Virgin Islands Real Estate Trends

As reported recently in the Virgin Islands Daily News:

In a decision with major implications for development on the territory's offshore cays, a large-scale residential development has been permitted for a rocky island north of St. Thomas.

The St. Thomas Coastal Zone Management Committee voted unanimously Tuesday night to allow the luxury Thatch Cay Ocean and Beach Club to be built during the next decade.

Thatch Cay LLC, of which Paul Lange of Atlanta and Isaac Levy of California are principals, had applied to build 101 homes and 24 support buildings on Thatch. The roughly 230-acre island lies about half a mile north of Coki Point.

Project architect Robert deJongh thanked CZM for its confidence and support. "We recognize that this is a major undertaking, and we pledge to you that we will do a fine job," he said.

Lange could not say how soon construction would begin or how much the development was projected to cost.

The project will include a community center, clubhouses, yoga pavilion, spa, two dining areas, two tennis courts, sewage treatment plants, a reverse osmosis plant, generators, a fuel storage facility, 21-slip dock, 25 boat moorings and a helicopter landing area.

Of the three artificial beach areas the developers proposed to construct, the CZM committee allowed only two to go forward. A beach proposed for Stony Bay on the island's western end is not permissible because it could send sand to the sea in storm surges, CZM staff said. The sand could damage federally threatened elkhorn coral.

CZM attached another 21 special conditions to the major land and water permit - including a requirement that the developers pay for CZM to hire at least one independent permit compliance monitor.

Other special conditions included:

- No pump-out or refueling services can be provided at the permitted dock, and no additional docks will be permitted for any future development on Thatch Cay.

- No more than 25 boats can be moored in the mooring field, and five moorings must be reserved for the public. No live-aboard boats are allowed in the area.

- The Crown Bay dock shall be the primary staging area for moving construction materials to Thatch Cay. The Red Hook dock is only to be used when Crown Bay is unavailable.

- No topsoil may be taken to the cay for landscaping.

- The developers must reach a memorandum of understanding with the V.I. Division of Fish and Wildlife regarding the endangered Virgin Islands tree boa, which may be present on the island.

- The developers must develop a formal plan to remove Thatch Cay's hundreds of feral goats in consultation with federal and local authorities.

- No water from constructed swimming pools can be discharged into the ocean.

The developers will pay $35,000 per year for 20 years as an occupancy fee for using submerged lands. The company will build a 316-foot-long dock and a 60-foot-wide barge landing at Eva Point on Thatch Cay's southeast shore.

The St. Thomas CZM Committee's decision Tuesday was a departure from other recent decisions regarding development of offshore cays.

Last June, the committee rejected a proposal to carve 162-acre Great St. James into 53 lots for private residences. And in October, the committee turned down an application to subdivide 26 acres into 16 residential lots in Inner Brass.

Thatch Cay LLC, however, offered more detailed plans on infrastructure and public services. Those issues included providing power and water, collecting trash, disposing of sewage and keeping the island safe.

The developers will install a submarine cable from Coki Point to provide V.I. Water and Power and Authority electricity to the project. They also will cluster sewage treatment systems on the island and pay all costs to transport solid waste to the Bovoni Landfill.

Thatch Cay LLC will provide full-time security on the island and work with the V.I. Fire Service to train staff to respond to fires.

Committee chairman Austin Monsanto and members Sarah Simmonds, Winston Adams, Fern LaBorde and Henry Harrigan were present for Tuesday's meeting.

For those of you who have watched the ongoing scenario of EDC benefits (see deatails and links on our home page) here's the latest report from our Dailoy News:

"ST. THOMAS - The U.S. Treasury Department issued final source of income regulations that determine what income taxes should be paid to the V.I. government and what income taxes are owed to the federal treasury.

In 2004, provisions in the American Jobs Creation Act changed federal rules that apply to the V.I. Economic Development Commission's tax-incentive program.

