Puerto Rico’s Incredible OZ Opportunity, With Monllor Capital Partners

In this webinar, Jose Torres presents an opportunity to invest in a private equity fund focused on Puerto Rico.

Interested In Learning More About This Opportunity?

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  • Learn key details about the fund and related projects.
  • Request more information from the fund sponsor.

Webinar Highlights

  • Jose’s background in private equity and investment banking.
  • The unique circumstances that led to more than 90% of Puerto Rico being designated as an Opportunity Zone.
  • How PROZ focuses on impact investing.
  • A review of the three investments that PROZ has made and deals in the pipeline.
  • Live Q&A with OZ Pitch Day attendees.

Industry Spotlight: PROZ

Monllor Capital’s mission is to help the reconstruction of Puerto Rico by investing in it’s future after the devastation left behind by Hurricane Irma and Maria. With the formation of the Puerto Rico Opportunity Zone Fund (PROZ) we can start providing radical tax breaks and incentives for investors since over 95% of Puerto Rico is within designated and Qualified Opportunity Zones.

Learn More About PROZ

Webinar Transcript

Jimmy: Jose Torres. Jose, I’m promoting you to panelist right now. Jose is going to be presenting the Puerto Rico Opportunity Zone Fund. He’ll tell you all about it.

Jose: Well, first of all, thank you for having me back. It’s great to be able to speak again about Puerto Rico Opportunity Zones and private equity. I think, in terms of background, I wanted to start that this is slightly different. We’re really a private equity fund that decided to be a qualified opportunity fund as well, to provide those tax incentives to investors with qualified capital gains. So with that, I’ll go ahead and start the presentation.

We are accepting investments from accredit investors only, and we have a PPM and anybody that’s interested, we can make that information available. I’m gonna go over my background and on our team. I’m also gonna go over the fund, the fund structure, but more importantly, I wanna go over the investments that we have made, and also about our pipeline of deals.

It’s funny, I was looking back at about three years ago when we met, Jimmy, and when we started. Obviously, a few more white hairs, and a few extra pounds but it’s been great to see the journey, not just with us, as a fund, but with the whole Opportunity Zone sector. My background is private equity and investment banking over 30 years. When I learned about Opportunity Zones and I learned that all of Puerto Rico, pretty much over 95%, qualified under the law, I thought that there was an opportunity for me to do something different. At the time, I was at Ares Management, a large publicly-traded private equity fund. I was over in San Francisco. I was doing deals in Puerto Rico, and at that time Puerto Rico went bankrupt and they decided that they did not wanna continue doing deals in Puerto Rico. I thought that that was really an opportunity to go on my own. So relocated to Puerto Rico at the beginning of 2019, and did everything I could to try to put together an Opportunity Zone fund here in Puerto Rico. In terms of other experience, you can see here that I’ve worked in most of the banks in New York and, also, in Santiago, Chile, and in Amsterdam.

How I like to explain is, we’re a private equity fund. We follow the ESG guidelines to try to make sure that we’re doing good. And when I do that, I talk about the environment. I talk also about the social side. And it’s not just, we’re doing economic improvements and helping the economy. We’re actually trying to do things that help the residents of Puerto Rico. We’re focused on Puerto Rico, and there’s a couple of reasons for that.

One of them is that for Puerto Rican investors to be able to take advantage of the OC regulations in Puerto Rico, the fund can only invest in Puerto Rico. That’s only specific to Puerto Rican investors. But because we wanted to have Puerto Rican investors, we decided to only focus investing in Puerto Rico. We’re doing impact investing, which is part of the ESG strategy. And then, overall that, we overlay the Opportunity Zone.

Our fund strategy is really to have a multi-asset portfolio. We wanna maximize capital gains treatment so our goal is to reinvest capital over the 10-year period. We’ll have at least a 10-year from our last investor. We’re raising capital at least through June 30th of this year.

Because we are the first private equity fund doing Opportunity Zones in Puerto Rico, we wanted to make sure that we could partner up with best-in-class. We have Grant Thornton as the tax advisor. And accounting, we have JTC Group Americas out of the San Francisco, California office doing all of our fund accounting and compliance. And we have DLA Piper as our legal advisors.

In terms of what we try to do different and why invest with the fund versus invest directly, is that we’re trying to actively manage our portfolio companies. One of the things that we do is not only find good deals, but we’re also actively working with that company and the management team to improve their returns and to ultimately get to acceptable exit.

This is a quick slide. Like a traditional private equity structure, we have limited partners. We will invest in separate entities. All of them are in Puerto Rico. All of them are qualified Opportunity Zone businesses. We have done three thus far, and which I’ll talk in more detail, and we hope to at least do a minimum of one more in the renewable energy space.

