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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.

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July 9, 2014

LOS ANGELES—The Global Hospitality Group® and the Chinese Investment Group™ at Jeffer Mangels Butler & Mitchell LLP are pleased to announce the launch of a Chinese-language version of the Hotel Law Blog. It is available as a new tab on www.HotelLawyer.com or it can be accessed directly at www.ChineseHotelLawBlog.com.

CONTINUE READING →

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Hotel Lawyer looking at the EB-5 program

Over the past 5 years, JMBM’s team has helped clients with more than 40 EB-5 projects all over the U.S. The program is more popular than ever and the standards continue to rise for sponsors who want to advantage of this funding technique.

I asked Jonathan Bloch, a corporate partner and Senior Member of JMBM’s Global Hospitality Group®, to put together an Executive Summary and Overview of the EB-5 Program for investors and developers wanting to explore the funding source for new projects.

Here it is.

An Executive Summary and Overview of the EB-5 Program
by
Jonathan R. Bloch | Senior Member of the Global Hospitality Group®

U.S. Citizenship and Immigration Services (USCIS) administers the Immigrant Investor Program, also known as “EB-5,” created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. Under a pilot immigration program first enacted in 1992 and regularly reauthorized since, Congress has allocated 10,000 EB-5 visas for investors designated by USCIS based on proposals for promoting economic growth. Of the 10,000 visas available annually for immigrant investors, 3,000 are reserved for investments in Targeted Employment Areas and another 3,000 are set aside for investment through the Regional Center Program.

Up until very recently, the EB-5 Program has been both controversial and underutilized. However, as a result of some positive developments by the USCIS, the Program has been revised to make EB-5 investments more readily available and easier to obtain. In addition, due to the difficult financing market that developers have faced, the number of petitions has increased from 332 in 2005 to 4,156 in 2012, and the approval rates for the Program have risen from 53 percent to 79 percent.

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
16 June 2014

The growth of outbound Chinese investment

Earlier this month we posted an article about the surge in Chinese investment as reported by Tiffany Hsu in the Los Angeles Times. See, “China and JMBM’s Chinese Investment Group™ are in the news again!”

That article prominently featured the Sheraton Gateway LAX hotel, its 15% increase in Chinese travelers since the beginning of the year, and its purchase by our Shenzen Hazens Real Estate Group, and JMBM’s role as counsel to Shenzen Hazens.

Special Report Just Released: Growing Together — China and LA County Report – June 2014

Tiffany Hsu’s article also summarized some of the interesting data from a new report dated June 2014 by the Los Angeles County Economic Development Corp. (LACEDEC), entitled “Growing Together — China and Los Angeles County.” A full copy of LACEDEC’s Growing Together report (the “Growing Together Report” or simply the “Report”) can be downloaded by clicking the link at the end of this article.

But here are the “Key Findings” of the Report:

  • Investment into Los Angeles County from China has doubled over the past 5 years, with China becoming one of Los Angeles County’s top investors
  • China and Los Angeles County continue to increase business and commercial ties and the opportunities for Los Angeles
  • Tourism has nearly quadrupled over the past four years alone, from 158,000 Chinese tourists in 2009 to 570,000 in 2013, making China the top overseas market for Los Angeles tourism
  • Los Angeles is America’s top international trade gateway to China and China’s top gateway to the U.S., handling nearly 45% of trade between the two countries
  • China is the Los Angeles Customs District’s (LACD’s) #1 partner in international trade, accounting for nearly 60% of all activity at the San Pedro Bay ports
  • LACD exports to China have increased from $23 billion in 2009 to $35 billion in 2013 – less waste and scrap and more consumer and knowledge-intensive goods
  • Los Angeles County has the largest Chinese population of any county in the nation, and has grown from 360,000 in 2008 to 413,000 in 2012
  • Los Angeles County has the largest number of Chinese students of any county in the nation, increasing from roughly 3,000 Chinese students studying in local universities in 2009 to roughly 10,000 in 2013
  • Strong cultural and network ties are the foundation of the relationship
  • Future business prospects may be found in clean tech, entertainment, aerospace, e-commerce, real estate/property development, tourism, logistics and electronics.

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
15 June 2014

Concerns over a real estate bubble in China

For decades, China was referred to as the “sleeping giant.” This reference is to the great potential impact of the country, its vast population, and its economy, but also to the fact that this potential was largely unrealized for hundreds of years. Well, the sleeping giant is awake! And the world financial press is now full of analysts following China and the international ramifications of its every action on the world economy.

