Puerto Rico’s Positive Business Slogans Can’t Keep the Lights On

SAN JUAN, Puerto Rico — The message coming out of an investment conference here in February was simple and optimistic: “Puerto Rico is open for business.” Attendees noted San Juan’s crowded restaurants and traffic-choked streets. The capital city seemed to be bustling.

But more than five months after Hurricane Maria plowed through Puerto Rico, some parts of the island are still in the dark. It is a long, long way from being back in business.

The annual conference itself — designed to showcase the U.S. territory’s business opportunities — had to be rescheduled because of the slow pace of the recovery. As it was, attendance was down. Billionaire John A. Paulson, a major hotel owner on the island and a featured speaker at previous conferences, wasn’t there. Nor were other prominent hedge fund managers with investments in Puerto Rico.

Everywhere you look, there are reminders of how long it will take for the economy to get back even to the beleaguered state it was in on Sept. 20, when Maria hit as a powerful Category 4 storm.

The night before the conference started, parts of San Juan were plunged into darkness for several hours because of an explosion and the resulting fire at an electrical power station. The island’s patchwork power grid remains fragile. Hundreds of thousands remain without power.

Government relief workers have installed 57,000 blue tarps as makeshift roofs on damaged homes across the island. There’s no plan for installing permanent roofs.

Major intersections in San Juan still lack working traffic lights.

More than 10,000 small businesses — nearly 20 percent of the island’s total — remain closed. At the upscale Mall of San Juan, two anchor stores — Saks Fifth Avenue and Nordstrom — are shut because of storm damage, although Nordstrom may reopen in a few months.

Some hotel workers, cabdrivers and bartenders in San Juan have been living without power since September.

The most optimistic estimate is that Puerto Rico faces a two-year economic recovery. That assumes it can rebuild its power grid, restructure its finances in a court-supervised process and not get hit by another devastating storm.

Before Maria, things were already bad. About 45 percent of the island’s 3.4 million residents lived in poverty, the unemployment rate was 10.5 percent, and more than 16,000 homeowners were facing foreclosure.

“This is like the perfect storm of an economic disaster,” said Javier E. Zapata-Rodríguez, deputy director of economic development for PathStone Enterprise Center, which advises small businesses in Puerto Rico. “There is not enough capital flowing, and a lot of small businesses are closing up shop because they were ailing before the hurricane.”

A major problem is that insurance claims are being paid too slowly and 60 percent of household requests for federal emergency grants are being denied. That means fewer dollars are churning through the local economy, when not much money is coming in from elsewhere.

Tourism, which accounts for about 6 percent of the island’s economy and supports more than 60,000 jobs, is all but gone for this season.

Nearly a dozen big resorts in and around San Juan — including El Conquistador, the Caribe Hilton, the Ritz Carlton and El San Juan — are closed. Many hotels that are open are filled not with tourists but with relief workers and government contractors who are staying at discounted rates. An electronic sign outside the Condado Plaza Hilton, owned by the Blackstone Group, the private equity firm, periodically flashes: “Rooms for relief work and government work available.” Blackstone, which also owns El Conquistador, said it had been paying salaries and providing health benefits to hundreds of furloughed workers.

Others associated with the tourism business are just scraping by.

“Right now, 90 to 95 percent of our business is down,” said Nancy Matos, who with her husband owns GSI Puerto Rico, which organizes outings for tourists. The 25-year-old business has been hurt by limited access to El Yunque National Forest, a tropical rain forest that suffered major storm damage. GSI, which normally employs up to 80 people, is down to about 30. The company hopes to get some business from relief workers.

As many as 200,000 residents have left to live on the mainland. Some companies that are trying to reopen are struggling to find people who can work on construction projects or in factories to produce steel.

A report last year by the Federal Reserve Bank of New York found that four months before Maria, 36 percent of Puerto Rico’s small businesses planned to hire more workers and 50 percent planned to invest in new equipment and technologies.

The storm laid waste to those plans.

In Ponce, a city on Puerto Rico’s southern coast, PathStone is helping 200 small businesses get financing, find workers and retrain them if necessary.

A few weeks ago, PathStone, in partnership with the New York Fed, staged a daylong event for small businesses seeking financing from banks and other lenders. Representatives from 170 businesses showed up in search of help, Zapata-Rodríguez said. About a third of the companies that PathStone works with in Puerto Rico do not have reliable electrical power, he added.

