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Meet the Money® 2014

ADA defense and compliance

EB-5 financing

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This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer. Please contact me at Jim Butler at jbutler@jmbm.com or 310.201.3526.

Published on:

30 October 2014

Click here for the latest articles on Condo Hotels.

Condo hotel revolution and resurgence:
Why developers are using “new breed” of condo hotels for financing

One “little” legal change has revolutionized and revitalized condo hotels

by

Jim Butler, Bob Braun and Guy Maisnik
Condo Hotel Lawyers

The condo hotel lawyers at JMBM have helped clients with more than 100 condo hotels and hotel condos. Our experience proves that well-structured condo hotels play a valuable role and have earned an enduring legacy in the hospitality industry. They make new hotel development feasible where limited financing and high construction costs would otherwise be prohibitive. And now one recent legal change sweeps away some of the knotty issues that have hampered condo hotel growth, and reignites the popularity of this approach with a “new breed” of condo hotels.

We are now at a pivotal point for condo hotels. We are witnessing the complete turnaround in the way developers will structure condo hotel deals — particularly for high-end and luxury properties. This 180 degree turnaround in approach is creating a new and better breed of condo hotels that builds upon past successes and takes a giant step forward.

This was all accomplished with the stroke of a pen late last year when the Securities and Exchange Commission (SEC) adopted Rule 506(c) in response to the express requirements of the JOBS Act. The JOBS Act required the SEC to eliminate the prohibition on using “general solicitation” in private placements under Rule 506 where all the purchasers of the securities are “accredited investors.” Effectively, this single legal change has suddenly made it feasible for most hotel developers to structure and sell their condo hotel projects as “securities.”

This is a big change! Over the past 50 years or more, with only a few isolated exceptions, all condo hotel deals were tortured monstrosities of legal convolution. Because of the prior securities laws, it was not practical for most developers to have their offering be considered a “security” because it was not practical to register the securities with the SEC (as in an IPO), and general public solicitation is essential to the sale of real estate like condo hotel units. However, under the prior law, achieving the critical “non-security” status imposed some nonsensical legal requirements.

Most of these absurdities resulted from the fact that investors typically buy condo hotels as an investment and want the kind of information that would be relevant to making an intelligent investment decision. However the prior SEC rules effectively prevented developers from selling condo hotels as an investment with the relevant information and structure to provide the greatest prospects of success. This created the practical paradox that it was illegal for developers to sell condo hotels as an investment, but it was not illegal for buyers to purchase condo hotels as an investment (and most buyers did so).

Practical implications of the new approach

In other articles, we intend to provide more background and detail for those who are new to the condo hotel scene. But this piece is designed for those who already know the basics, and perhaps even struggled with the limitations of condo hotel structure under the old rules. Thus, we move straight to the key considerations that hampered condo hotels under the old rules, and explore how the “new breed” of condo hotels (structured as securities to take advantage of the latest legal changes) is now positioned to become the dominant approach for this entire niche.

The table below summarizes some of the most significant requirements or features that distinguish the old approach of avoiding security status (and the old SEC rules on private offerings), from the new approach of accepting security status and complying with the new Rule 506(c). The critical requirement for the new approach is that all buyers of condo hotel units must be “accredited investors.” Generally speaking, this means that each purchaser must meet the requirement of either (1) a minimum net worth of $1 million (excluding primary residence), or (2) a minimum income of more than $200,000 per year (or $300,000 for a married couple) for each of the last two years, and reasonably expects the same for the current year.

So here it is in a nutshell, or in this case, a table. CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
4 October 2014

After so many years of being off everyone’s screen, Los Angeles has suddenly become one of the hottest markets for real estate investment. Roger Vincent’s article of October 4, 2014, in the Los Angeles Times provides some of the latest and most exciting detail about how the “smart money” in New York now sees Los Angeles is a great place to buy real estate. See “Downtown L.A. real estate is drawing N.Y. investors’ interest.”

The transformation of Los Angeles to a “real city” where people live, work, and play has taken decades. The city has lagged behind many other gateway cities and its real property values have languished relative to other major markets. But the renaissance of DTLA is real. See “Hotel Lawyer in Los Angeles: Why does it seem like everyone wants to build or buy a hotel in downtown LA? It’s the “Renaissance of DTLA,” silly!

And the new dynamics have changed international preferences for real estate investment.

Big changes in the past few years

Noting that downtown Los Angeles (DTLA) was “disdained” by Wall Street for real estate investment until lately, the Times article cites a 23% increase in the dollar volume of real estate purchased by New York-based investors in 2014 compared to 2013. CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
4 October 2014

Have you ever wondered why your cell phone or personal Wi-Fi hot spot does not seem to work in some hotels?