The program's purpose is to promote investment in the territory by granting hefty income tax breaks for business owners who relocate to, or start businesses in, the Virgin Islands. Beneficiaries of the program can get exemptions on income taxes, gross receipts taxes, excise taxes, property taxes, and on withholding dividends and interest.

Following many alleged abuses of the EDC program by companies receiving V.I. tax breaks while conducting their business in the states, Treasury was charged with drafting specific regulations setting new strict proposed rules for residency and source of income. Those temporary regulations took effect in April 2005.

In January 2006, Treasury issued final regulations establishing that bona fide residents must be present in the territory for at least 183 days per year. Nearly a year later in November 2006, Treasury amended its residency regulations allowing more flexibility on how many days they need to be present in the territory.

The new requirement states that residents must be present within the territory an average of 183 days a year over a three-year period. Residents still must be present in the territory a minimum of 60 days within each given year.

On April 9, Treasury and the IRS submitted final regulations on source of income.

The final regulations are basically the same as the temporary rules put in place by Treasury that say taxes on income derived from within the mainland, or effectively connected to U.S. sources, should be paid to the U.S. Internal Revenue Service instead of the V.I. government.

One change in the final regulations clarifies questions on capital gain, which is the positive difference between the purchase price of an asset, such as a house or stock, and what it sold for.

U.S. Treasury's "special gain rule" allows an individual to treat capital gain as a source of income derived from within the territory, if any gain is attributable during the years he or she was a bona fide resident of the Virgin Islands.

Gains attributable while the individual was not a bona fide resident of the Virgin Islands would be considered U.S. source income.

Another change would allow some non-V.I. residents working in the territory on a temporary basis to file their taxes with the IRS, instead of the V.I. government.

To qualify for Treasury's "de minimis rule" such individuals must:

- Perform services in the territory on a temporary basis.

- Work within the territory for no more than 90 days during a taxable year.

- Receive no more than $3,000.

"The Treasury Department and the IRS agree that such a rule reduces taxpayer burden and promotes efficient tax administration," according to Treasury's 122-page submission to the Federal Register.

Another modification protects against double taxation in cases where it is determined that taxes paid to the Virgin Islands should have been paid to the IRS. The rule allows a credit on the federal tax liability that is equal to the amount of taxes incorrectly paid to Virgin Islands.

Local reaction to the final regulations was subdued.

Softening the rules on capital gain is a positive change, said Theodore Skokos Jr., chief executive officer of St. Thomas-based Clearwater Consulting Concepts LLLP. The company has been an EDC beneficiary since 2002 providing business management and consulting services.

However, the final regulations seem like a "non-event" because not much has changed since the temporary rules were put in place several years ago.

EDC beneficiaries that could not comply already have left, he said.

"Since 2004, the EDC program is still alive and well for those that can comply with the rules," he said.

There are about 100 beneficiaries in the program, according to the V.I. Economic Development Authority's web site. The EDA oversees the tax-incentive program.

Percervil Clouden, EDA's chief executive officer, did not return several calls from The Daily News during the last week for comment.

The changes were really minor, said Marjorie Roberts, a St. Thomas-based tax attorney.

"I'm glad they didn't make things worse," she said.

The final regulations still limit the full potential of the territory's tax-incentive program, Delegate to Congress Donna Christensen said.

She said Treasury and IRS have the authority to make more changes and allow more exceptions, but they opted not to exercise that authority."

If you are considering a legitimate business with local employees, an office and spending a majority of your time here in the USVI you should follow the rulings on our EDC benefits.

For those of us who have spent time on the island - chuckles continue as we think about Herman Wouk's classic about daily island life. Yes, in reality things have not changed much since he wrote his humorous novel back in the 60's.

Case in Point: Property Taxes

Understandably buyers would like to know what their property tax bill will be. Yes we address this on our site and clearly would like to convey accurate information - but - much time, property re-assessments and many senate meetings - and where are we really?

The Daily News recently reported:

On the strength of a glowing review of property tax reform and territorywide property revaluation, the V.I. government asked a federal judge to lift the injunction barring collection of property taxes at new rates and with new values before the scheduled May 16 court hearing on the issue.