The only other thing that I would add is that we’ve decided to be taxed as a corporation for federal tax purposes and we have a couple of reasons for that, but we’ll manage that tax liability as we don’t expect to have many taxes. And as we invest, as you guys heard in some of the other panels, that ITC is a way to also minimize taxes. As we have some potential deals in the renewable energy space in Puerto Rico, we expect to be a tax-efficient vehicle for that, while we manage the assets for 10 years.

In terms of why Puerto Rico? People ask me. Well, Puerto Rico, one, has a need. There’s significant need for investment. But, two, Puerto Rico has great fundamentals. And with that, I’ll talk about the labor force, is very well-educated, bilingual. We talk about a great location, in terms of where we stand for a bridge from the U.S. to Latin America and Europe. We also can talk about the fact that we’re a U.S. jurisdiction, from a legal perspective and the U.S. dollar. However, we’re a separate tax jurisdiction, which means that Puerto Rico can establish its own laws for taxation, and that provides a significant amount of incremental investments that we have, here, in Puerto Rico. And then, finally, like you must have heard, Puerto Rico, over 95% qualifies and falls under the Opportunity Zone legislation. Also, Puerto Rico is significantly large. We have 3.2 million residents and we have $100 billion GDP.

I wanna talk briefly about the pipeline and the investments. Our first investment was actually a company that designs and manufactures right now in China. We’re hoping to bring that manufacturing to Puerto Rico in the future. Components for renewable energy at residential, and commercial, and industrial scale. I really wasn’t looking for this opportunity to begin with.

What happened is, we’re looking for opportunities in the renewable energy space. Many of the projects are taking much longer. So what we did is we said, “Okay, where are people investing money?” Well, people’s roofs, in their homes, in their businesses is the biggest growing segment in Puerto Rico. So what we did is out of a relationship, actually, my older brother was inspecting the house of the founder of this company. He showed him the equipment that he had installed in his house, and my brother told him that I have a private equity fund looking for investment in the renewable space.

We met, and about six months later, we made our first investment. What do we add for them? I do bring a lot of expertise, both, from investment banking and private equity. We’ve helped them, both, with cash management and projections. And we’ve also helped them with raising capital as having someone, we’re now part of their board. One of our investors actually, co-invested directly into, one of our limited partners, into the company, and we have put him as our board member representing all of the Series A investors.

A couple of highlights, why do we invest in this company? Besides the need, we invested in this company because the founder has been in the business for over a decade. He was the first one to bring to Puerto Rico, Tesla, and a number of other batteries and inverters. What he learned over the years after bringing many different ones is, there were shortcomings to a lot of those in a location like Puerto Rico, where the power goes out all the time, and where a lot of people have generators. So he basically came up with a better product and that product allows you to do a couple of things.

One is, be able to use your generator together with a renewable energy system, your solar panels and your batteries. It also allow you to do it out of your phone. And most importantly, it allows you to integrate all of the software. Right now, in the industry, you basically have a lot of people doing inverters, a lot of people doing batteries. And when you have any software updates from one or the other, it creates issue. By having all of this under one brand, he’s able to manage that much better.

In addition, the only one energy system, which is one of the products that he has designed, allows you for a much faster installation Here in Puerto Rico where there’s a significant amount of construction for new residential housing, this is something that is gonna help. The other part is that this could be used in apartment buildings where you might not be able to put solar panels. This energy storage system will allow as a backup.

The second company we invested is called Fusion Farm, which is basically the first indoor vertical aquaponic farm here in Puerto Rico. Again, another opportunity that we were not looking for. As part of speaking at many conferences about Opportunity Zones, I’ve met the founder of this company talking, and I’ve actually went there more as an interested consumer than looking for an investment. After the tour and tasting all of the products that they actually grow, I was extremely impressed. They basically have 1000 square feet out of 10,000 square foot facility, and they were looking for capital to expand that. After talking to them and doing due diligence also for about six months, we ended up being extremely impressed and made our first investment. They were also already a qualified Opportunity Zone business, so that made it easier since they already have qualified opportunity funds investing in the company.

Some of the great things about this company, when we talk about impact. This is not expensive product. This is organic product that’s affordable for all people in Puerto Rico. Two, it uses only 10% of the amount of water and that you would use normally if you were farming in the regular outdoors. And three, it uses a significant amount of less space than you would again with traditional farming. They have long-term contracts or LOIs with potential off-takers for the expansion. So again, another opportunity to invest in a company that addresses a lot of the impact issues that we’re looking for, but really make an impact to the residents of Puerto Rico.

The third project that we invested, we invested recently was one that is actually a commercial and mixed-use retail space as a ground up. I’ve met the developer about eight months ago. We talked about it. They wanted to engage me to help him structure this as a qualified Opportunity Zone business. The more I learned about it, the more I thought it would be a great opportunity for us to invest. And originally, I was not trying to invest in real estate because there’s so many people investing in real estate, and that’s what a lot of the funds focus on. However, there were a couple of characteristics here that were very beneficial. One is, as a fund, we do have expenses, and having a deal that could potentially generate cash flow in the early part of the fund will allow us to cover those expenses. But more importantly, the vision of this transaction to include renewable energy, minimize water use, and actually provide a food source much closer to a large community, which right now does not have any grocery stores or pharmacy addresses a lot of the impact issues and the ability to help the residents of that particular community.