As more business and leisure travelers equip themselves to stay in constant communication with their work place and families, they have accelerated the tendency to shun high-priced hotel room telephones and internet connections. But sometimes, even when you are in the middle of New York City (or other major urban gateway) on a high floor, your cell service or Mi-Fi just does not seem to work, and you wonder if it is being jammed intentionally by the hotel.

On Friday, October 3, 2014, the Federal Communications Commission (FCC) confirmed (at least in one case) what a lot of travelers have suspected of hotel operators when it announced that Marriott International had signed a Consent Decree and agreed to pay a $600,000 civil penalty to resolve the FCC’s Wi-Fi blocking investigation. This was an investigation into whether Marriott intentionally interfered with and disabled Wi-Fi networks established by consumers in the conference facilities of the Gaylord Opryland Hotel and Convention Center in Nashville, Tennessee, in violation of Section 333 of the Communications Act.

According to the official FCC announcement, the FCC Enforcement Bureau’s investigation revealed that Marriott employees had used containment features of a Wi-Fi monitoring system at the Gaylord Opryland to prevent individuals from connecting to the Internet via their own personal Wi-Fi networks, while at the same time charging consumers, small businesses, and exhibitors as much as $1,000 per device to access Marriott’s Wi-Fi network.

Interfering with private cell phones, Wi-Fi or similar equipment violates federal law

The FCC has set up a special area on its website for providing information about and enabling the public to report illegal jamming. See www.fcc.gov/jammer.

On the website, the FCC prominently displays this warning: CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
18 September 2014

Hotel Lawyer: New Uniform System of Accounts will affect your hotel management and franchise agreements. Are you ready?

Commencing January 1, 2015, the hotel industry will have a new, significantly revised set of guidelines governing accounting for hotels. That is the effective date for the recently published Uniform System of Accounts for the Lodging Industry, 11th Edition (2014) (“11th Edition”). This is just one of the many things that distinguishes hotels and the hotel industry from every other class of real estate. And the new rules will have a significant impact on a number of matters in hotel management agreements.

Here is a summary of the important changes from one of our industry friends who worked on the 11th Edition, Michelle Russo of hotelAVE.

How will the 11th edition of the Uniform System
affect your management agreement?

by
Michelle Russo, CEO, Hotel Asset Value Enhancement, Inc. (hotelAVE)

The AHLA issued the new 11th edition of the Uniform System of Accounts for the Lodging Industry (USALI) in July 2014.   The process took almost three years and the edition reflects the first time that ownership interests were included in the Financial Management Committee that previously comprised only operators, industry consultants, CPAs and educators.  While there are many changes from the 10th to 11th editions, this article addresses what owners and operators need to evaluate to understand the impact of the 11th edition on manager fees and performance tests.

Recommendations for Evaluating Current Agreements.

The 11th edition includes title and definition changes as well as new schedules.  For example Total Revenue is replaced with a new term called Operating Revenue.  There is also a new schedule that is reported below GOP that includes revenue not generated by the operator (including interest income, other income such as antenna lease income and cost recovery income).  You or your lawyer should determine how these changes affect base fees, incentive fees and performance tests.  Please note that these changes are effective January 1, 2015. CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
16 September 2014

Click here for the latest articles on ADA Defense and Compliance.

 

The recent Uber lawsuit

On September 9, 2014, Uber Technologies was sued in Federal Court in San Francisco for violating the Americans with Disabilities Act (ADA) and California’s Unruh Act. The suit arose from the claim that UberX drivers refused to allow blind riders to bring their guide dogs. For a copy of the complaint, click here to see Natl Federation of the Blind v. Uber Technologies.

This is just the latest in an long history of complaints or enforcement actions involving the legal requirements concerning “service animals” under the ADA and corresponding state laws such as California’s Unruh Act.

Why public facilities are subject to these service animal rules

Like Uber taxis, all hotels, restaurants, spas, retail facilities, movie theatres, and sports and entertainment venues are places of public accommodation. As such, they are expressly subject to the ADA and corresponding state laws.

Because so many people ask us about the “service animal” issues, we thought it might be helpful to provide our industry friends with some guidelines on the major questions in this area through a series of frequently asked questions or FAQs about this subject.

FAQs about the ADA’s legal requirements for service animals

by

Jim Butler & Marty Orlick
ADA Defense & Compliance Lawyers

 

Here are some of the most Frequently Asked Questions on service animal issues under the Americans with Disabilities Act or ADA.

What qualifies as a “service animal?”

