PUERTO RICO: An Introduction to Corporate/Commercial
Opportunities and Challenges in Puerto Rico’s Shifting Economic Landscape
Puerto Rico stands at a critical juncture in its economic recovery as it charts a new course toward stability and growth following years of fiscal and economic challenges. This journey is marked by significant developments and trends across multiple sectors that are fundamentally reshaping the Puerto Rico economy. This article provides an overview of some of these key developments and trends and offers insights into the opportunities and challenges that lie ahead.
Post-bankruptcy economy
After more than a decade of fiscal and financial challenges, Puerto Rico’s central government completed its debt restructuring in 2022, concluding the largest municipal bankruptcy in United States history. The restructuring significantly reduced Puerto Rico’s debt burden, allowing the government to redirect resources towards vital areas such as infrastructure development, social programmes and economic initiatives. This provided additional support to an economy that was already showing signs of recovery and has paved the way for a more sustainable fiscal path forward for Puerto Rico. Despite this progress, the government still faces the critical task of completing the debt restructuring of the Puerto Rico Electric Power Authority, the island’s primary electric utility and the only public corporation that is still in bankruptcy. Finalising this process is crucial to securing reliable and affordable electricity for Puerto Rico residents and businesses, which is essential for Puerto Rico’s continued economic recovery and sustainable development.
Unprecedented influx of federal funds
In recent years, Puerto Rico has received an unprecedented influx of United States federal funds in the form of disaster relief funding, COVID-19 stimulus and Bipartisan Infrastructure Law appropriations. This financial support has played a crucial role in stabilising the island’s economy and presents a unique opportunity to address some of the island’s long-standing infrastructure needs. Billions of dollars are being directed towards the repair and modernisation of essential infrastructure, including the electric grid and water treatment plants and pipelines. Additionally, significant investments are being made in roads, bridges, public buildings and other critical facilities that are vital for the island’s sustained economic development and resilience. The continued disbursement and effective deployment of United States federal funds is essential for maintaining the momentum of recovery and contributing to sustainable development across Puerto Rico.
A significant portion of federal funding has been made available through the Community Development Block Grant (CDBG) programme to support housing reconstruction and economic development. These funds are being used to provide grants or loans to develop new homes, support small businesses and enhance community infrastructure. CDBG loans often provide favourable terms, such as low interest rates or deferred payments, and allow partial forgiveness under certain circumstances.
Transition to renewable energy
The Puerto Rico government has set ambitious goals to reduce reliance on fossil fuels and increase the share of renewable energy in the power grid. To achieve these goals, the government has launched a procurement plan to replace its fossil fuel generation assets with renewable energy and battery storage systems. The procurement plan, which is divided into six tranches, calls for awarding contracts for up to 3,750 MW of solar PV or equivalent renewable energy resources and up to 1,500 MW of battery energy storage systems or equivalent resources. Support from the federal government is also playing a key role in the efforts to transition to renewable energy. For example, the Unites States Department of Energy has extended its Energy Infrastructure Reinvestment Program to support the development of renewable energy and battery storage projects in Puerto Rico. Under this programme, developers can apply for low-interest loans guaranteed by the United States government, providing financial support for projects that aim to reduce Puerto Rico’s dependence on fossil fuels.
Tourism and hotel development
Tourism in Puerto Rico has seen a remarkable resurgence in recent years. Puerto Rico welcomed over 8.1 million passengers at the Luis Muñoz Marín International Airport from January to July 2024, a 10.3% increase from the same period in 2023 –which itself was a record-breaking year. (Source: Grupo Aeroportuario del Sureste, S.A.B. de C.V.) This resurgence has led to a wave of activity in the tourism industry, with significant investments in hotel acquisitions, refurbishments and new developments throughout the island. While Puerto Rico’s tourism industry has grown in recent years, it still represents a relatively small portion of the island’s overall economy, especially when compared to other Caribbean destinations. Therefore, despite the recent growth, there remains significant untapped potential for further expansion in the tourism sector in Puerto Rico.
Housing market
The housing market in Puerto Rico is undergoing a significant transformation. Like many jurisdictions in the United States, Puerto Rico experienced a housing bubble during the early 2000s, fuelled by easy access to credit and speculative investments in real estate assets. As the Puerto Rico economy dove into recession and the housing bubble burst, property values fell, foreclosures surged, unsold inventory accumulated, and new developments practically stalled. However, in recent years, excess inventory has been gradually exhausted and, as the Puerto Rico economy has recovered, demand for housing has rapidly outpaced the now limited supply. This trend is evident across all market segments. Luxury housing developments have flourished, catering to the demand of affluent investors seeking high-end properties, particularly in areas such as Condado, Dorado and Rio Grande. The demand for low- and mid-income housing has also increased, driving an increase in property values. While the CDBG programme is addressing some of the demand for affordable housing by supporting the construction of new affordable housing projects, the supply of affordable housing remains limited.