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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
16 June 2013
Hotel Lawyers on EB-5 issues.Because financing for new hotel development is still difficult to obtain, many hotel developers clients have found EB-5 financing to be a valuable source of alternative financing. One of the first things a hotel developer wants to know when considering EB-5 financing for the first time is: What percentage of the total cost of the project can be provided with EB-5 investments? The answer to that question depends entirely on the number of direct and indirect new jobs the project can be expected to create, and that is calculated based on economic models that calculate not just the jobs created directly by the hotel, but those created in the area surrounding the hotel.
One of the most important ways that hotels create new jobs is by increasing the economic activity in the local area where a hotel is located. That is one of the reasons why many cities want new hotels built in and around their downtown areas, and why retail shopping malls are also making hotels part of their projects.
For EB-5 financing, it is important that a hotel be credited with the indirect jobs created in the local area surrounding the hotel, because that will dramatically increase the percentage of financing that can be provided through EB-5 financing. In this article, my partners Catherine Holmes and Victor Shum explain the methods used by hotel developers, hotel brands and cities to determine the demand for a new hotel in a local area, and how those same methods should be used to evaluate the number of jobs created by a new hotel development for EB-5 financing.
Catherine and Victor are two of our EB-5 experts who:
- Advise foreign investors on how to make sound investments in the US
- Help developers structure their projects and investment opportunities to fit EB-5 and foreign investment profiles
- Advise investors on how to form EB-5 regional centers and structure deals with developers and compliance matters
EB-5 Financing for hotel development:
Use of hotel industry standards for determining
job creation from new guest expenditures
Catherine DeBono Holmes and Victor T. Shum
USCIS has challenged EB-5 financing for hotel projects that rely on guest expenditures.
Since 2012, the U.S. Citizenship and Immigration Services (USCIS) has issued multiple Requests for Evidence (RFE) challenging the validity and reasonableness of economic job creation models for hotel projects that include jobs created from increased visitor arrivals or guest expenditures (also referred to as visitor spending), meaning expenditures of hotel guests for goods and services outside the hotel, such as at restaurants, retail and entertainment. This has resulted in high levels of uncertainty for regional centers and developers seeking to build hotel projects that include jobs from increased guest expenditures.
The current stated position of the USCIS is to accept job credit based on guest expenditures so long as the applicant demonstrates by a preponderance of the evidence with a data-based analysis that the new hotel project will result in an increase in new visitor arrivals and new guest expenditures. In this article, we explain what standards we believe the USCIS should use to determine that a new hotel will create new jobs as a result of filling demand for additional hotel rooms in a local market. Readers should note that the USCIS has been hostile to the use of guest expenditure jobs since approximately 2012, and this article is intended to suggest that it should more readily credit jobs from guest expenditures in the future where appropriate based on market data.