Recently, great concern has been raised by some over the impact of the stalling Chinese economy as it drops from double-digit growth in GDP to 7.5% or less. Alarm has been raised about the bubble in the Chine real estate markets, particularly the housing, and now commercial real estate as well. And most recently, financial analysts worry about the shadow banking system (financing and loans by non-banks) and Chinese real estate companies’ interest in purchasing banks or substantial interests in them.

Some suggest that Chinese construction companies’ investments in banks may be with a view to getting easier loans on more questionable deals, and that when real estate projects sour, they could take down both the construction companies and their banks. Is this reminiscent of the S&L crisis and the Japanese bubble of the 1980s?

Let’s separate the issues — real estate company investment in banks and shadow banking

To begin with, one must clearly define the activity being analyzed, who the players are, and the market in which the activity is taking place. For example, current reports detail investments by Chinese real estate development companies in banks located in mainland China, Hong Kong, Australia, the United States, and elsewhere. Some of these investments are modest. Some of them are significant. Some of them appear to be newly capitalized banks with IPOs financed largely by the real estate construction companies (taking the “p” out of “IPO”).

Each country has its unique set of government and regulatory controls. It is difficult to generalize the motivation of the Chinese real estate companies in making banking investments, whether and how they will attempt to deal with the banks they have invested in, and how regulators will respond in each affected jurisdiction as to particular investments and related activities.

Will this be like the Japanese investment bubble of the 1980s or the S&L crisis?

At least two situations may serve as case studies to provide some historical perspective on the new phenomenon of Chinese real estate companies investing in banks, and the shadow banking situation. One is the US real estate bubble of the 1980s followed by the Savings and Loan (S&L) and banking crisis with more bank failures than any time since the Great Depression. The other somewhat intertwined event is the Japanese investment (by banks and related Japanese construction companies) of up to $120 billion in United States real estate (primarily in Hawaii, California, and New York), and subsequently “disinvestment” in the collapse of the early 1990s. Many believe that the Japanese investment was made at what otherwise would have been the peak of the US real estate bubble (carried by loose S&L lending and tax-driven investments that made no economic sense). The Japanese investment propelled the U.S. real estate bubble even higher for several years until the it finally became unsustainable, and collapsed in a worse crash than might otherwise have resulted.

Both the S&L crisis and the Japanese investment phenomena displayed cozy relationships of real estate companies and lenders. The Japanese banks owned significant holdings in their borrower clients, and encouraged them to buy market share with below-market loans. When the real estate market soured, the Japanese banks were hit with the double whammy of huge loans on real estate now worth a fraction of its cost, and stock investments in companies with huge losses. The leverage increased the pain for everyone participating and the lost decade (or two) has followed for Japan.

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
6 June 2014

As the significance of Chinese investment in the US continues its rapid growth, news articles regularly document new details of this major trend. And in today’s Los Angeles Times, Tiffany Hsu provided some interesting facts in an article entitled “Chinese tourism and investment in Southern California surges.” Her article led off with the example of a 15% increase in Chinese travelers at the Sheraton Gateway LAX Hotel. We served as lawyers and business advisors to Shenzen Hazens Real Estate Group (a large Chinese construction company) with its $96 million purchase of the hotel. The article explains that the new owner has put up billboards in China promoting the 802-room hotel near the main entrance of the Los Angeles International Airport. As an example of how important such Chinese investors have become in the United States, Tiffany Hsu also noted that JMBM launched its Chinese Investment Group™ in 2011 to orchestrate deals for Chinese investors in the United States, like the purchase of the Sheraton Gateway, the Crowne Plaza Los Angeles Harbor, the Regent hotel brand and other real estate, solar and business investments. Here are a few highlights on the big surge in Chinese tourism and investment in Southern California reported by the Los Angeles Times:

