

Jimmy: Yeah, I think that’s good that the current residents or the current real estate owners care about what happens next with this next phase of development. So let’s talk about big concern with Puerto Rico, and that is hurricanes. That’s a lot of the pushback that I get sometimes and I’m sure you get as well from investors when you start talking to them about Puerto Rico, and development in Puerto Rico, investing in Puerto Rico. They think, “Boy, Hurricane Maria wiped out a large chunk of that island.” They have infrastructure issues.

We just had Hurricane Ian move through and cause some more damage. Does the frequency of hurricanes dampen your enthusiasm for investing in Puerto Rico, Ari, or how should investors think about the risk of hurricanes when it comes to thinking about writing a check for an investment in Puerto Rico?

Ari: Well, I can tell you that a lot of investors are fear driven and they look for reasons not to invest in something. And if you wanna take a checklist and you wanna say, “I’m not going to invest in Puerto Rico because of hurricanes,” it’s an item. But as far as I’m concerned, the hurricanes are the biggest asset that happen to Puerto Rico, and I’ll give you a couple of examples. Maria was a big one and it devastated people’s confidence in the value of real estate, which created a reset of prices and encouraged properties to change hands.

Now property taxes here in Puerto Rico are very low, so traditionally it’s been very easy for people to hold onto properties for very long periods of time, and wait for the better days, and get some money. Now the Maria hurricane really facilitated a lot of turnover, and it’s good turnover, and it also facilitated interest by the federal government to invest in the infrastructure. If you look at the long-term maps of how Puerto Rico has been affected in the past, in many ways, it’s not so significant. But I’ll tell you about this last one, Fiona. Fiona impacted many people, but most of those people were in the interior and in the south of the island. Where I am, if you came to Puerto Rico right now you wouldn’t notice one thing different about the way the island looks.

In fact, most of the people that required some assistance, which our firm was involved in, I know that Robbie was personally involved. All the people in our group were involved in helping the community, because part of investing is being part of the community. They want you to be part of the community. They welcome you to be part of the community, and where our focus was reaching out to the community, we gave out food. We gave out money. We gave out housing to people, which is much appreciated. But the reality is that during Fiona, the need for that was nowhere near what it was for Maria.

And does it dampen my enthusiasm? It doesn’t, because when you know about the inside workings of the investment community. None of those things even have the slightest bit of impact. So for example, you hear these news reports that say, “100% of the island was without electricity.” And I say, “Big deal, we’ve been ready for all this stuff.” Any building that we’re involved with has backup power. We have generators so it doesn’t really matter. My office is operating at 100%. My home is operating at 100%. And all the properties that we’re involved with are operating at 100%.

Now the most important thing that you have to look at is, how does it impact tourism? And Puerto Rico has been on fire. The numbers have been insane, and when I say insane, I mean crazy. The prices of hotels here in Puerto Rico exceed anything in the United States. It exceeds New York. It exceeds the most expensive properties. Some of these properties go for $4,000, $5,000, $6,000 a night, that’s how much demand there is for these properties. The Airbnbs, go look at it, the prices are crazy. Will it always be that way? If the prices were half or a third of what they are right now, you can get an ROI without tax incentives that exceeds anything that you’re gonna get anywhere in the United States that I’ve ever been involved with.

Jimmy: All right, so you kind of answered our next question potentially, and this is our final question to you before we move into segment two and we turn things over to Ashley, Ari, but curious, any final thoughts you have on Puerto Rico? And why do you believe that the opportunities are greater in Puerto Rico than in the mainland U.S.?

Ari: Well, for one, because the quality of life over here is different than it has been for investors anywhere in the United States. If you get people, and I’ve had five years to talk to people who come to Puerto Rico, just ask them what their experience of investing or living in Puerto Rico is like. A component to almost everybody’s interaction with you is how they value the connection that they have with people, and how they value the connection that they have with their projects. I know me, I’m terrifically motivated to turn Puerto Rico to its old glory days. In 1950, this place, Santurce, where my office is, was thought of as the 5th Avenue of the Caribbean. Since then, it’s taken a massive decline for a lot of reasons, and the population from 1950 to today went from 200,000 to 67,000. It’s 67,000.

Now the 67,000 people, there’s buildings that are empty that have solid bones that are historical buildings, just much like you’ve seen in cities that have been resurrected like Detroit. These old buildings that are historical buildings, now there’s an interest in coming here and the rents are…they’re out of sight. You can’t get an apartment here for under $2,000 a month. I’m getting a…well, I shouldn’t say…can’t get an apartment, but I’m getting $1,500 a month for an apartment that I paid $50,000 for immediately after Maria. How did that happen in the United States?

And so my ROI, forget about the appreciation because that apartment’s worth more than 200 right now, and that’s four years. But just think about the ROI, and that’s not what motivates me. What motivates me is to turn Ponce de Leon into its glory days. And one building at a time, investors like us are changing the appearance of the street, and it’s just much more fun to walk on it, see a new restaurant, see a new building, see new ideas, and that’s what gives me joy in what I do.

Jimmy: Well, that’s great, Ari, and wanna thank you for joining me on this interview segment during our webinar today. And just as a reminder to our webinar attendees today, we frequently have discussions like this on the “Opportunity Zones Podcast.” Ari himself joined me on an episode just a few weeks back. You can find the “Opportunity Zones Podcast” and subscribe to us on YouTube or your favorite podcast listening platform. Just search for “Opportunity Zones Podcast.”

