25 July 2014
EB-5 financing has gone mainstream for hotel development
The use of EB-5 financing has exploded over the past 3 years as an important funding source for new hotel development. It is clearly now part of the “mainstream” being used with great success by increasingly institutional companies. Marriott was among the earliest advocates for the program and has used it for many high profile hotels such as the Ritz-Carlton/JW Marriott and Marriott Courtyard/Residence Inn hotels in DTLA. But more recently, other major brands have come on board and encourage developer use of EB-5 financing.
As lawyers who have worked on more than 60 EB-5 projects all over the country, we have noticed that everyone who investigates EB-5 financing wants answers to 5 big questions about the EB-5 financing opportunity for their project. It should come as no surprise that most of our EB-5 projects involve financing for new hotel development, because hotels are the most popular type of project for EB-5 investors and we have one of the most prominent hotel law practices in the world. However, our team has also successfully used EB-5 financing for a number of non-hotel projects including senior living, restaurants and solar farms.
The 5 questions every hotel developer is asking
about EB-5 financing
Jim Butler and Jonathan Bloch
In seeking to access EB-5 financing, our developer clients have asked a lot of questions, but most of them can really be summed up in the following 5 questions:
1. Will EB-5 work for me on my project?
2. How much money can I get?
3. How much will it cost?
4. How long will it take?
5. How can I get certainty of execution?
Exactly what does JMBM do for preferred developers seeking EB-5 financing?
For all developer clients, we provide legal and business advice to determine the answers to these 5 big questions (for the developer and their projects), and act as Counselors to guide our clients through the entire EB-5 process. Exactly what we do depends upon whether our client can qualify for “preferred” status which we will discuss in another article.
For developers and projects that qualify for “preferred” status, we can usually assist in sourcing EB-5 capital along with the following critical items:
- Source EB-5 funding
- Evaluate EB-5 threshold feasibility
- Optimize developer profile and project structure
- Assemble the right “EB-5″ team with best players
- Help size and structure the capital stack
- Negotiate optimal deal terms with current input on what is “market”
- Negotiate and finalize funding documents with capital source
- Validate EB-5 funding strategy
- Oversee issues in the capital raising process
- Close the financing
As the developer’s Counselor, we negotiate a fairly complex loan or preferred equity transaction in a regulatory environment that requires compliance with USCIS, SEC, & FINRA. This process also necessitates identifying, selecting, negotiating and coordinating with an immigration law firm, an economist, various hotel consultants and several Regional Centers to get your loan properly sized and documented.
As part of the financing process, for each EB 5 financing project we work with each client and appropriate members of the EB-5 team to do the following:
- Obtain a TEA map and letter of authorization from an economist
- Manage “new job count” issues for direct, indirect, and induced jobs to ensure compliance with EB-5 requirements of the USCIS to support the size of your EB-5 financing
- Assist in developing the proper business plan for your project
- Verify calculations from the economist and regional center and strategize best way to maximize loan size and terms for the developer
- Drive loan sizing and capital stack position
- Negotiate loan commitment and loan documents that reflect proper collateral, have appropriate escrow release provisions and security so terms will be acceptable to both the developer and to traditional construction lenders who may be in a senior lien position
- Negotiate and finalize inter-creditor agreements, escrow agreements, completion guarantees, various security agreements (depending upon collateral provided by the developer), and other related financing documents
Other articles on EB-5 Financing
To access other articles on EB-5 financing, go to www.HotelLawyer.com, scroll down the right-hand side under LEARN MORE ABOUT and click on “EB-5 Financing.” For your convenience, here are a few popular EB-5 articles that may be of interest:
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $68 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who’s your hotel lawyer?
Our Perspective. We represent hotel owners, developers and investors. We have helped our clients find business and legal solutions for more than $68 billion of hotel transactions, involving more than 1,500 properties all over the world. For more information, please contact Jim Butler at firstname.lastname@example.org or +1 (310) 201-3526. Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why. 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.