  • Tourism from China into Los Angeles roughly quadrupled over the last five years, growing from 158,000 in 2009 to 570,000 visitors last year, and is expected to almost quadruple again to 2,000,000 by 2020 according to a new report from the Los Angeles County Economic Development Corp. (LACEDC).
  • The LACEDC reports that Chinese investment interest in Southern California is also very strong. The travel is not just for tourism, but for Chinese people buying homes, businesses and other investments.
  • More Chinese students attend universities in Southern California than any other group of American universities — 10,000 pupils last year, up from 3,000 in 2009.
  • The number of Chinese-owned businesses in Los Angeles county doubled in the last six years.
  • And Southland trade with China is booming. The Los Angeles Customs District saw record trade volume last year valued at $414.5 billion. Of that, imports and exports from China made up more than half — $221.4 billion, up 4.5% from 2012.
  • The Los Angeles-Long Beach ports, which make up part of the district and constitute the ninth busiest port system worldwide, now attribute 60% of their activity to China.
  • Exports to China through Los Angeles grew by 52% in four years to $25.3 billion last year. Instead of the waste and scrap common in the past, those shipments are increasingly made up of electronics, machinery and other valuable goods destined for a fast-growing Chinese middle class.
  • The LACEDC report aptly summarizes the situation as follows: “The futures of Los Angeles and China are inextricably tied together.”

CONTINUE READING →

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
2 June 2014

2014 NYU Hotel Investment Conference

Last night (Sunday, June 1, 2014), the NYU hotel conference kicked off with its gala grand opening party. With about 2,300 people attending this year, the energy is high and a grounded optimism prevails. The increased conference attendance generally reflects the health of the hotel industry, and these numbers do not count the hundreds of “lobby lizards” who hang out at the conference hotel for meetings without registering.

Mike Cahill of HREC, co-chairman of the Lodging Industry Investment Council (“LIIC”) summed it up well at a pre-conference meeting of the hotel industry think tank. According to Cahill, the best way to describe the hotel industry right now is “The window is wide open and it is beautiful outside!”

According to Jan Freitag of STR, who made a special presentation to the LIIC members, life in the hotel industry is good or very good. “STR has been surprised by the continued growth in demand and has increased its projections of RevPAR growth for 2014 and 2015.”

According to Freitag, the room supply/demand ratios are still in balance and RevPAR growth for the US is hitting 7%, until the last few weeks when it spiked to 9%. He says, “We just did not see that room demand would be that strong.”

Chart after chart of STR’s data blinked green lights for continued improvement in the hotel industry: occupancy growth has kicked back up, the RevPAR growth situation is very healthy, supply growth is still well under control in most markets, group business is rebounding, hotels are getting more pricing power with group business.

Is 2014 “ground hog year”?

On another positive note, Cahill observed that in the most recent LIIC survey of its members announced a few weeks ago at JMBM’s Meet the Money® conference in Los Angeles (see “Lodging Industry Investment Council’s Top 15 Member Quotes“), most LIIC members felt that the hotel industry is in the 5th or 6th inning of the ballgame, in terms of how much longer the good times continue. CONTINUE READING →

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
28 May 2014

The Lodging Industry Investment Council (LIIC) is the hotel industry “think tank” whose membership includes the hospitality industry’s most influential investors, lenders, corporate real estate executives, REITs, public hotel companies, brokers and significant lodging equity sources. More than 80% of surveyed LIIC members have purchased a hotel in the last 12 months. Together, the members of LIIC represent ownership, control or disposition of well over $20 billion of lodging real estate.

Along with Mike Cahill of Hospitality Real Estate Counselors (HREC) and Sean Hennessey of the Lodging Investment Advisors, I am privileged to be one of the co-chairs of the Lodging Industry Investment Council (LIIC).

LIIC Annual “Top Ten” Survey

LIIC’s annual survey of lodging investment trends and challenges is a highly-regarded profile of investment sentiment and attitudes for the hotel industry for the next 12 months.

The 2014 LIIC Survey was compiled by Mike Cahill and he presented the results to more than 350 attendees of the 24th annual Meet the Money® conference in Los Angeles earlier this month. What do LIIC members think about hotel property values, transaction volume, access to capital, and hotel development?

The complete presentation of the LIIC Top Ten is available on www.HotelLawyer.com. Click on “RESOURCE CENTER” and then “Hotel Industry Presentations.”

By the way, all the other presentations from our 24th annual hotel conference are also available at www.HotelLawyer.com on that same page (RESOURCE CENTER/Hotel Industry Presentations).

In addition to the LIIC Top Ten Survey, this year we are publishing the “Top 15 Member Quotes” collected in connection with the survey. There are some interesting thoughts here. Please see below.