The fragility of the power grid remains particularly frustrating. On Thursday, hundreds of thousand of customers — many in San Juan and along the island’s northern coast — lost power in the middle of the workday. Generators considered optional before Maria are now a necessity. Starbucks is moving to ensure that most of its 26 stores in Puerto Rico, two of which are still closed, have generators.

The power failure interrupted a meeting that David Rodriguez was having in Caguas to discuss plans for a new business involving the sale of solar-powered generators.

Rodriguez, who was born in Puerto Rico and runs a telecommunications engineering firm in Rochester, New York, returned to the island in December to visit family. He was alarmed to find his uncle living with a gasoline-powered generator running inside the house — a serious health risk. His uncle said he was keeping the generator indoors because he was afraid it might be stolen if it was outside.

That experience led Rodriguez to start a company, InverSol, to make small solar generators that can be installed on roofs and provide at least some power during blackouts. The company eventually could employ up to 70 people and produce up to 7,000 generators a year for $2,000 each.

“We want to get some basic humanity back,” Rodriguez said. One challenge, however, has been finding an undamaged location that can be quickly converted into a factory. He is working with PathStone to hire former farmworkers who have experience using heavy equipment.

The search for qualified workers is troubling a broad swath of businesses.

Frankie Vazquez Marrero runs a business that sells precast walls and structured steel. He employed 22 workers before Maria. He is down to three. Many of his best workers left the island or are trying to move into other industries. He is still waiting for the company’s insurer to cover some of its storm-related losses.

“We lost our very best workers, and the new hires don’t have the knowledge,” he said.

Things could be worse in Puerto Rico. Auto sales were up 21 percent in January, in part because people needed to replace damaged vehicles, said José Villamil of Estudios Técnicos, an economic research firm. Fewer people are falling behind on mortgage payments, according to the data firm Black Knight. The construction industry is growing.

At the investment conference, there was much talk about how Puerto Rico’s low-tax environment will draw investors from the United States and China. Others were bullish about the island’s growing reputation as a haven for cryptocurrency startups. Brokers from Sotheby’s International Realty worked the hallway outside the conference room, trying to drum up interest in luxury waterfront homes in the nearby community of Dorado.

But many overseas investors are waiting to see what happens with the island’s electrical grid and a moratorium on home foreclosures that a federal housing agency just extended until mid-May.

Billions of dollars from Washington are starting to flow, for rebuilding the electrical grid and for housing and urban development projects. But the package is well short of the tens of billions that experts have said are needed.

And insurance money is just trickling in. So far, 299,999 claims have been filed by homeowners and businesses but just $1.7 billion in payouts have been approved, according to the insurance department.

Much of the federal money is being dispensed as grants and loans that businesses and individuals apply for from the Federal Emergency Management Agency and the Small Business Administration, among others. The typical household FEMA grant is a few thousand dollars.

Lawyers and community groups complain that FEMA has rejected about 60 percent of the 1.1 million household applications it has received. The agency said that figure was misleading because some rejected applicants had received loans from the Small Business Administration or aid from other agencies.

One reason for the rejections is that many Puerto Ricans cannot prove that they own a home. Only 65 percent of properties in the territory are officially registered with the government. The problem is especially acute in small cities and rural areas where there’s a custom of property owners not recording titles to homes. In Loíza, an oceanfront community of 30,000, damage to homes and businesses was extensive. Many small businesses in the town were closed for months and may never reopen. Power was restored to most residences and businesses only in the first week of February.

Federal funds are only trickling into Loíza, and housing groups said one reason for the slowness was the small proportion of homes there, perhaps 20 percent, that are officially registered. In a makeshift FEMA center, agency workers allowed property owners to submit a written declaration that they owned their home. But advocates said some were still being rejected.

Nearby, stray horses ambled along the beach.

The halting pace of the economic recovery worries business leaders such as Eli S. Sepúlveda Morell, an executive vice president at Banco Popular, Puerto Rico’s largest lender. His biggest concern is a shortage of qualified workers, especially in construction.

Sepúlveda Morell cautioned against excessive pessimism about Puerto Rico’s prospects. “But,” he said, “it’s too early to be extremely positive.”