Three years ago, John Paulson predicted Puerto Rico would become a tax haven for the wealthy -- the Singapore of the Caribbean. He snapped up high-end hotels and other real estate, betting on what he thought would be an upswing in the island’s economy.
“We believe the Puerto Rican economy is at the cusp of recovery,” the billionaire hedge fund manager said in 2014, announcing the purchase of two San Juan hotels.
Paulson was gambling on a 2012 law that allows U.S. investors to pay little or no taxes if they move to the island. He expected a wave of millionaires and billionaires would help reverse years of shrinking population and sky-high unemployment.
Like a lot of Paulson’s recent bets, that one hasn’t turned out as planned. On Sept. 20, Hurricane Maria slammed into the island, wiping out its power grid and leaving many of its 3.4 million citizens without food, water and medicine. The Category 4 storm arrived just a few months after the commonwealth sought protection from creditors in the largest U.S. municipal insolvency.
Downward Slide
Paulson’s hedge fund firm, Paulson & Co., has itself been on a downward slide. In 2011, it managed $38 billion, about half of which was Paulson’s own fortune built largely on a prescient bet shorting subprime mortgages. Since then assets have tumbled and performance has been hurt by wrong-way bets on gold, U.S. banks and pharmaceutical shares. Paulson now manages about $10 billion, almost 80 percent of it his own money.
A lifelong New Yorker, Paulson considered moving to Puerto Rico in 2013 to take advantage of the tax benefits. He changed his mind citing “media attention,” though last year he said he’s still considering a move to the island.
In September 2013, Paulson took a majority stake in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Golf Club, buying loans with a face value of $250 million at a discount of as much as 60 percent. The following March, he acquired a majority interest in the Condado Vanderbilt Hotel and the La Concha Renaissance Resort in San Juan for $260 million, including costs to complete construction of the Vanderbilt.
Alberto Baco Bague, Puerto Rico’s secretary of economic development and commerce, said at the time that Paulson planned to invest more than $1 billion on the island. A spokesman for Paulson’s firm declined to comment on how much the billionaire has invested or what impact the hurricane and bankruptcy might have.
Paulson’s firm acquired the 16-story American International Plaza office building in San Juan’s financial district in August 2014 and has bought several parcels of land for future development. He also owns a vacation home at the Bahia Beach resort and an apartment.