In the weeks before real-estate agent Wanda Ithier’s client bought a $40 million house on the Caribbean island of Puerto Rico in March 2022, the sale price was a moving target.
The 13,560-square-foot custom home—located in the Dorado Beach Resort, about 25 miles west of Puerto Rico’s 500-year-old capital city of San Juan—first hit the market for $29.95 million in November 2021, according to Zillow. Amid a market run-up, the price jumped to $34.5 million a few weeks later, and Ithier said it rose higher still during the negotiations that followed. She said her client ultimately agreed to pay $40 million the following March, more than 33% above the original asking price, setting a record for the island.
The deal reflects the fevered pitch of Puerto Rico’s luxury housing market, where favorable tax policies and a Covid era second-home frenzy have opened the floodgates for wealthy home buyers. The buyer of the $40 million home was Wright Wesley Thurston, a crypto entrepreneur, and the seller was investor Jason Moore, records show. “He wanted it,” said Ithier, who represented Thurston with Betty Martinez of Betty Martinez Real Estate. “It was a unique property.” Set on about 1.4 acres, the house has an interior courtyard, an 85-foot-long pool and a 30,000-gallon koi pond, according to marketing materials. Neither Thurston nor Moore responded to requests for comment.
Despite a brief market correction at the end of 2022, Puerto Rico’s luxury housing market is booming, and investors and developers are rushing to capitalize on the desire for high-end homes. Located about 2½ hours southeast of Miami by air, Puerto Rico is known for year-round warm weather and historic areas like Old San Juan, along with beaches, mountains and rainforests. For years, the U.S. territory has also grappled with population decline, a weak economy and infrastructure woes. But wealthy home buyers have been flocking to the island since Covid, boosting sales volume and prices, local real-estate agents said.
In Dorado Beach, a wealthy enclave on the north shore of the island, the median sale price for homes priced above $1 million nearly doubled to $6.2 million in 2022, up from $3.4 million in 2021, according to Sotheby’s International Realty. Prices are also up in other areas, including Condado, an oceanfront neighborhood of San Juan, Bahia Beach, on the island’s northeast coast, and Palmas del Mar in the southeast.
Local real-estate agents said much of the market surge is rooted in tax incentives, known as Act 60, that are available to individuals and corporations that relocate to Puerto Rico. Individuals who make their primary residence in Puerto Rico by spending at least 183 days a year on the island don’t pay federal income taxes on income sourced in Puerto Rico, according to the tax code. Since 2019, there has also been a requirement that anyone receiving the tax incentives must own a home on the island, which local agents said caused the buyer pool to swell. During Covid, Puerto Rico’s warm climate coupled with the adoption of remote work and Puerto Rico’s low cost of living accelerated the trend of wealthy individuals buying primary and vacation homes on the island.
At the top end of the market, the island’s real-estate growth spurt has played out in a series of megadeals, including Thurston’s $40 million purchase. In December 2022, hedge-funder Glen Scheinberg paid $37 million for a 10,250-square-foot home in the East Beach area of Dorado Beach Resort, two years after the home sold for $18.995 million, according to the local MLS and property records. It couldn’t be determined if Thurston or Scheinberg have been granted the tax-exempt status. Scheinberg declined to comment.
In March 2021, Sean Lonergan, founder and CEO of PruGen Pharmaceuticals, and his wife, Michelle Lonergan, sold a custom-built home in East Beach for $30 million, according to the local MLS. The buyer was Dan Morehead, founder of Pantera Capital, according to records and people familiar with the deal. It couldn’t be determined if Morehead has been granted the tax-exempt status. He and the Lonergans—who did claim the benefit, records show—didn’t respond to requests for comment.
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The deals aren’t an anomaly, said Oriana Juvelier of Sotheby’s International Realty, who was involved in the $18.995 million sale in 2020. She said that following Hurricane Maria in 2017, opportunistic investors snapped up distressed properties in Puerto Rico. Momentum in the housing market was building when Covid hit, and the luxury sector “just exploded.”
Tax incentives introduced by Puerto Rico in 2012 were designed to spur economic growth. With a population of approximately 3.2 million as of July 2022, some 40% of Puerto Rico’s residents live in poverty and the median income is just under $22,000, according to the U.S. Census Bureau. Eleven years ago when the incentives were approved, 44.9% of Puerto Rico’s residents lived in poverty, when the median household income was $19,429, census data show.
Under Act 60, the name given to the incentive programs in 2019, eligible businesses pay a 4% corporate tax on services exported from Puerto Rico, said Raul Vidal y Sepulveda, an attorney who advises individuals and companies on tax incentives. Companies with revenue of $3 million or more must employ at least one full-time employee locally, he said. Individuals granted Act 60 benefits don’t pay federal income tax on income sourced in Puerto Rico and they also are exempt from paying Puerto Rico income taxes on interest, dividend income and certain capital gains. To qualify, individuals must live primarily in Puerto Rico, they must own a home there within two years of being granted tax-exempt status, and they must annually donate at least $10,000 to local charity.