The 2014 LIIC Top Ten Survey’s Top 15 Member Quotes

By Michael Cahill, CEO & Founder, and Michael Torres, associate; HREC- Hospitality Real Estate Counselors

Behind the scenes of the annual LIIC Top Ten Survey, lies an extensive and comprehensive survey filled in by the leading hotel investment executives in North America.  In addition to the many multiple choice questions, optional space is provided for “write in” comments.  For the first time in the history of the Survey, we have decided to publish some of these quotes.  As will be seen in the quotes, LIIC member thoughts range widely, from pithy “tongue-in-cheek” to prophetic.  Attitudes range widely from “Polly Anna” to “Negative Nelly.” Clearly, the views of today’s most influential hotel investors (the people with great influence on all our professional lives) range widely in terms of seeing the “glass as half full or half empty.”

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
26 April 2014

Some are calling it the “distressed real estate gold rush in Europe.” Others who have been expecting 1990s-style opportunistic investment opportunities for several years, now are seeing a change in European banks’ willingness to sell distressed loans at discounts to clean up their books. Several significant deals have been announced with big name investors and more are underway.

What is happening? And what is the opportunity for investors? Is it too late already?

Troubled European banks with soured real estate loans

Following the U.S. economic crash, Europe fell into recession and largely remains mired in a sluggish economy, high unemployment and depressed real estate values. European banks have suffered greatly along with their customers as real estate loans have soured.

According to a recent PricewaterhouseCoopers report, European banks were finally recognizing approximately $1.4 trillion in nonperforming loans at the end of 2013, up from $715 billion in 2008. For years after the financial crisis, the European banks were not marking down the loan collateral and classifying their loans. They took no decisive action to deal with their bad loans.

But now that is changing. European banks are at an inflection point. According to the PwC report, in 2013, banks sold $90.5 billion worth of troubled debt to investors, compared with $64 billion in 2012, an increase of more than 40%. The European Central Bank is the driving force in this new development and 2014 is likely to set new records.

Troubled loan purchases or restructuring deals are on a dramatic rise. Deals have been announced by the likes of Oaktree Capital Management, Apollo Global Management, Centerbridge Partners, Angelo Gordon, Kohlberg Kravis Roberts and Goldman Sachs.

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
15 April 2014

DTLA against the San Gabriel Mountains - WSJThe coolest new downtown in America

If you haven’t been to what the cognoscenti now call “DTLA” (downtown Los Angeles) for a while, you might not recognize it. Gone are the days the sidewalks were rolled up at 5:00 pm and you had to go to Hollywood or Santa Monica for drinks or some fun. Earlier this year, Brett Martin of GQ magazine dubbed it “the coolest new downtown in America.”

In fact, the introduction to Brett Martin’s article is a great summary of the miraculous change in the demographics of DTLA that provide part of the reason that everyone seems to want to buy or build a hotel in Los Angeles today. Here is what it said:

America’s Next Great City Is Inside L.A.

For decades, Downtown has been the dark center of L.A.: a wasteland of half-empty office buildings and fully empty streets. But amid the glittering towers and crumbly Art Deco facades, a new generation of adventurous chefs, bartenders, loft dwellers, artists, and developers are creating a neighborhood as electrifying and gritty as New York in the ’70s. Brett Martin navigates his way through the coolest new downtown in America.

What does this “renaissance” mean in terms of the LA market for hoteliers?

Expanding markets are good for the hotel business. DTLA has become a destination and a hub of activity and excitement. Los Angeles has had so little hotel development over the past few decades, that it is one of the most underserved markets in the US now. And as hotel room rates jump, it is suddenly feasible to buy or build hotels that made no economic sense just a little while ago.

CONTINUE READING →

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
2 April 2014

A fundamental shift has taken place in the realm of hotel management agreements (HMAs) and we decided we could just not wait any longer to update our popular handbook on this important subject. So, it is with great excitement that my partner and co-author, Bob Braun, and I announce the publication of the 3rd edition of The HMA & Franchise Agreement Handbook.

Like all the handbooks in our We Wrote the Book™ series, it specifically addresses the needs of hotel owners, developers, investors and lenders. The news release below explains what all the commotion is about and will tell you how to get your free copy of The Handbook. As always, we invite you to share your comments and thoughts about the book with us.

Along with all the latest financing sources, and deal technology, we will be talking about HMAs and franchise agreements at the Meet the Money® national hotel finance and investment conference May 7-9, 2014. We hope you can join us there!

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