Businesses . . . may ask only two questions of individuals regarding their service animals . . .
Under the ADA, a dog or miniature horse that “is individually trained to do work or perform tasks for the benefit of an individual with a disability” qualifies as a service animal.The “work” or “tasks” performed by a service animal must be directly related to the individual’s disability. For example, the service animal might pull a wheelchair, guide a visually impaired person, or assist an individual with psychiatric disabilities.

Comfort animals and pets are NOT service animals. Comfort animals merely provide emotional support and are not individually trained to assist with a disability.

What can you ask a customer who enters your business with an animal?

Businesses and their representatives who come in contact with the public may ask only two questions of individuals regarding their service animals: CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
7 September 2014

Click here for the latest articles on EB-5 Financing. 

 

EB-5 Visas and China “Retrogression” – What’s it all about?

by

Jim Butler and Jonathan Bloch
Partners, Jeffer Mangels Butler & Mitchell LLP

In the past, when China exceeded its 7% allocation of US Immigrant Investor Visas (EB-5 visas), Chinese applicants were permitted to take advantage of unused EB-5 visas allotted to other countries. But as of the last week of August 2014, the US State Department decided that the issuance of new EB-5 visas to Chinese applicants will be frozen or “retrogress” (move backward) until October 1, 2014, when the new fiscal year starts.

At that time, a new visa quota of 10,000 EB-5 visas (for all countries) will become available for the next fiscal year through September 30, 2015. China will again be allotted only 7% of these visas but most experts expect that Chinese investors will be permitted to access visas unused by other countries in accordance with practice over the past 3 years. This means that the 10,000 visa cut-off date likely will be reached much earlier in the fiscal year ending September 30, 2015, and this may significantly affect fundraising in 2014 and 2015.

EB-5 Visas and China “Retrogression” – What it means to you

If you have a new hotel development in the pipeline and you are on the fence about EB-5 financing, now is the time to act!

Why should this latest development in EB-5 financing concern you — a mere 5 week “freeze” on the issuance of EB-5 investment visas for China? If you want to use EB-5 financing as part of your capital stack for a project in 2015, it should concern you plenty for the following reasons:

  • China has been the dominant source of EB-5 capital for the last 3 years — more than a staggering 70% of EB-5 visa applications.
  • The freeze will only affect immigrants filing I-526 applications who are born in Mainland China. Of course, over time, other countries may fill any shortfall of investors from Mainland China but that may take 2-3 years or longer to develop the EB-5 infrastructure that makes foreigners aware of the program, motivates them to immigrate to the US and provides  EB-5 “capital delivery” system (marketing agents, immigration attorneys and the like) that can match China.
  • Anything that delays, retrogresses, or threatens the certainty of EB-5 financing from China creates uncertainty that is bad for all participants in the EB-5 financing world — the Chinese investors, US developers, and the communities that benefit from the realization of new projects, new jobs for US citizens, and economic stimulus.
  • If the EB-5 issues are not fixed quickly, an irreplaceable source of financing could be lost for US developers, communities may lose the benefit of major new projects (from hotels to conference centers and port facilities), Americans will forfeit hundreds of thousands of new jobs each year, and we will lose a critical source of highly-educated, wealthy immigrant talent as America faces a critical labor shortage of skilled workers in the near future.

Based on our experience of assisting developers with EB-5 financing for more than 60 projects, we are confident that there are both short term and longer term solutions to these problems which are discussed at the end of this article. But first, we need to recap the background and setting for the EB-5 program. CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
25 August 2014

Lately, it seems like everyone wants to buy — or sell — an independent hotel management company. And this may be one of the best times to do so in a long while. Here are some thoughts on this timely subject by two of our hotel lawyers who have just completed a successful sale of an independent operator.

Why this may be the time to buy or sell a hotel management company
A hot trend and five key issues
by

Guy Maisnik and Joyce Men | Hotel Lawyers

One of the hottest trends right now is buying (or selling) independent hotel management companies. The demand is coming from all directions – existing management companies, investment funds and foreign buyers. Existing management companies are scrambling for market share, economies of scale and strategic markets. Investment funds are looking for the direct control over their hotel investments through a captive management company as well as attractive economic returns that a great independent operator can achieve with limited capital investment and risk compared to hotel investment. And foreign owners share many of these goals, and see the acquisition of a hotel management company as a solid way of entering into the hotel market in the United States.

From the potential seller’s standpoint, the timing may be optimal for a sale at this point in the cycle. A management company’ sale price is typically negotiated as a multiple of earnings. Traditionally, this multiple is four to six times earnings before interest and taxes, after making adjustments for expenses that would not continue to the buyer, and deducting from the price any interest-bearing debt that the buyer assumes. However, in this market, hotel management companies with a proven track record of performance, and a high quality (sustainable) earnings stream  can command a price well in excess of six times earnings before interest and taxes with multiple suitors. The demand is there, but the process is complex.