Joseph Hunt, the court-appointed special master for the Virgin Islands property tax reform case, filed a report with District Judge Curtis Gomez on March 31 stating that the Virgin Islands government seems to have done all that is necessary under a 2003 court order calling for comprehensive reform in property tax collections.

"It is my opinion that the government of the U.S. Virgin Islands is in compliance with the court's directive to put in place an assessment system and procedures that are proper and capable of producing credible and reliable assessments as required by law," Hunt wrote in his three-page report.

For several years, the territory's property tax system has been under the magnifying glass and tax revenues have remained stagnant, if they were collected at all. In 2000, a group of commercial property owners sued the government, claiming that its system of basing property taxes on properties' replacement values was unconstitutional.

District Judge Thomas Moore agreed with the property owners. He issued an order in May 2003 that froze tax rates and property values at their 1998 levels. For the last five years, the territory has worked to try to arrive at a fair tax system of its own. The court appointed Hunt to monitor the government's progress in making improvements.

The court also ordered the territorial government to do a comprehensive property revaluation. In April 2004, the government entered into a $6.5 million contract with Virginia-based BearingPoint Inc. to do the work.

The revaluation was completed in recent months. Last month, Gov. John deJongh Jr. signed legislation establishing new property tax rates. A hearing, where the government is expected to ask Gomez to allow use of the new property values and tax rates, is scheduled for May 16.

Seizing the positive message in Hunt's report and arguing that revenues from property tax collection are desperately needed to keep the territory out of more debt, Assistant Attorney General Carol Thomas-Jacobs filed a memorandum Thursday asking Gomez to lift the injunction before the hearing date.

"In light of the special master's report, there is absolutely no basis for keeping the permanent injunction in place and it should be immediately lifted," Thomas-Jacobs' memorandum states. "Moreover, the court in the May 12, 2003, order clearly provided for modification of vacation of its order once the special master has certified that the property tax system in the Virgin Islands is credible and reliable."

The memorandum says that failing to lift the injunction would be "tantamount to an override" of the legislation passed by the V.I. Senate that reformed the property tax system and of the action taken by Congress - which last June repealed a 1936 federal law that required all property in the Virgin Islands to be taxed at the same rate.

Hunt's report looks at the credibility of BearingPoint's property revaluation. Commercial and hotel property valuations, as well as valuations for condominiums, timeshares, and tracts of land larger than 2 acres are complete and consistent, the report states.

As for residential valuations, the report states that BearingPoint's valuations compare well with sale prices and are within acceptable levels of accuracy. A low or average percentage of homeowners requested that assessors take a second look at their property, Hunt wrote, and the formal property valuation appeal process through the Board of Tax Review should be capable of handling any future complaints.

The one anomaly was St. John, where many residents have called the skyrocketing property values they received in the revaluation unrealistic. Last week, a group of St. John property owners calling themselves the Virgin Islands Unity Day Group filed their own lawsuit against the government in federal court, asking the judge to throw out the property values from the revaluation.

"St. John's property increases ran sharply higher than other locations, and can account for the higher number of appeals from that location," Hunt wrote. "BearingPoint carefully tracked the reason for the appeals for vertical and horizontal analysis of assessment patterns. This review often resulted in adjustments to entire neighborhoods as well as to individual properties."

Hunt wrote that he believes that the revaluation is complete and meets or exceeds industry standards recommended by the International Association of Assessing Officers. He cautioned the government to make sure that it keeps values up-to-date, implement new tax management software, and keep a functioning Board of Tax Review for appeals.

Attorney James Derr, lead attorney in the 2000 property tax case and who represents the St. John residents challenging the revaluation, said he does not think the territory has met its burden to have the injunction lifted.

"My biggest problem with the report is it is largely based on conclusions," Derr said. "It has little factual support."

Derr said he plans to file an opposition to the report with the court.