And now, Ari and Ashley, let’s move into part two of today’s webinar. Ashley, I think we’re gonna turn this into The Ashley Show for the next 25 to 30 minutes. I want you to tell us what you’re working on now. What is Island Paradise QOF doing on the island? I understand you are finding great value in distressed real estate assets and then redeveloping those assets into world-class hotels. So why don’t you start sharing your screen and tell us a little bit more about what the fund is working on?

Ashley: Yeah, absolutely, Jimmy. Well, thanks, and as always, it’s an honor and a privilege to be participating on an OpDB webinar, or pitch day, or whatever it is. And true to form, right, a couple times I’ve done OZ Pitch Day and I’ve done it from Puerto Rico when I’ve been down there working on the projects, and looking at properties, and that kind of thing. So I figured, you know what? I’m gonna take off my OZPros hat today and I’m gonna put on my Island Paradise hat, so this is my official Island Paradise hat, and I figured that I needed to bust it out for this episode as we go through this.

So once again, thanks, Jimmy, and thanks, Ari, for the background on that. I love interacting with Ari. He’s one of the most fascinating guys that I’ve ever met, right? So he built up this law firm, he is an attorney, like me. He’s a reformed attorney and he figured out a way to channel it to where he provides more legal services, and started doing that from down in Puerto Rico, and in so doing, fell in love with the island. And I think that you could tell that his love and his interest in Puerto Rico, namely just that it’s paradise on earth, and that he loves the people there, he loves the place, and I love just interacting with him, whether it’s in person or whether it’s on a webinar. I can’t get enough Ari.

So this is kinda the disclaimer, right, that you always have to have when you got a deck. And once again, this is not legal advice or a direct offer to sell securities. If you want the specifics of that, jump into the PPM. We’ll certainly send you that. We can go through this deck in more detail. We can get you additional information and that kind of thing to the extent that you have questions. But make sure that you get that, and you sign the subscription agreement, and all that kinda stuff, because this is open to accredited investors.

So what’s the investment thesis down here? And I think that Jimmy kind of alluded to it when he was talking to Ari. But the key thing is that…and so this is one of the reasons why I’m a principal in this deal, right? So why I’m now having my Puerto Rico hat on and I’m able to really talk about this is because I saw the alpha available in Puerto Rico, not just in Puerto Rico, but in the specific assets that Ari and team already had assembled, and then the specific team that they had assembled represents alpha. So as an investor, you understand the concept of chasing alpha. You’re looking for value in whatever it is that you’re doing, and you’re trying to send your investment dollars into that so that that way they can grow, right? That’s alpha.

And for me, right, just typical real estate had already become kind of frothy, right? And so particularly real estate in really desirable Opportunity Zones, a lot of that got gobbled up. I knew about the Opportunity Zones back in 2018. I wish I would’ve been putting a bunch of them under contract and that kind of thing, but lo and behold, I didn’t. And so now trying to get into the game, you gotta go a little bit more tertiary in order to get the same amount of alpha in your deals. Well, not in Puerto Rico, and especially not with the Island Paradise team.

So one of the things that drew me to Puerto Rico is this concept right here, right? It’s recovering rapidly from Maria, and as Ari alluded to that. Maria was kind of…man, it was a rough situation, man, and it demolished a lot of properties, and did a lot of damage. But the great thing that I love about Puerto Rico is that the Puerto Ricans saw the silver lining in it. So number one, they banded together, and from when I’ve talked to people about that experience, they’ve like, “Man, it was like a giant family.” And so they banded together, they got through it, and then as they’ve come out the other side, they’ve had massive improvements to their infrastructure. They’ve had massive advancements of construction, of development, and of foreign investment coming into the island. And so it is that, it’s the blessing and the curse, it’s the silver lining inside of that.

And so I think that based upon that, and based upon what Puerto Rico has typically been…so a lot of Caribbean islands, literally 95% of their gross domestic product is based upon hospitality. It’s based upon tourism. Puerto Rico has not been that way. Puerto Rico focused on building manufacturing jobs, and particularly for the pharmaceutical industry. So as a result, they attracted a lot of high paying jobs. They had good education associated with those jobs, and they built manufacturing infrastructure, as opposed to really ramping up on the tourism side. And so as a result, the tourism up side is significant in Puerto Rico because they still have a dearth of hotel rooms compared to the demand that’s out there, and this is particularly after Covid. I’ll get into that on another slide, but I can’t stress it enough that Puerto Rico is uniquely positioned to have a great long-term forecast.

The other thing was is that, so I went down there, and it’s funny, I went down there for my anniversary. And I’ve had almost 2,000 strategy calls through OZPros, and I had had a strategy call with a woman, her name’s Katherine Maria. She’s actually an investor into this deal as well, and she…I was like, “Hey, I’m down in Puerto Rico. Let’s get together.” And it was actually based on that strategy call, she took the strategy call from a boat and she was stepping out onto a beach, and I think she was stepping onto the beach, white sand, beautiful clear water. And I was like, “Ah, man, I gotta come to Puerto Rico.”