And here are five key issues or questions you should consider before buying or selling a hotel management company. CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
19 August 2014

Asians love California, particularly Southern California! They love it as a place to live, buy homes, invest, go to school, and run their businesses. In June, we talked about the close affinity between China and Los Angeles County as revealed by a new report. Now there is yet another report documenting how Asians love Orange County.

Why? The report does not tell us that, but certainly Asians are attracted to California for the same reasons they been settling here for more than a century: proximity, climate, opportunity, and the largest communities of Asians outside of Asia.

News about Asians in Orange County

Recently, Los Angeles Times reporters Anh Do and Christopher Goffard reported on a phenomenon which we at JMBM are well aware: Asians want to live, work, study and invest in Orange County, California.

JMBM has served Orange County’s Asian community for more than 30 years. From our office in Irvine, members of JMBM’s Chinese Investment Group™ and Global Hospitality Group® are active participants in Orange County’s Asian business community where we represent Asian investors, developers, business owners, as well as new residents – primarily from China – seeking to invest in California businesses and buy luxury homes in Orange County’s prestigious neighborhoods.

New Study on Asians in Orange County

The Times article cites “A Community of Contrasts”, a study published by Asian Americans Advancing Justice, and reports the following key findings: CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
18 August 2014

Today, the Hotel Lawyers in JMBM’s Global Hospitality Group announced our 25th Annual Meet the Money® conference to be held May 4-6, 2015, at the Sheraton LAX. It’s hard to believe we are marking the 25th year of getting together with our friends in the industry for a couple of days where all participants share information, meet leaders in the industry and make deals. It will be an exciting conference and if you have not joined us at Meet the Money® in the past, we hope you will come find out what all the buzz is about in 2015! If you are a regular participant, I promise that 2015 will not disappoint!

 

JMBM’s Meet the Money® marks its 25th anniversary in 2015
National Hotel Finance & Investment Conference – May 4-6, 2015 in Los Angeles

LOS ANGELES – Meet the Money®, the premier national hotel finance and investment conference will convene for its 25th annual event on May 4-6, 2015 in Los Angeles. Since 1990, the conference has connected attendees with the industry’s top executives and leaders.

“When we established Meet the Money® 25 years ago, our purpose was to provide hotel developers and owners with a forum to meet capital providers and to gain insight on debt and equity financing,” said Jim Butler, Chairman of JMBM’s Global Hospitality Group®. “This milestone signifies our continued commitment to that vision.”

Each year, Meet the Money® brings together 400 hospitality executives and capital providers to discuss the latest trends in hotel finance in a casual and lively atmosphere.  Meet the Money® 2015 will provide the latest information on hotel industry fundamentals and numerous panel discussions by the industry’s top thought leaders and innovators. The conference will include two evening receptions, two breakfasts and lunches, and plenty of networking time to meet leaders and make deals. CONTINUE READING →

Published on:

Hotel Lawyers | Authors of www.HotelLawBlog.com
4 August 2014

Click here for the latest articles on EB-5 Financing. 

 

Frequently Asked Questions about EB-5 project financing
for new hotel development

by

Jim Butler and Jonathan Bloch
Partners, Jeffer Mangels Butler & Mitchell LLP

 

Why is there so much buzz about EB-5 financing?

In the last five years, EB-5 financing has become extremely popular in development circles and is being widely used by mainstream, institutional players including government entities such as port authorities, major hotel brands like Marriott and Hilton, and some of the largest owners of hotels and restaurants. EB-5 financing has provided low-cost, non-recourse, five to six year term financing for construction and development of new projects and offers a number of advantages to developers.

What is EB-5?

EB-5 is a provision in the United States immigration laws. It is the fifth “Employment Based” immigration provision providing expedited visa processing (hence “EB-5″). The program is a win-win-win arrangement giving wealthy immigrants the opportunity to earn a “fast-track” for a US green card if they make an investment of $500,000 or $1 million, and create a minimum of at least 10 permanent US jobs. In return, communities get the benefit of economic stimulation created by this investment and the new jobs. And developers get a valuable source of financing for new projects that is otherwise more difficult to obtain.

Is EB-5 funding available for new development and new construction?

Because foreign investor money must create NEW US jobs, construction and development projects are the normal target of EB-5 financing investment. Although the law does not restrict the nature of the investment to real estate, foreign investors have demonstrated a clear preference for real estate-related projects, particularly hotels, restaurants and resorts. EB-5 financing can also be used to add new facilities to existing ones, such as a new tower of hotel rooms, a spa, a restaurant or nightclub. And, in limited circumstances, EB-5 financing can be used to rescue a bankrupt or failing business, but this exception is difficult to use. CONTINUE READING →