Puerto Rico has the opportunity to become ‘America’s Monaco:’ EB5 Capital CEO

Yahoo Finance's Brian Cheung and Angelique Brunner, CEO and founder of EB5 Capital, discuss the state of real estate amid the COVID-19 pandemic.

Video Transcript

BRIAN CHEUNG: Well, switching gears, commercial real estate has been scrambling to find or keep tenants. You have a lot of offices that are collecting cobwebs right now. They're wondering, do I even need to be here, or should I just cut this lease? And we've seen tenants in New York running to Miami, California firms headed to Texas.

So let's try to walk through what exactly is going on in that space. Angelique Brunner, she's the CEO and founder of EB5 Capital, joins us for a deeper dive. Now, you say that there's a dark horse that could benefit from the relocation trends, and it's actually neither Florida nor Texas. Where is that?

ANGELIQUE BRUNNER: Well, actually, I think it might be Puerto Rico, if you're looking at folks that are relocating, who are sort of ahead of the curve. I've seen folks locate to Puerto Rico, since about four years ago when blockchain-- or Bitcoin, rather-- had its first highs. A lot of folks relocated. Now you're seeing Wall Street people locate. That's made some press headlines last year. And it, potentially, has the opportunity to be America's Monaco, if people continue to relocate there that have wealth.

BRIAN CHEUNG: So then what happens to, let's say, for example, commercial real estate prices in Wall Street or Silicon Valley, where some of these people might be--

ANGELIQUE BRUNNER: Sure.

BRIAN CHEUNG: --packing up and going to Puerto Rico, for example. What have you seen in prices for some of these-- what used to be prime real estate?

ANGELIQUE BRUNNER: Well, commercial real estate is going to trail residential because residential leases are shorter. And so what you've seen is residential numbers plummet in Silicon Valley, in San Francisco. You're hearing about multifamily down 40% in rents. So commercial is going to follow that because the commercial leases tend to be five years or more, and landlords have the ability to hold the line, in terms of pricing.

BRIAN CHEUNG: Now, I want to reference-- I want to switch, first, gears to hotels.

ANGELIQUE BRUNNER: Sure.

BRIAN CHEUNG: So we saw some statistics from the American Hotel and Lodging Association. They did a survey in November. They said 71% of hotels will not be able to last another six months without any sort of help there. So a lot of hoteliers are small businesses. They're franchisees. Have you seen any sort of bankruptcies? What's the kind of health-- the state of that industry so far?

ANGELIQUE BRUNNER: I haven't seen bankruptcies. It's a little bit early for that. But I've seen forbearance. Banks and other debt providers are providing anywhere from 90 to 180 days, or you know, three months to six months forbearance. I've seen-- for refinancings, if anyone is unfortunate enough to have, actually, a loan come due during this period of time, I've seen debt providers request up to 12 months of escrow debt service. So they want to see 12 months of capital in the bank by the owners. I've also seen capital calls.

I think, over the next 12 months, you're going to see people who can't recover. You're going to see owners who can't recover. You certainly have a lot of capital sitting on the sidelines, which is different than the GFC, where there wasn't a lot of capital to flow in and sort of save or consolidate or acquire different assets. That's different now. There's a lot of capital available for that. So you're going to see properties change hands.

But I think you're going to see market confidence. The top 25 markets have taken the brunt of the decline in hospitality. Rural markets have fared better. The question is, who's going to recover faster? And I think what we've seen through the summer and through the winter now is you've seen warmer markets recover with leisure travel and people ignoring some of the more strenuous or conservative guidelines to travel or do staycations.

The corporate market and the group market, the markets that require convention travel, are really going to recover the slowest. Because I think what we're all finding, as businesses, is that we can do more business over video and over phone than we previously did. And so there's a lot of things getting done that would have previously, quote unquote, "required travel" or your manager may have said they wanted you on a plane where they're not saying that right now. So you're getting two declines in the recovery of business travel. You're getting people wondering about the HR risk of putting employees on a plane, and you're getting folks realizing they can close deals without getting on a plane.

BRIAN CHEUNG: Yeah, no, definitely a lot of legal liability that a lot of companies simply don't want to deal with right now, but a pretty good overview of everything going on at CRE and hotels. Angelique Brunner, CEO and founder of EB5 Capital, thanks for joining us today.