And so I talked to my wife. I was like, “Hey, let’s go down there for our anniversary.” So on the last day of our trip, I have coffee with Katherine and she’s like, “Hey, you gotta meet this guy.” And I’m gonna forward onto this, right, because, well, I guess I got it somewhere here in the management team stack. But, yeah, “So you gotta meet this guy. He’s on the ground here doing deals in Puerto Rico and he looks just like you. He’s 6-8 or 6-7, and he played professional basketball in Europe. And I was like, “There’s no way that there’s another guy like that running around in Puerto Rico.”

Sure enough, Robbie Crager walks in and he’s…it’s that, right? And I was like, “Holy cow, let’s look at your deals.” And so we went to one of the projects that I’m gonna show you here and I completely fell in love. And I was like, “Hey, man.” I was like, “I gotta get involved in this.” I was like, “I wanna invest. I wanna be a part of it. Let’s do this.” And so that began my Puerto Rican journey. And the reason why is because when I went on that aggregate island tour with Robbie, I recognized his ability to have effective boots on the ground, right?

So not only does he have relationships in place, but through those relationships he’s able to identify and develop under-valued assets. One of those relationships was with Ari, and so I got to meet Ari through Robbie, and Ari has been an unbelievable force on doing this exactly, identifying, developing under-valued assets. And so that’s one of the things that got me comfortable about being a part of this and saying, “Listen, I’m all in.” And then the third thing that really, really got me there was the stacked tax incentives that de-risk Puerto Rican hospitality.

So inside Puerto Rico, there is a 40% hospitality tax credit that’s available for your acquisition cost, your cost of development and improvement, and then your first year of operational costs. And so effectively you’re getting 40% of the aggregate cost of your project back over a three-year period. And so that helps to significantly juice the returns on these deals, because inside a development deal, particularly in Opportunity Zones, and I’m sure that if you guys have looked at these, they really struggle the first couple of years because you’re building stuff. There’s no cash flow in. Well, that’s where the tax incentives come to fix that. So while you’re ramping up, while you’re getting the hospitality aspect going, you’ve got this tax incentive that you can dial in.

And I’ve got a slide at the end where I’ll kind of run through the specific numbers on that, but that was the third and final thing that iced the cake for me, on top of it being an Opportunity Zone. So you’ve got an Opportunity Zone benefit, and then you’ve got the Puerto Rican Hospitality Tax Credit, which made it so I was like, “Wow, unbelievable.” So I talked about why it’s got a compelling long-term forecast, right, is that in 2019, they shattered a billion-dollar mark, right? And this was pre-Covid, right? And these numbers, all of these numbers are pre-Covid numbers, and I wanna tell you, I’ve been down there post-Covid. I think I was down there pre-Covid and post-Covid, and the difference of post-Covid is mind-blowing.

The amount of people that are going to Puerto Rico as a result of it being a United States territory, where at the time you were traveling to any of the other Caribbean islands, you had to test going in and test coming back, because it’s a U.S. protectorate, you did not have to do that. You had to have a test going in but you did not have to test before you came back. You also don’t have to have a passport. You can travel there on a driver’s license. And so I think that all of those things combined have caused this unbelievable spike in hospitality.

I think that one of the other things that has contributed to that is this, kind of…I call it the TikTok phenomenon. Everywhere I went on the beach there were these very pretty ladies that were shooting videos of themselves out there dancing on the beach in Puerto Rico. And you get a couple of those go viral and everybody’s like, “Holy cow, I wanna go to Puerto Rico.” So I don’t know if that’s the whole reason why. I think it’s kind of a consolidated effect of all of those, but that certainly exacerbates it, and it’s caused the hospitality demand to spike. And as a result, they are significantly under staffed, under inventoried for hotel rooms.

So this is the really significant number for me as an investor looking at this deal is, I was like, “All right, let’s look at the RevPAR and let’s look at what the RevPAR is doing. So RevPAR means revenue per available room, and that’s effectively, what’s your aggregate room rates divided by the number of room nights that you had available. And so that factors in occupancy and it factors in all of the other things that are there. And so you had a significant increase in that, number one, and it’s actually 124% higher than the U.S. mainland average. And that’s kinda like the, okay, all right, Puerto Rico’s got it and it’s got it going on.

And I also mentioned this earlier is that the Island Paradise management team is uniquely able to identify, develop, and operate distressed assets, right? So one of the properties that I went to look at, and this is the Cabo Rojo property, and I’m gonna show you and I’m gonna describe all the…I’m gonna hold all my details of that til I get to this slide because you gotta see the pictures of it, is that this was a distressed asset. So I mean, I’ve been looking for opportunities on properties since 2018 and I’ve specifically been focused on anything that’s got any kind of water component to it, and there are very few of them out there. And inside of the 8,700, there’s very few of them.

Where else can you get a quarter mile of white sand beach that’s in an Opportunity Zone? That’s what Robbie had under contract when I went to go meet with him, and the key is that he had it under contract from basically post-Maria at post-Maria prices. And so that’s the value that I was able to step into and that you’ll be able to step into as an investor as well. And they’ve done deals down there in Puerto Rico. They’ve got success under the belt. They know the contractors, they know how to get stuff done. They know how to navigate the Puerto Rican regulatory environment and other stuff.

I’m gonna show you some of the other folks on the team that throw in additional regulatory and financing talents as well. This is kind of a summary of the projects, right? So we got the Hawayek Building, we got Manati, we got Cabo Rojo, and we’ve got El Coqui. And we may end up tucking another asset into it, but right now the four projects is what we’re really focused on. So we may have one that kind of jives with these but you’re not stepping into a blind pool, right? These are deals that the fund and the QOZB has actually purchased and that it owns right now.

