The Comeback

‍

In 2015, the spiral of a looming government debt default and out-migration were forcing investors out of Puerto Rico. Although the situation looked dire, as long-time investors and operators on the Island, we believed there were pockets of opportunity. One such opportunity came to us when the lender on the Sheraton Old San Juan, a 240-room and 27,500 square foot retail complex, reached out to see if we had any interest in the property as they were preparing to foreclose.

‍

Knowing the local market well, we saw an exceptionally well-located asset within the historic district overlooking Old San Juan Harbor, directly in front of Puerto Rico’s principal cruise ship piers. From our assessment, we saw opportunity and had a clear plan to turn the property around. We were confident we could operate it well and position it for an upturn given the extremely attractive basis.

‍

We began by de-risking the deal prior to closing through some proactive work during the due diligence period. We sourced and signed Walgreens as a long-term tenant, which enabled us to close the profit-losing casino and refinance at a much more competitive rate upon their opening. We also took advantage of local tax incentives and salvaged casino equipment to reduce our equity basis. We were then able to complete a major renovation encompassing the hotel’s public spaces and guest rooms and refinanced for a second time in November 2017 after signing a triple net lease with Nespresso. Within thirty-six months, we turned an annual operating loss into $4.0mm of income.

‍

After overcoming the Zika outbreak in 2016, surviving hurricanes Maria and Irma in 2017, the earthquakes of 2018 and then COVID in 2020, the asset was well positioned in a market that was quickly working itself back to pre-COVID levels. We had completed our plan to position the asset for sale and finally exited the property in the fall of 2021, netting a significant return on equity.