Hotel Attorney: How will the Stimulus Bill help tribal governments finance hotel projects in Indian Country?
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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
16 March 2009
Hotel Attorneys with an important and different perspective on the Stimulus Bill: How will it help tribal governments finance hotel projects in Indian Country
On March 15, Hotel Attorney, Catherine Holmes, sat down with our good friend, Valerie Red-Horse of Red-Horse Financial Group, to talk about how the American Economic Recovery and Reinvestment Act of 2009 will help tribal governments finance new hotel developments on tribal land.
Valerie is a leading investment banker for tribal development projects, including gaming resorts, hotels, conference centers and other developments, and has helped tribal governments all over the United States develop over $2 billion of projects over the last ten years. Based on her years of experience, Valerie knows the problems that tribal governments have had obtaining tax-exempt financing, and the opportunities that the new law will present to tribes seeking to develop hotels and other projects on their reservation lands.
Stimulus Bill affect on tribal government finance
of hotel projects in Indian Country
Catherine Holmes, Hotel Attorney: Valerie, how have development projects by tribal governments been impacted by the credit crisis?
"Financing for tribal developments has dried up. Investment banks that used to be in the market, such as Goldman Sachs, Merrill Lynch and Bank of America, have shut down their tribal lending groups. So we hope that the incentives provided by the new stimulus bill will bring some needed financing back into the market for tribal developments. "
Catherine Holmes, Hotel Attorney:What new incentives does the stimulus bill provide for financing of tribal developments?
"The U.S. Treasury Department has been given authority to approve up to $2 billion in Tribal Economic Development Bonds ("TEDBs") to raise money at tax exempt rates. In addition, tribal governments have been authorized to issue the new "Build America Bonds" ("BABs"). Although TEDBs and BABs cannot be used to finance any portion of a building where gaming is conducted, they can be used for a broad range of other projects, including hotels, spas, convention and conference centers, golf courses, and other facilities, that were previously not permitted to be used by tribal governments.In the past, only "essential government services" could be financed using tax-exempt financing, and the IRS interpreted that requirement very narrowly for tribal governments - even for projects such as hotels and golf courses that city governments were allowed to develop using the same type of tax-exempt financing."
Catherine Holmes, Hotel Attorney: Can you give us an example of the problems that tribes have had with tax-exempt financing?
"Yes, the Seminole Tribe in Florida tried to finance a hotel/conference center project using a tax-exempt bond of the same type that is often used by cities for convention center hotel projects. The bonds were issued, and the investors were very happy with the bonds. After the bonds were issued, the IRS decided that the hotel project was not an "essential government service," so the bonds were reclassified as taxable. The investors who wanted tax-exempt bonds were able to get their money back, but at a redemption rate lower than the bonds were selling at on the open market, so they were very unhappy."
Catherine Holmes, Hotel Attorney: So the new bill will fix that problem in the future?
"We hope so, but we won't know for certain until the IRS issues new regulations confirming what TEDBs and BABs can be used for by tribal governments. The one thing that the IRS could do that would really make a difference is to allow tribes to issue tax-exempt bonds for the same purposes as cities have been allowed to use tax-exempt bonds, and to make this change permanent, so that it doesn't expire in 2010 when TEDBs and BABs are set to expire."
Catherine Holmes, Hotel Attorney: When will the new IRS regulations be issued?
"I and number of parties active in tribal finance have been asked by the IRS to provide comments by March 20 with regards to suggestions for the logisitcs, and I hope that the regulations will come out soon after that. If we can get some certainty for investors in TEDBs and BABs issued by tribal governments, it would really help the tribes finance all sorts of developments on their land, by reducing the interest rates they would need to pay on their bonds by as much as 4% or 5% per year. "
Catherine Holmes, Hotel Attorney: What should tribal governments do if they want to be ready to take advantage of TEDBs and BABs financing in 2009 and 2010?
"Most importantly, tribes need to understand that they will still have to find private investors to buy TEDBs and BABs for their projects, so they have to have projects that will provide sufficient cash flow to repay the investors. To do this, tribes need to work with a team of experienced consultants who can help them develop projections of cash flow for their projects, and engage qualified operators for their projects. For example, tribes that want to develop hotels on their tribal land should hire experts to help them select and retain name-brand hotel operators.This will give investors confidence that the hotel will be run efficiently, with a good reservation system and at the brand's established quality standards. If the tribes work with experienced consultants who know tribal finance and know hotel development and operation, they will have the best chance of being ready to issue TEDBs and BABs when the new regulations are issued, and the best chance of attracting outside investors for their projects."
Catherine DeBono Holmes is a partner in JMBM's Corporate Department and a senior member of JMBM's Global Hospitality Group® -- a team of 50 seasoned professionals with more than $50 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. Cathy assists hotel clients with hotel management and franchise agreements, purchase and sale transactions, and condo hotel regime structuring. She has taken hotel owners through complex RFP processes involving all the major hotel brands.
She has significant expertise in condo hotels and advises clients in the specific business and legal aspects of condo hotel regime structuring and documentation, including CC&Rs, HOA docs, unit management agreements, shared facilities agreements, rental management agreement programs and securities compliance matters (structuring, documentation and training). To access Cathy's articles on www.HotelLawBlog.com, click on the topics "Condo Hotels" or "Green Hotels" For more information, please contact Cathy Holmes at 310.201.3553 or cholmes@jmbm.com.
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $50 billion of hotel transactions and more than 100 hotel mixed-used deals in the last 5 years alone. Who's your hotel lawyer?
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Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $50 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.
Jim Butler is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" or "hotel mixed-use" or "condo hotel lawyer" and you will see why.
Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM's Global Hospitality Group® -- a team of 50 seasoned professionals with more than $50 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, Jim and his team have assisted clients with more than 100 hotel mixed-use projects -- frequently integrated with energizing lifestyle elements.
Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.
Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.