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After several years of steady growth, the number of individuals granted tax-exempt status under Act 60 jumped from 514 in 2019 to 714 in 2020 and 1,238 in 2021, according to data from Puerto Rico’s Department of Economic Development and Commerce. The number dropped to 721 in 2022, which Vidal y Sepulveda attributes largely to a crash in the crypto market. Cryto entrepreneurs and investors, he said, flocked to the island for Act 60 capital gains benefits when the virtual currency was hitting its peak.
Peter Bazeli, a principal at Weitzman, a residential and hospitality development consulting firm, said Puerto Rico’s tax benefits transformed it from a place people wanted to visit to a destination for wealthy home buyers with the flexibility to move their businesses, including hedge-funders, crypto investors, and other entrepreneurs. He said the movement began in 2012 and was a “slow burn” that skyrocketed in 2020 thanks to Covid and massive wealth generated in the stock market.
“Part of the appeal was you could move to Puerto Rico, save on taxes, have an incredible lifestyle and generally spend less than what you’d spend on a comparable place in Miami or other resort destinations,” he said. “It created this almost club of high-net worth households that have chosen to establish residence in Puerto Rico.”
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Crypto investor Michael Terpin was an early mover. He relocated to Puerto Rico from Nevada in 2016 to take advantage of the tax benefits. “I look at this as a 20-year play,” he said. “How much in taxes will I save over 20 years?”
Terpin said since he arrived, a crypto community has formed in Puerto Rico, and he has more friends there than he does in Nevada or Florida, where he also owns homes.In Puerto Rico, he’s fixed up two properties, a condo in San Juan’s Miramar neighborhood and a house in the Beverly Hills district of Guaynabo, a suburb of San Juan. He said he paid $280,000 for the condo, which is now worth $2.5 million. He paid $700,000 for the house, which is now worth $6 million to $7 million.
Christian Mickelsen, a business coach, author and investor who moved to Puerto Rico from San Diego, Calif., in 2018, didn’t expect to like living on the island as much as he does. He came for the tax benefits, but said he found ample networking and business opportunities along with tropical weather, restaurants, nightlife and watersports. He lives in the Dorado Beach Resort, where he drives around on a golf cart and can order room service.
“Living in California, and paying more than half the money I make in taxes, that was pretty rough,” he said.
Mickelsen also began investing in real estate as the housing market shot up. After buying a five-bedroom home for $3.375 million in 2018, he sold the property for $5 million in 2020. He later purchased two three-bedroom condos in Dorado Beach for $3.6 million and $6.9 million. Both are on the market, for $10.997 million and $15.997 million, respectively, and Mickelsen said he’ll keep whichever doesn’t sell first.
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Other aspirational sellers are testing the waters. In February, entrepreneur Christopher Harding listed a 5,600-square-foot house at the Dorado Beach Ritz-Carlton Reserve for $44.95 million. Harding bought the four-bedroom home, with covered patios and an outdoor kitchen, for $10 million in 2020, records show.
Tip Powers, who sold a real-estate company in Virginia and moved full time to Puerto Rico in 2015, has listed a newly-built home in the Dorado Beach Resort for $35.9 million. Powers said he bought the property for $1.6 million in 2018 and demolished an existing home on the site before building a roughly 14,700-square-foot house for himself. Construction took several years and was complete in 2022, by which time Powers said two of his children graduated college and no longer lived at home and two others were halfway done with high school in Puerto Rico. Powers, who lives near Condado, said he plans to stay in Puerto Rico but it no longer makes sense to have a large home in the Dorado area.
Based on other homes on the market, Powers said his home, which has panoramic views of the ocean, is a relative bargain. He also said the appetite for finished homes in Puerto Rico is high. “In this price range, they don’t want a fixer-upper,” he said.
Following a long development drought, Juvelier of Sotheby’s said local builders and some from the mainland U.S. are racing to construct new homes, which are selling at price points Puerto Rico never experienced previously. In San Juan, for example, she estimated there are more than a dozen condominium projects in various stages of development. “The last construction boom here was in the 1970s and 1980s and the real estate reflects that,” she said.
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Blanca Hebé López-Pierluisi of Corcoran Puerto Rico said she is marketing several new condos, including the Vanderbilt Residences in San Juan’s Condado neighborhood. The 66-unit oceanfront condominium has 25,000 square feet of amenity space and is being developed by Paulson & Co., hedge-funder John Paulson’s family office.