Derr said he sympathizes with the government's need to collect property tax revenue and would support allowing it to collect taxes at the 1998 level for one more year while all of the issues are worked out.

"We just want taxes to be paid on a fair and consistent basis for everyone," Derr said. "Meeting at a middle ground for another year or so is the responsible way to go."

Your guess is as good as mine. I'll keep you posted - maybe I'll get a property tax bill sometime soon.

Excerpt from a message sent by our Governor:

"As many of you know, I have already publicly announced my support of Senator Barack Obama to be our next President of the United States. I had the great opportunity to meet with the Senator here in the Virgin Islands during his campaign visit and I was impressed with him as a person and a leader. I also respected the fact that he took the time to come to the Virgin Islands and listen to the challenges we face as a Territory while bringing his message of hope and change directly to our people.

This year's presidential election has been a very exciting time for the Virgin Islands and I am extremely proud to campaign on behalf of Senator Obama in what has become an historic moment for our Territory, and our Country. 

Our voice was recently heard loud and clear around the country when, in a landslide victory, Virgin Islanders overwhelmingly voted for Barack Obama in our territory's caucuses. Senator Obama received a tremendous 90% of the Democratic Caucus vote -- His highest percentage of victory in any race so far!!!"

So goes the political race here and how our Governor feels. He was really soliciting contributions but I thought it important to share the "island" endorsement.

The recent Sports Illustrated's 2008 Swimsuit Issue features a model standing at St. John's Caneel Bay on its front cover. The cover shot was taken on Paradise Beach at Caneel Bay.

In addition to the eye-grabbing cover shot, the 2008 issue features St. John on 11 pages with photos and one full editorial page with information about St. John and the Virgin Islands.

According the the Virgin Islands Daily News, "The St. John photos were all taken by famed fashion photographer Raphael Mazzucco."

Additionally the paper reported: "The decision to showcase St. John on the cover gives the territory a spotlight that no other destination featured in the magazine receives, Tourism Commissioner Beverly Nicholson-Doty said in a written statement.

She added that cover already has received publicity on the Late Show with David Letterman, Good Morning America, and other national broadcast television shows."

All good news for the US Virgin Islands!

FOR MORE INFO ON THE SWIMSUIT ISSUE

http://www.chiff.com/recreation/sports/swimsuit-issue.htm

Anyone owning or wishing to own property on St. Thomas, St. John or St. Croix can breathe a sigh of relief! We have been going through a property re-valuation and with the increase of property prices over the last few years we all expected to see huge property tax bills in our mail boxes.

The current way to calculate property taxes: take 60% of "fair market value" and then multiply by 1.25%

In a recent article in the daily news:

"The original bill, which deJongh presented to the Senate, was replaced in its entirety by an amendment Thursday. That amendment - co-sponsored by Malone, Richards and White - is nearly identical to both deJongh's proposal and the bill defeated by the Senate two weeks ago. The bill states that different kinds of property would be taxed at different rates. Unimproved noncommercial property would be taxed at 0.49 percent of its value. Residential property would be taxed at 0.38 percent of its value. Commercial property would be taxed at a rate of 0.71 percent of its value, and timeshares would be taxed at 1.4 percent of their values.

To mitigate the impact of the bill, it contains several exemptions that the Senate made more generous through amendments. People who live in their homes can receive an annual homestead exemption of $400. Veterans are eligible for a $650 exemption - increased from $450 by an amendment proposed by Sen. Juan Figueroa-Serville. Senior citizens who have individual incomes of less than $30,000 or household incomes of less than $50,000 - income caps increased through the Malone, Richards and White amendment - are eligible for $500 tax credits. Residents with disabilities and individual incomes of less than $30,000 or household incomes of less than $50,000 receive a $500 tax credit, also increased through the majority members' amendment.

Disabled veterans would be exempt from property taxes. An amendment sponsored by Hill allows residents with homestead exemptions to have a second exemption.