In this instance, instead of asking for an advisory fee, what we did is we convinced the founder to let the fund invest as a general partner into the project. And that implies that we will have more involvement, we will have some control, but also, we’ll have better returns than an investor that decides to invest directly into the business. We encourage all of our investors, and even if you don’t want to invest indirectly through our fund, to invest directly in some of these businesses, if you have your own QOF. The other big difference by investing through our fund is that you’ll have a diversified portfolio as you’ll have your pro rata share of all the companies that we invest in and not just a single concentration on one particular investment.

The pipeline that we have right now is pretty robust, mostly in renewable energy. Puerto Rico right now only produces about 5% of its energy from renewable resources. The law requires it to go to 100%, and I say, forget about 100%. Even if we get to 20%, that will require about $5 billion of investment. So, the opportunities is huge. Our focus right now is on commercial and industrial deals. We have been working with a few companies to try to get those deals under LOI, and we know that the opportunities will be there for us to do one or two of this transactions, at least on this fund that we are currently managing.

We’re also looking at a couple other residential real estate deals, and those we’re doing with our local operating partner. We do a lot of renewable energy with them. They’re real estate professionals, so they manage everything having to do with the development of the project. And we’re really, again an investor on this transactions. In terms of what we are, like a private equity fund, we’re currently managing these assets and we expect to at least fundraise through the end of June. We do a 2% management fee and a 20% carried interest after a 6% hurdle. Again, a 10-year whole minimum from that last investor that comes in. We have $100,000 minimum, and we have also worked on lower management and carried interest for anybody investing at least a million dollars or more. So with that, those are my comments. Here you can find my information, my phone number, an email for the fund, and also our website where you can get all the information.

Jimmy: Fantastic. Well, thank you, Jose. This is our last presentation of the day. Couple of questions for you, Jose. One, you said that you’re not… I’m sorry, you said that you are a corporation. Does that mean investors will not get a K-1? Is it a 1099 instead? What’s the tax form for ULP?

Jose: Correct. They’ll be getting a 1099. And the idea right now is not to be making distributions unless we cannot meet our 90% test. We are talking with our investors to potentially make a distribution around the 2027 tax season in case people will like to use ad liquidity to pay their deferred gains. But the idea here also to be taxed as a corporation was to avoid any potential income liability if we’re not sending you any cash. So, you can think of us as a stock from that perspective. If we are not sending you any cash, you will not have any tax liability, nor will you have to ever file any Puerto Rican taxes, which you would do if you were investing into a Puerto Rico fund that was a passthrough.

Jimmy: Terrific. And then let’s see. A couple more questions for you. Brad asks, Brad, you’ve been one of our MVPs today. I think he’s been here the whole time, he served on our panel, he’s great. Great stuff. Jose, he says, “Have you solved the guilty issue that when mainland U.S. investors…” You get it. What are your comments there?

Jose: Yeah, Brad, I think you’ve asked me this question a couple of times. There’s many different ways to do it. One of the simple ones is basically not to have control. So, the quick and dirty answer for now is none of the deals we’re gonna have more than 50% ownership nor control. We’ve worked with our tax partners to every time we make an investment to make sure that we don’t have a guilty issue. This is more of an issue for someone that have a subsidiary where they have control. But I’m happy to talk more offline, Brad, on this or any other topics.

Jimmy: And then last question for you. “Jose, do you plan on making any follow on investments to any of the current portfolio companies if they end up raising future rounds?”

Jose: Actually, that is the strategy that we pursue, and I didn’t have enough time. Both on Fusion Farms, we’ve made a follow-on investments and we have options to continue to invest in that company at very attractive rates. And on SunBeat Energy, we also actually invested only $100,000 on the original round part of it because we wanted to make sure we understood more about the management team and we wanted to get a board seat. So, we subsequently invested in two rounds and one of our limited partners co-invested with us. So now we have a significant exposure there. And yes, we’re investing in companies that we expect to grow. So, our idea here for most of it is to grow with those companies and hopefully be part through the whole 10-year whole period. However, because we’re structured as a multi-asset fund, the idea is if there’s an exit that we can do and take advantage of that we’ll exit and then reinvest that capital within the one-year period that we would have the rights under the regulations.

Jimmy: Excellent. Well, Jose, we’ve run out of time, but thank you for partnering with OpportunityDb on OZ Pitch Day. Once again, always a pleasure seeing you and hearing about the Puerto Rico Opportunity Zone Fund. Thank you so much.

Jose: Thank you.