Hotel Law Blog

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
18 June 2013

Hotel Lawyers on EB-5 issues.One of the most critical elements in structuring an EB-5 offering to finance a hotel development is making sure the project will generate enough direct and indirect jobs. Because more than 90% of the EB-5 visas are at the $500,000 investment level, that means a developer needs 10 jobs for every $500,000 of EB-5 investment. And most EB-5 investors would like to see a safety margin in case the project does not perform quite as well as hoped, so maybe you need 12 jobs for every $500,000. At that rate you need 240 jobs to support a $10 million EB-5 investment. [If this is not familiar territory for you, see the list of articles below.]

In calculating the number of jobs created, one important question is: When do you measure the hotel's economic performance levels for job creation? The USCIS has approved economic models for calculating indirect job creation that use the revenues of hotel operation as one of the indicators of indirect job creation. And it makes a big difference if you run your calculations as the hotel is just beginning to ramp up operations or whether you can use the stabilized operating results.

That's the issue Catherine Holmes and Victor Shum take on today. 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 stabilized hotel revenues for determining
job creation from new hotel development

by
Catherine DeBono Holmes and Victor T. Shum

USCIS has challenged EB-5 financing for hotel projects that rely on stabilized revenues as the basis for determining job creation.

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 rely on the revenues anticipated to be generated after the second or third year of hotel operation, instead of the revenues generated in the first or second years of hotel operation. In the hotel industry, a new hotel's future value is based on its anticipated "stabilized revenues," meaning revenues anticipated after the first two or three years of hotel operation.

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Posted In: EB-5 Financing , Hotel Development , Hotel Finance − Hotel Debt & Hotel Equity

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

by
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.

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Posted In: EB-5 Financing , Hotel Development

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
9 May 2013

Hotel Lawyers on EB-5 issues.The California governor's office has just taken action that will make California much more competitive with New York and other states in seeking foreign investment capital to create jobs and facilitate construction financing for hotels and other projects.

Here is the latest from Catherine Holmes and Victor Shum, 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

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Posted In: EB-5 Financing , Hotel Development , Hotel Finance − Hotel Debt & Hotel Equity

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
12 March 2013

Hotel Lawyers on EB-5 issues.

Last month, the EB-5 investment community was shocked by the SEC enforcement action against the Intercontinental Regional Center Trust of Chicago, alleging that the sale of $145 million of EB-5 investments intended to be used to fund a huge convention center and hotel complex near Chicago O'Hare Airport, was a complete fraud.

This is an event that that has the potential to threaten the integrity of the EB-5 investment market, which over the past two years has gained acceptance among main stream hotel developers as an important source of alternative financing.

My partners, Catherine Holmes and Victor Shum, together with Angelique Brunner, a well-known EB-5 regional center operator, have offered their views on how the EB-5 investment market can be protected through prudent efforts on the part of regional center owners and developers.

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Posted In: EB-5 Financing

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com14 February 2014

Hotel Lawyer in the Wall Street Journal on EB-5 financing for hotels

Over the past 2 years, we have released a number of articles here at www.HotelLawyer.com (and Hotel Law Blog) about the EB-5 Immigrant Investor Visa Program and how it has become a viable capital source for hotel development. Currently, the hotel lawyers at JMBM's Global Hospitality Group® have worked on more than 40 EB-5 projects all over the country, the largest portion of which involve hotel development.

We have said for some time that EB-5 financing has gone mainstream and is being used by institutional players. This seems to be further confirmed by The Wall Street Journal's February 12, 2013 article, Closed Casino Banks on U.S. Program written by Alexandra Berzon and Kris Hudson. My team and I were pleased to provide some information to the authors, and to be included in the article as follows:

"The EB-5 program has been around since the early 1990s, but its use is now increasing because more-traditional forms of financing are more difficult to obtain. Hotels, in particular, are popular choices for EB-5 investors because they most often produce the targeted number of jobs needed--in desk attendants, housekeepers, valets and managers--for the investor to keep their visas, according to Jim Butler, a partner in Los Angeles law firm Jeffer, Mangels, Butler & Mitchell LLP, which advises hoteliers on EB-5 financing."