In cases of an increase in residential taxes of more than 125 percent, people who live in that residence and have a household income of less than $135,000 - a cap increased through the majority's amendment - would receive a tax credit for 40 percent of that increase, up to $5,000. Ottley sponsored an amendment that extends that credit to unimproved noncommercial property with large increases.

Amendments sponsored by Hill chip further away at a resident's tax burden. One provision of Hill's amendments cap the taxable increase in values of residents' homes at 3 percent every five years. Hill said the cap will protect an average resident from being affected by burgeoning home prices and new developments. "

While property tax bills will be higher but not as high as expected. Good news for our islands and property owners.

I recently found this article that may shed some light on credit scores and how you can improve yours:

LOS ANGELES, CA - In the wake of the subprime market fallout, lenders are making it tougher for consumers to get a loan. As a result, borrowers are wise to try to raise their credit scores to qualify for loans, secure better loan terms and receive lower interest rates.

According to Edward Jamison, a Los Angeles-based credit attorney who has appeared as a credit expert several times on the NBC Emmy Award-winning show, Starting Over, borrowers can follow seven simple steps to raise their credit scores. “The steps required to raise credit scores may appear counterintuitive,” explains Jamison. “In fact, individuals should be warned that without knowledge of how credit scores are derived, individuals can be damaging their credit scores rather than raising them when taking such actions as closing credit cards.”

Jamison, whose legal practice is focused on consumer credit repair and restoration, recommends that borrowers wishing to raise their credit scores first check their credit limits and evenly distribute the balances they’re carrying to help increase their credit scores, or that they pay them off in full to get the highest score increase. “Make sure your maximum limit is reported,” advises Jamison. “When no limit is reported, credit scoring software presumes the account is ‘maxed out’.” The credit scoring software scores more favorably the closer a balance is to zero. Balances over 70 percent damage credit the most, followed by the next tier of 50 percent and again by the tier of 30 percent of the maximum credit limit. “Rather than carrying a large balance in an unfavorable tier, redistribute outstanding balances over several credit cards,” advises Jamison.

Jamison also advises keeping credit cards open. “Closing credit card accounts can hurt your score unless the accounts were opened less than two years ago, and you have over six credit cards,” states Jamison, adding that consumers should make sure to keep their old credit cards open as well. “Fair Isaac’s credit scoring software assumes that people who have had credit for a longer time are at less risk of defaulting on payments.”

Borrowers also need to get rid of late payments listed on the credit report. “Contact the creditors that report late payments and request a good faith adjustment that removes the late payments reported on your account,” instructs Jamison. Since you are a customer in good standing, the creditor may work with you. This may require more than one phone call. “If you’re frustrated, rude or unclear with your request, you’re making it very difficult for the creditor’s representative to help you,” adds Jamison.

A very important step is for consumers to rid themselves of any collection accounts by paying them off provided the collection agency agrees to delete them in return. Paying it off can otherwise actually lead to a decreased credit score due to the date of last activity getting updated to the current date when you pay. “The consumer should contact the collector and request a letter explicitly stating their agreement to delete the account upon receipt or clearance of the payment,” he states. “Although not all collection agencies will delete reporting, it’s certainly worth the effort.”

Next, consumers should pay off past due amounts on delinquent accounts that are not in charge-off status. After that, Jamison advises getting rid of charge-offs and liens that are less than two years old. “Charge-offs and liens that are older than 24 months do not affect your credit score nearly as much as ones under 24 months,” says Jamison. “But if they’re newer than 24 months, they can seriously damage your credit.” If you have both charge-offs and collection accounts, but have limited funds, he advises paying off the past due balances first, then paying collection accounts that agree to remove all references to credit bureaus.

You may want to think again. This is a follow up to our previous entry about Greater St. James - a wonderful spot directly across from the St. Thomas Yacht Club and a wonderful anchoring spot at Christmas Cove. Following is an excerpt as reported by the Virgin Islands Daily News:

"... owners plan to carve near-pristine Great St. James island into lots for dozens of high-end homes was unanimously vetoed Tuesday by the St. Thomas Coastal Zone Management Committee.