So Hawayek is the area in Santurce, or it’s a building in the area of Santurce that Ari was talking about that was 200,000 people in the 1950s and that now has 63,000 people. This building was empty from basically, I think, the second floor up. I think it had a restaurant in the main floor, maybe a couple of offices, but it was vacant. And so we were able to come in and put this under contract and to buy it, exactly how Ari said, right, because we’re ESG focused and we care about what’s going on and what’s gonna happen to this area.

And so you could see this in the renderings. You can see it, that there is care being delivered in what we’re doing here. We’re not displacing people, we are looking at the environment. We’re looking at the area and we’re saying, “How could we best positively impact this area, and how could we do good by the folks that are living there in the area itself, and then do well for our investors in the process?” So it’s six floors, and it’s gonna ultimately end up being a 45-room hotel. And this is, once again, that key, right? Look at that RevPAR, an anticipated $308. And that’s not us kinda pulling this out of a hat.

So one of the things that my background is, I was a tenant-in-common sponsor, and while I was at that tenant-in-common sponsor, we syndicated a number of assets that we put through our TIC program. One of the things that we did and we carved out a niche of doing was actually developing and then TIC’ing out hotels. We did the first TIC hotel deal, and we TIC’ed out the Howard Johnsons in Manhattan. And one of the huge drivers of everything we looked at when we were doing a TIC deal on a hotel was this RevPAR number.

The other significant thing was that we wanted to get a star report on the hotel and do our due diligence, and have somebody who really knew what they were doing to come in and do that. And that’s exactly what the management team for Island Paradise did, and that’s where these numbers from these slides come from, is from that due diligence report where they came in and said, “Okay, this is what you’ve got it at. This is what we think it’s gonna take to get it improved, and this is what we think that the RevPAR will be for the individual rooms.”

And so when you look at that, and you look at the value that we’re able to buy it at, and what the ultimate RevPAR is gonna be, right, that’s what gets into these unbelievable multiples, right, relative to the back end of this thing. Typically when you do a pitch you get to the executive summary first. I’m saving that one for last, so stick here in the webinar because I wanna make sure that you see what the anticipated numbers are on this, because once again, it’s icing on the cake. So this is what Hawayek looked like back in the ’50s. I mean, look at that, this place was booming, and this is what it’s gonna look like again, which is gonna be really cool.

I don’t know if Ari’s gonna put his law firm as one of the tenants in here, or if this was just a rendering where it was like, “Hey, we gotta put a name on there somewhere. Let’s put a name up there,” but I love the flay. It’s kinda like a license plate for him. This is the inside, right, with a restaurant and bar that’s gonna be there. And I believe that this is a swimming pool that’s perhaps gonna be in the upstairs, like on the top, but I need to confirm that with Ari and or the other designer that’s doing it. But as you can see, these are not base improvements that we’re doing. We’re turning these things into high-end boutique hospitality assets, and I think that that’s the relevant thing here is that we’ve got great properties. We’ve got a great team and we’re putting it into high-end stuff, right?

Now along the way, when we find an opportunity we’re gonna jump on that opportunity, and that’s what Manati was. And so this one came on the market and we were able to pick this one up. We had to close quickly on it in order to get the deal that we did, but we were able to buy this thing for $600,000, and it right now has six rooms. I think we’re gonna be able to turn that into 13/14, and we’re potentially gonna do it in a variety of ways. We’ve looked at turning and converting these actually into hotel rooms right here, and then we’ve also looked at the possibility of acquiring this land. There’s also another vacant lot that would be positioned over here, and utilizing that for our substantial improvement aspect and where we’re gonna ultimately develop it. But because we bought this thing, and it was effectively, they were operating it…they were trying to turn it into an orphanage, so accordingly there’s not a whole lot of improvements that need to be done.

And so we’re actually getting this one up and running as an Airbnb, and I believe that we’re gonna have FEMA folks staying in there in as little as a week or two. And so there’s revenue that’s coming in and that’s going to be coming in off of these very quickly, in addition to the tax credit revenue that’s gonna be coming in as well. This was one of the assets that was a recent add that I absolutely love, and I love it for a number of reasons. In Puerto Rico, and I think that this is attributable to the number of generational households that live together, there’s a need for hotels where people can be discreet, and so this was one of those motels, right? And you can see that it’s effectively a place, and you drive your car in, and you can park your car inside of a garage and then it’s got rooms attached to it.

And so what we’ve done is we’re purchasing this motel, and as you can see, the natural area around it is phenomenal for the views. And to turn this, what was kind of a crazy motel, right, the no tell motel, if you will, into a five-star…and I don’t know if it’s gonna be five star, but a seriously high-end, boutique jungle retreat. And so that’s what we’re gonna be doing with this property. So it’s gonna have a restaurant. We’ve got a big common area that we can turn into the restaurant. We’ve got the ability to knock windows into the rooms, and that’s actually a view that’s there so that you’re gonna be able to see the bamboo and all of the other stuff that’s on this. So it’s located at the top of a mountain right outside the outskirts of San Juan, so it’s about a 20 to 25-minute drive from the airport. But when you get up into this area it’s like worlds away, and so it’s uniquely positioned to be a jungle retreat.