Prices at the 250-foot tower start at $4 million for residences with city views and $6.2 million for homes with ocean views, López-Pierluisi said, and a roughly 7,380-square-foot oceanfront residence with a nearly 4,200-square-foot terrace is available for $12.5 million. She said the building is over 55% committed without advertising beyond a whisper campaign to friends and family. Closings are set to begin in December 2024.
López-Pierluisi said she is marketing The Icon, also in Condado, a 30-unit boutique condominium with prices ranging from $1.2 million for a two-bedroom to $8 million for a four-bedroom penthouse. The developer is RioBlanco Capital, a Puerto Rico-based private-equity firm.
Local real-estate agents said the priciest homes are still found in the Dorado Beach Resort, a 1,400-acre master-planned community on the north side of the island that was originally developed by Laurance Rockefeller, son of John D. Rockefeller Jr. Laurance Rockefeller was an active conservationist who purchased land throughout the U.S. Virgin Islands. In the 1950s, he bought about 5,000 acres on St. John, and turned it over to the U.S. government to create a national park, according to the National Park Service.
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In Puerto Rico, Rockefeller’s resort opened in 1958, according to the resort’s website. The community is anchored by a Ritz-Carlton Reserve hotel that opened in 2012, and it has a clubhouse, multiple golf courses, nature trails, restaurants and Ritz-branded residences.
Sales within the resort jumped from $334 million in 2020 to $568 million in 2021 before falling to $497 million in 2022, said Federico Stubbe, Jr., CEO of PRISA Group, the resort’s co-owner and developer. Despite the 2022 dip, he said PRISA has a robust list of people waiting for new homes in development. PRISA has 29 units for sale out of 169 homes in various stages of construction and development. One project in the pipeline is La Cala, a collection of 14 single-family beachfront homes with prices starting around $30 million. PRISA’s West Point III condominium is a new Ritz-branded building with 10 units, priced between $9 million and $18 million. Stubbe said PRISA launched sales in March and currently has five units under contract.
“I wouldn’t say it’s happened overnight,” said Stubbe, whose family has been developing in Puerto Rico for over 35 years. “The pandemic certainly fast-tracked it a little bit. But this has been a long time coming.”
Still, luxury home-building comes with challenges on an island where construction materials must be imported and labor is in short supply. The island’s electrical system was decimated in Hurricane Maria in 2017 and despite the privatization of the power grid, there have been persistent outages.
Stubbe said PRISA has invested heavily in infrastructure in and around the resort, including a 107-bed hospital that opened last year as well as backup generators and a water system to compensate for the island’s inconsistent utilities. Luxury homes are generally being built today like bunkers with hurricane-rated windows, generators and cisterns.
Nonetheless, the contrast between the have and have-nots and the influx of wealthy newcomers has fostered resentment among locals, especially those who oppose the tax break, said Nicole Alvarez, an organizer of Abolish Act 60, a grass-roots campaign. Alvarez said the tax break inherently penalizes hardworking Puerto Ricans. “While they get infinite tax breaks, we’re handed the shorter end of the stick,” she said, adding that few individuals who relocate to Puerto Rico and claim Act 60 benefits hire local employees.
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State Sen. María de Lourdes Santiago Negrón, who proposed legislation in 2021 to repeal the tax incentive for individuals, said the policy has led to gentrification in Puerto Rico. One example is in Puerta de Tierra in San Juan, where investors have purchased about 30 buildings, she said. “It has become an Airbnb corridor,” she said. Santiago Negrón said the benefits of the tax incentive don’t outweigh the negatives. “Some things you just can’t put a price on, like the disappearance of decent housing for Puerto Ricans,” she said.
Mickelsen, the business coach and author, said when he first moved to Puerto Rico, he was worried about locals resenting his presence, but said his fears were unfounded among those he’s met. “Most people are really friendly,” he said.
In recent months, local real-estate agents said the pace of deals has slowed compared with 2022 not only because of economic problems, including interest rates, inflation, stock volatility and lower crypto values, but also because there is a lack of inventory. Meanwhile, agents say the appetite for luxury homes is still strong.
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“We’re catching up to demand,” said Stubbe, who said there has been no slowdown with regard to new home sales.
López-Pierluisi of Corcoran said the spring market is stronger than she anticipated, likely because many people who moved to Puerto Rico to take advantage of the tax incentives are coming up on the deadline to purchase real estate.
Despite fluctuations in the market for properties between $2 million to $8 million, there is scant inventory for ultraluxury homes, said real-estate agent Karla Barrera-Morstad of Island&Key, the listing agent for the $40 million home last year. “There’s still a scarcity of big turn-key new construction homes,” she said. “When you start talking about homes with over 10,000 square feet or an ocean view, there’s really not much.”