Christian Kjaer of Denmark, who owns the 162-acre island 1 mile southeast of St. Thomas along with several relatives, had applied for a major CZM permit to subdivide the land into 53 lots to be sold for about $750,000 each.

The ecologically rich island, part of a Territorial Marine and Wildlife Sanctuary since 1994, has long been valued by boaters, environmentalists, snorkelers and fishermen.

Great St. James' best-known feature is Christmas Cove, a popular mooring site among both tourists and local residents. Numerous charter yachts and day-sail companies deliver visitors to the cove daily for snorkeling and picnicking.

The committee's environmental concerns included questions over whether clustering the homes would be preferable to spreading 53 lots over the island, thereby minimizing the impact of erosion and preserving more green space for wildlife.

The island is a habitat for the Virgin Islands tree boa, an endangered species. Its land also features six salt ponds used by land and fiddler crabs and at least 12 species of birds, along with a beach used as a nesting area for the endangered green sea turtle.

A set of logistical issues, including insufficient access for residents and government services agencies, further led the committee to find that the proposed development would not be consistent to the greatest possible extent with the V.I. Coastal Zone Management Act.

The island's existing dock would not be sufficient to handle either heavy construction equipment and supplies or provide access for fire trucks in case of emergency, CZM committee member Peggy Simmonds said as she read aloud the committee's findings.

"Staff is concerned that the subdivision development of Great St. James by the applicant is presented in a 'piecemeal' fashion with probable intent to submit a separate application for temporary barge landing in the future," CZM Division staff wrote in their findings. "The Virgin Islands Coastal Zone Management Act was created to prevent uncoordinated and fragmented development within the Coastal Zone. Until proper access to the island by water is adequately addressed, approval cannot be recommended by staff."

In addition, the developer had not submitted a road plan to the V.I. Public Works Department and had not received the approval of the V.I. State Historic Preservation Office, Simmonds said.

The office's approval was needed because the island holds several significant archaeological sites, including Great St. James Village, a set of historic ruins of 17 structures, along with a well, dry-laid stone and coral walls and a grave site.

Plans had called for each residence to include its own cistern, sewage treatment system and generator for power. Simmonds said the application did not fully address whether the developments would be truly self-supporting.

Following the reading of findings, committee chairman Austin Monsanto and members Simmonds, Winston Adams, Fern LaBorde and Henry Harrigan voted unanimously to deny the permit.

Project designer William Karr declined to comment on the committee's decision after Tuesday's meeting."

Owning your own island may seem like a great idea (shades of Swiss Family Robinson) but unfortunately reality may invade your dreams.

We'll keep you posted as things progress on this "tiny island in the sun!"

Opportunity for good press for Virgin Islands Real Estate! I had the pleasure of spending yesterday morning with Steve Bergsman who is on island to research vacation home opportunities in the US Virgin Islands. If you haven't heard of this fascinating writer you could be missing out on some important information and analysis of investing in real estate. Steve's accolades read like this:

"I have been reading Steve Bergsman's insightful real estate reporting and commentary for over a decade. He is one of the best real estate writers in America..." says Jonathan L. Kempner, President and Chief Executive Officer at Mortgage Bankers Association

So with a chapter on the Virgin Islands in Steve's upcoming book to reach the market in Spring 2008 we expect good things.

In the mean time, you may want to check out Steve's previous book - Maverick Real Estate Investing - the art of buying and selling properties like Trump, Zell, Simon, and the world's greatest land owners

"A fascinating story that chronicles the wins and losses of several of the most renowned real estate investors of our time. Insightful and thought provoking, it confirms that if you follow Bergsman's golden rules of real estate investing, the chances of being successful are substantially increased," is what Stephen B. Siegel, Chairman, Global Brokerage CB Richard Ellis thinks of it.

Who knows, reading his first book can help you understand investing and prepare you for your vacation investment in the US Virgin Islands. I was fortunate to receive a copy and will give it my serious attention so look for my personal review shortly.