So the other cool thing, and this is one of the other reasons why I like this property, right, is that you see that we bought it for $1.4 million, and right now it’s got 80 rooms. But I think we’re probably gonna be able to come near to doubling that, and or to making those rooms significantly better by effectively just closing in the garages and then putting rooftop terraces on top, or just going up another level and then putting rooftop terraces on that. Our architects are working on the specific plans of that right now, and so it’s exciting to be a part of that to see ultimately what’s gonna happen there. But because of, number one, you make money when you buy real estate. Because we got it for such a deal we’re gonna be able to really knock it out of the park on this one, and I’m excited about that one.

So this is the property that Robbie took me to that I was like, “Holy cow. You mean to tell me that I’ve got the opportunity to get in on the ground floor of a quarter mile of white sand beach, right on the water, in an Opportunity Zone? I’m in.” It’s Cabo Rojo, right? And so this property is called Bahia Salinas, and it was historically a place where all kinds of local folks would go to to get away for vacation. And so if you talk to a Puerto Rican who’s lived there for a while, more than likely they went to the Bahia Salinas at one point in time.

So this is what it looked like pre-Maria, right, and certainly what it will look like again. But I think it’s gonna be way better this second time around, but not bad bones from which to start. So that beautiful pool that you just saw, right, that’s what it is right now, right? I’ve actually got a really fun picture from the last trip we were down there. Somebody was like, “Hey, dude, go dive into the pool,” and so I went and did a bellyflop picture right in the middle there, and thank goodness it didn’t have water in it at the time. But it’s just cool to be a part of something and to see it unfold, to see what it was before, and I can’t wait to go back there, shoot another picture. I don’t know how I’m gonna figure out how to do that. I’m gonna maybe have to be underwater at the time, but to be able to shoot the after on it as well.

This is from an aerial view of it, and so you can see that on one side you’ve got this beautiful bay that’s down there in this part of Puerto Rico, which is known as Cabo Rojo. And then on the other side it’s got these salt flats, and those salt flats, when the sun goes down, it’s amazing how beautiful they are. They’ll, a lot of times, pick up this pink. You can kinda see it picking up the pink right there. And so this property is on the way to…here, I’ll show you a picture of the lighthouse here in a second, right here.

So it is on the way to this Cabo Rojo lighthouse. These are the Puerto Rican salt flats that are on the left as you’re driving in, and then this is the Playa Sucia, which is one of the most beautiful beaches in Puerto Rico. It’s probably one of the most famous beaches, totally photographed, and that kind of thing. You gotta drive right by our project in order to get there, and certainly if you don’t like the quarter mile of white sand beach as you walk outside of your door, you can get there at a short walk to this place.

So these are some of the renderings on what we’re gonna do on possibility on here. And I mean, yeah, it’s amazing to see what the architects come up with. I can’t wait to see it when it’s done. So this is a map with where the properties are. So this is the Hawayek Building in San Juan. This is El Coqui, and this is the Manati project, and then these are the Cabo Rojo hotels. We’ve got a fairly diverse, relative to the geography, but we’re stoked about what we’ve got relative to the individual assets.

This is the management team that I was talking about. So boots on the ground, right here we got Ari, Robbie Crager, David Micale. They are on island all of the time, our off-island secret weapon is Seth Rosenberg. He is an RIA and kind of financial expert out of Phoenix, Arizona. He’s very heavily involved in the tax mitigation space and that kind of thing. I guess you could call us two peas in a pod. We’re kind of like Mutt and Jeff when we get together but it’s really fun, and I love interacting with Seth.

One of the great things I love about this team, right, though, is that it’s not Kumbaya all the time, right? And Seth will be the first one to say this. If he sees an issue, he’s gonna jump in there and he’s gonna be like, “Hey, guys, this is a problem. We need to deal with it.” And I love that about this team that we can have those conversations, we can figure out solutions to those problems, and we can proceed on and we can make it happen. Because as anybody who’s done a real estate development project knows, there’s stuff that comes up, and you gotta have a great team in order to be able to handle that stuff.

So I kinda talked about the individuals. Yeah, just ignore this guy right here, but I love the team and I love what we’re building there. And through our relationships with some really powerful partners, we’re really confident about our knowledge both inside of the Opportunity Zone space, but also inside of the local tax credit space, and with additional resources that are assisting us with developing hospitality assets, and top-shelfed hospitality assets as well. So once again, to summarize, stacked tax incentives de-risk Puerto Rico while significantly enhancing the long-term return potential.

Nearly the whole island of Puerto Rico is in an Opportunity Zone, so we get to stack those tax incentives of Act 60 with it, and then I’m gonna show you, right, so then you’ve got the Opportunity Zone benefits. And this is what the tax benefits inside of Puerto Rico look like, right? But this was what comes from Act 60, right? So you can see the difference between a non-Opportunity Zone investment transition to an Opportunity Zone investment, which is real estate investing nirvana, right? When you jump from that relative to an equity multiple, what that does to your IRR, particularly because the money comes in the beginning part of the transaction, when you add the Act 60 on it, the multiple jumps through the roof, but it also spikes the IRR because it’s coming on the front end of the deal.

