The Comeback

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In 2015, the spiral of a looming government debt default, out-migration and then the Zika scare 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.

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

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We began by immediately closing the profit-losing casino, took advantage of local tax incentives and salvaged casino equipment to reduce our equity basis. We then signed Walgreens as a long-term tenant, which enabled us to refinance at a much more competitive rate upon their opening. Within thirty-six months, we turned an annual operating loss into $3.0mm+ of income. 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.

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After surviving hurricane Maria and Irma, then COVID, the asset was well positioned in a market that was back to pre-COVID levels. We were able to position the asset for sale and finally exited the property in the fall of 2021, netting a 15x return.

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