And so this is what our…our waterfall structure is really simple. We don’t get paid until after you get paid, which is a great arrangement for the investors, but this is the…the numbers don’t lie. It’s kinda like when I was playing basketball, the ball don’t lie, Ashley, the ball don’t lie. And we’re raising $17.5 million. We’re anticipating a 25% IRR, and we’re around that, and north of a 4x multiple. We’re throwing in 8% for further return, and then you’re ultimately gonna have 0 capital gains and 0 depreciation recapture on the backside of this. So Ashley, dude, this is unbelievable. What do I do next?

So request access to the deal rooms, and you could go to opportunitydb.com/paradise and order to get that, right? Get in there, go to that website, get access to the deal room. Get the deal docs, get the offering documents, the PPM, the subscription agreement, that kind of thing. It’s gonna run you through the process of proving that you’re an accredited investor and that kind of thing. Schedule a follow-up call with our team. If you’ve got any questions, like, final questions or whatever, this prompted something for you, get on the horn with myself, or Michael, or Seth, and we’ll run you through the specific questions.

But then as well, I’m gonna personally invite you to our next event that we’re having in Puerto Rico. It’s gonna be in January, the third week in January. We’re finalizing details, but if you go to this and you give us your email address, and then I’m sure that we’ll be promoting it out to the list that participated in this deal. But you are invited to our on-island event where you’re gonna learn about investing in Puerto Rico. We’re gonna have experts there that are gonna be talking about it, and then you will get to go see all of these properties. We’re specifically gonna have a bus tour that’ll run by all the properties and you can see what they’re like, where they are on the progress of them, and you can put your feet on the dirt just like I did, and you’re gonna fall in love. And then the greatest thing about that is that you’re gonna write off all of your future tax…against your taxes, your future trips to Puerto Rico because you’re gonna be checking on your investment. Jimmy, I’m turning it back to you.

Jimmy: That was great, Ashley. Thanks for participating with us today. Thanks for being on. We’ve got about 12 or 13 minutes left to answer some questions. We got a lot of great questions today, so let’s get to them. By the way, first of all, I just wanted to repeat that URL one more time, opportunitydb.com/paradise, and you can access the deal room, get the subscription documents. You can schedule a call with the team, and also, we know that some of you were having some trouble viewing the slide deck. It may have been a little bit blurry. We put the slide deck that Ashley just walked through on that page. You can download it right now if you head to that page, so that’s that. First question here comes from Tom. Tom asks, “When it comes to tax reporting, does an Opportunity Zone investor, assuming a U.S. resident, need to file both U.S. and Puerto Rico tax returns? How does that work?”

Ashley: Yeah, so it’s just like when you’re investing in a deal that’s in a different state than what you live in. You’re gonna end up having to file a tax return in that specific state because you’re gonna have income sourced from that particular state. So yes, on the income, excuse me, that’s coming in, you will be filing a Puerto Rican tax return. But it’s gonna come to you in a K-1. This is something I forgot to mention.

We are uniquely positioned, because we can not only accommodate investment into our qualified opportunity fund, but we can also accommodate investment directly into the qualified Opportunity Zone business. So whether you’re invested in either spot, right, you’ve got your own fund and you’ve invested into the QOZB, or you’ve come into our fund, you’re gonna get a K-1 from either one of those entities that’s gonna have all the specifics that your account will need in order to file it. And if you’re investing from your fund, we’ll give all of the information that you need to fill out the 8996 as well.

Jimmy: Good. Carmen chimed in with one thought. Carmen says, “El Coqui, the sound of the Coqui is amazing. I’m actually of Puerto Rican descent so I’m very excited about the opportunity. Thanks for attending today, Carmen. We had a couple questions from Pam, and I just wanted to say hi to Pam. I met Pam a couple days ago in New York City. Glad you can be here today with us, Pam, but Pam’s questions kind of piggybacking off of the last question that you answered, Ashley. You did say K-1, so her question was, “Is the investment structured as a partnership?” And the second part of her question is, “Can we share in the depreciation expense?’

Ashley: Absolutely. And man, I apologize that I did not hit that, right? So we ought to have that as one of the benefits in our slide, and Pam was not a plant to remind of this, that the fourth benefit of the Opportunity Zone legislation is that you get to depreciate, and you get to bonus depreciate along the way. So you’re able to pass that through up to the extent of your debt, and we’re levering this up with USDA debt, which is non-recourse, and then that, up to the amount of the debt, we’ll be able to pass through to our investors, which we will do. So you’ll be able to take advantage of that, and then when you sell on the back end you won’t pay any depreciation recapture. So yes, the answer is, absolutely, and thank you for bringing that up.

Jimmy: Yeah, thanks, Pam. Pam had a second question also, which is, “What is the replacement value of assets, and how easy and expensive is it to get flood insurance and insurance for hurricanes? It seems like Puerto Rico gets hit by a lot of Atlantic hurricanes,” as she rightly points out.

Ashley: Ari, I’m gonna let you kinda step in on this one relative to the insurance, because you’ve been on…

Jimmy: So replace the value of the assets, and any thoughts on getting insurance.

Ari: All right, I’ll start with replacement value, and that is probably high because we’re buying these assets. I mean, we’re buying the equivalent of 170 rooms in El Coqui for $1.4 million. When you break that down, that’s less than $10,000 a room. What would it cost to replace? Probably a lot. Can you buy insurance? My own view on insurance is that you need to get a good insurance company because after Maria I saw that people that thought they had insurance and didn’t have insurance, except the ones that are insured with off-island insurance companies, like Chubb, or some other reputable carriers with a large deductible.

So in other words, if you do a large deductible, like $50,000, $100,000 deductible, and you have a really strong policy with an overseas carrier, I think you’re really, really safe because they won’t mess around with you the way Puerto Rican insurance companies do. The premiums are low because you have a high deductible. And the administration expenses of handling claims is eliminated because over here, if you have a $10,000 claim, you’ve got $20,000 worth of paperwork. So that’s what my view is.

In terms of our own properties, some of our properties…you hear about the devastating stories but you don’t hear about all the properties that didn’t get hurt during Maria and the properties that didn’t get hurt by Fiona, which is the majority of them. So we know building materials, we know how to decrease the likelihood that we will be impacted severely by a hurricane. So don’t think that all those news stories apply to everybody, because they don’t. So right now, before we build those hotels where insurance is less of an issue. As a matter of fact, we had Fiona pass through our Cabo Rojo property and it didn’t really do anything except for help us assemble some of the debris, so that was pretty good. So replacement costs are gonna be high because we’re doing high-end things. We’re having a low basis. What was the second part of that question?

Jimmy: How difficult is it to get flood insurance and hurricane insurance? How difficult and expensive is it?

Ari: I fancy myself a little bit of an expert on insurance and I think that a lot of insurance is not available for the squeamish because they’re afraid of large deductibles. And I like large deductibles, and we generally get more quality policies for large deductibles, and it’s available.

Jimmy: All right. Well, let’s move onto Tom’s question. “When remodeling or renovating these older properties, how do you estimate the additional costs when you have to fix any major, hidden defects?”

Ari: I’ve not come across anything like that because the buildings that we’re involved with, they’re all rock solid, cement structures. Somebody asked, which of these properties did we buy already? We bought them all. The entry point for all of these properties are…they’re very opportunistic. There hasn’t been a single defect. There hasn’t been a single problem that we have uncovered anywhere. And how difficult is it to deal with? You don’t have to deal with it. It’s a non-event.

Jimmy: Yeah, that’s a good point. I saw that you had answered that question already. Somebody had asked, “How many of the five assets have already been acquired?” And they’ve all already been acquired, so that’s great news. We got a couple questions here, one from Carmen. Carmen asks, “What qualifies you as an accredited creditor?” I think you meant accredited investor, and I did link to a definition of that in the chat on Investopedia, but typically it’s at least $200,000 a year of annual income, $300,000 if you file jointly with a spouse, or $1 million of net worth, not including your primary residence. There’s a few other ways to qualify as an accredited investor. I encourage you to read that brief article at Investopedia. It kinda clears up all that. Ashley, Mike wants you to clarify, “Hey, clarify your statement that an LP passive investor that travel cost to oversee your investment is tax deductible. Is that right?”

Ashley: Yeah, so I should’ve probably carved that out, right? So it’s definitely deductible for me because I’m actively involved in it, and it’s a little bit different relative to passive investors, and you’re gonna want to specifically talk with your CPA about that because after the tax reform you may be forced to add that in as basis to your investment as opposed to actively deducting it. You’re certainly gonna be able to utilize it, so keep track of it and talk to your CPA. You may not be able to actively deduct it right now, but you’re definitely gonna get the benefit of it.

Jimmy: Okay, that’s interesting. So as always, consult with the tax professional.

Ashley: Yeah, and I should probably stop throwing that out.

Jimmy: Yeah, maybe. Anyways, let’s move onto the next question. Let’s see, we got two or three more minutes. We got time for a couple more questions here. “Is there a market or mechanism for converting the Act 60 and other Puerto Rican tax credits to cash? How does that work?”

Ashley: The answer is yes, and it’s a very robust marketplace. And I’m actually gonna let Ari kinda take that one. I should’ve let him take it from the get-go.

Ari: It’s way more complicated than two and three minutes, but the short answer is yes.

Jimmy: And what do you typically get? How many cents on the dollar do you get for selling those on the marketplace?

Ari: Tax credits?

Jimmy: Yeah.

Ari: Ninety cents. It depends on how close it is to the time that people are filing their tax returns, so it’s right before you’re filing your tax returns, you can get up to 93, 94 cents on the dollar.

Jimmy: Wow, that’s impressive. Yeah, so if it’s early April, you’re probably looking at 90 cents plus. Ohio has a similar program and I’ve heard similar stories from that state as well where they’ve got an active marketplace, and depending on what time of year it is, depending on if people are filing or not, you can get quite a bit of cash back for that as credit.

Ashley: I don’t think that we’re gonna be timing those, right, but we’re gonna be selling them as soon as they’re available for sale. But it’ll be interesting to see the difference based upon when we actually sell them about how much we get. That’s a fascinating thing.

Ari: Unlike most of the other markets in Puerto Rico it’s a very efficient one. And when you tell them, I know somebody…we have a spectacularly strategic neighbor that’s right next door to us. They’re an expert on tax credits and they just sold a portfolio. They can’t get them fast enough. They just sold $17 million the other day of tax credits. There’s a big demand for that so the market is strong.

Jimmy: Yeah. Carmen asks, “Can non-accredited investors invest?” I think the answer is no. Unfortunately the Securities and Exchange Commission, the SEC, that’s just their rule on this type of offering designed to protect the investor. If you don’t like it, I guess you could take it up with the SEC unfortunately. These guys have to abide by the rules that are enforced by our nation’s regulators, so correct me if I’m wrong, but I think that’s the case.

Ari: So Jimmy, if you’re a non-accredited investor just come down and do your own investment.

Jimmy: There you go. There’s an option, too. Question from Harshad asks, “Will you be refinancing in 2026 so we can pay capital gains taxes?” Of course, the deferred gain that you rollover into any qualified opportunity fund gets treated as 2026 capital gains, so you would have a liability on April 15th, 2027. What’s your guys’ answer to that? Are you refinancing in ’26 and doing a refinance distribution?

Ashley: So there’s a couple of things. So the answer is no, and the reason why is that we’re getting very, very favorable terms on the USDA financing. And so that’s a construction perm all into one, right? And because the terms are so favorable and it’s got a 28-year amortization on it, it doesn’t make sense to refinance it. Now also, because of the terms of the loan, I think that…well, if we don’t, we’re gonna end up hitting it to where we will have returned an amount equal or greater than your initial what your tax bill is going to be by the time you go to pay those taxes. My statement on that is even further solidified by, I think, the significant likelihood that the current pending legislation of the Opportunity Zone enhance…what’s the legislation?

Jimmy: The Opportunity Zone reform legislation is how I refer to it.

Ashley: Yes. So the Opportunity Zone reform legislation to where it could potentially extend that time when the taxes are due will have another two years of runway of distributions that, I think, will more than have gotten you enough money to be able to pay your taxes. The other thing is that you’re also going to be getting, and we probably need to model this out a little bit, but there’s depreciation losses that will also be allocated up to you that could potentially be carried forward. And then you’re also going to get your basis that drops as of the date when those are due. So if that’s December 31st, 2026, now all of a sudden you’ll have an increase basis inside of the project. And so any unused depreciation will be available at that point in time that you could use to offset those taxes for that year. So I don’t think it’s gonna be a problem at all.

Jimmy: All right. Good points there, Ashley. We are at 1:01 p.m. Eastern Time. We’re a little bit over, but we do have a few more questions if you guys wanna stick around. We’ll see if we can get to a couple more, is that all right?

Ashley: Sure.

Ari: Okay with me.

Jimmy: So let’s see, Tom and Mike both asked a similar question. Is Puerto Rico conforming to the federal OZ incentive, or are OZ deals taxed? And if they are taxed, what is the rate?

Ashley: So they pass legislation, their own legislation that basically mirrors the Opportunity Zone legislation. So they conform from a deferral standpoint on capital gains. Now income off of any Opportunity Zone project is taxed.

Jimmy: No matter which state you’re in.

Ashley: Exactly. So we’ve got some specific tax breaks that are associated with Act 60 to where we can deal with some of the local Puerto Rican income taxes relative to that. But yeah, there will be income taxes for everybody associated with it, and I’m pretty sure that you get a credit in Puerto Rico if you’re paying them in the States. And so we’ll be able to assist you with that when it comes to tax filing time so that it’s clear and we’ll be able to help your preparers with it.

Jimmy: Sounds good. Let’s see, I think we just have one more question here and then we’ll wrap up. An attendee asks, “I believe 60% of the structures were impacted by Hurricane Maria, so it would seem there is some risk.” And yes, this is an opportunistic deal, of course. This person is wondering if you have calculated the costs associated with storm damage as part of the business model.

Ari: Well, I don’t think that that number is anywhere close to the accurate number for the kind of structures that we’re investing in. You’re talking about single family, maybe not the highest quality buildings, where their tin roofs were ripped off and they got replaced with tarps. So that 60% number is included in that. The kind of structures that we’re talking about, I mean, literally zero percentage of them have had structural damage, and some of them have had broken windows and other kinds of damages.

Puerto Rico has built their structures with solid concrete and rebar mostly, so their bones are really good. Now they’re not impervious to earthquakes, but none of our properties, especially in the north, have been impacted. There have been no impacts in the north. The earthquakes happen in the south, so I would say it’s statistically insignificant, in my opinion, the impact that hurricanes are gonna have on this investment, especially in light of insurance.

Ashley: Well, also in the pattern, right? And so both with insurance and then adequate operating reserves, which we’re absolutely gonna have, I think that we’re gonna be okay.

Jimmy: Fantastic. Well, gentlemen, Ari, Ashley, thank you so much for being with us today. Wanna thank everybody for attending the webinar as well. As I mentioned at the top, we will circulate a recording of the webinar out to everybody. Give us a few hours or maybe tomorrow morning, we’ll get that out to everybody who registered for today’s event. And again, if you want to learn more about this deal you can download the slide deck that Ashley presented. You can schedule a call with the Island Paradise team, or you can request access to the deal room where you can get the subscription documents, and ultimately go on to make an investment into the fund. Please visit opportunitydb.com/paradise and that page has everything on it you need to know. That’s opportunitydb.com/paradise. I’ve also linked to it in the chat. That’s all for today. Ari and Ashley, thanks again for joining today.

Ari: Thank you.

Ashley: Thank you, Jimmy, appreciate it.

Jimmy: Thank you all for attending.

Ari: It’s been an absolute pleasure. Bye-bye. Thank you.

Ashley: Cheers.