We don't need to remind developers that traditional construction financing is difficult to find, and many of them have already discovered EB-5 financing to be a legitimate source of capital for their hotel developments around the country. But if you are new to the requirements or practical application of EB-5 financing, you need to understand how to meet specific government requirements. This is in addition to meeting the expectations of your foreign investors.

How to find out if EB-5 financing could work for your hotel development project

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Posted In: EB-5 Financing

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
19 January 2013

Hotel Lawyer with some practical advice on how to avoid SEC problems with your EB-5 financing activities.

EB-5 financing has gone mainstream. If you are developing any new ground up construction project, you have probably looked at using EB-5, and may be underway.

Today, two of our hotel lawyers explain why EB-5 offerings may bring inadvertent broker dealer registration violations by regional centers, developers and other US persons involved in EB-5 financings.

More importantly, they give some practical advice on how to effectively take advantage of the exemptions from the somewhat troublesome broker dealer registration requirements.

A practical guide to

compliance with U.S. securities broker-dealer laws for

regional centers and project developers using EB-5 financing

by
Catherine DeBono Holmes and Victor T. Shum

Senior members of JMBM's Global Hospitality Group®

Are regional centers really required to register as broker-dealers under U.S. securities laws?

Recent articles have suggested that every United States Citizenship and Immigration Services ("USCIS")-approved regional center which pools foreign investor funds for EB-5 investment offerings sold to foreign investors may be required to register as securities broker-dealers under U.S. securities laws. In addition, it has been suggested that the principals or employees of regional centers must be registered as licensed "associated persons" of a securities broker-dealer under U.S. securities laws.

Many people do not realize that even if the offering of EB-5 investment securities is exempt from registration under U.S. securities laws, every person who sells EB-5 investments is still subject to the requirements for broker-dealer registration or exemption. We agree that it is extremely important to conduct EB-5 investment offerings in compliance with all applicable securities laws, but we believe there are better ways of complying without registration as a broker-dealer. In this article, we will answer some of the most frequently asked questions we receive from our clients using EB-5 financing for their projects, and offer some practical guidelines for regional centers and project developers to conduct EB-5 investment offerings in compliance with the regulations and policies of the Securities and Exchange Commission ("SEC").

Do broker-dealer registration requirements apply to EB-5 offerings that are exempt from U.S. securities laws?

Yes. Many people do not realize that even if the offering of EB-5 investment securities is exempt from registration under U.S. securities laws, every person who sells EB-5 investments is still subject to the requirements for broker-dealer registration or exemption. In this article, we are focused on the SEC registration requirements and exemptions that apply to people engaged in the sale of EB-5 investments, whether they are selling here in the U.S. or outside the U.S. There are also state laws that apply to registration of broker-dealers, but for securities offerings that take place in more than one state, federal laws and regulations are primary, and we therefore focus on federal requirements in this article.

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Posted In: EB-5 Financing

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
10 January 2013

Hotel Lawyer with answers to your questions about using EB-5 financing to buy a hotel or renovate it.

EB-5 has been very popular in the last few years for hotel development because there is still very little traditional financing available, and the EB-5 financing market has provided a much needed source of new financing to hotel developers around the country. As one of the most experienced firms in the country on matters involving both hotels and the use of EB-5 financing, we receive frequent inquiries from hotel purchasers asking if they can use EB-5 financing for the acquisition of existing hotels, in addition to the construction of new hotels or new facilities at existing hotels (e.g. a new hotel tower, a spa, or a restaurant).

So I asked my partner Catherine Holmes to put together, in a Q & A format, the most frequently asked questions on this topic. And here it is.

Can I use the EB-5 Visa Program for financing
hotel acquisition and renovation?

by
Catherine DeBono Holmes | Hotel Lawyer

QUESTION: Can I use EB-5 financing to buy an existing, operating hotel?

ANSWER: Generally, NO. An EB-5 investment must create a minimum of 10 NEW jobs for each investor. Jobs that already exit at a hotel that is open and operating when a buyer purchases the hotel are not considered new jobs. Therefore, for most purchases of an existing and operating hotel, EB-5 financing is not available as a source of funds for the purchase. There are, however, a few exceptions to that general rule, which we will discuss below.

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Posted In: Buying and Selling a Hotel , EB-5 Financing

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
14 September 2012

Hotel Lawyer with some good news from Washington, DC. With the continuous flow of depressing news from Washington, it is nice to see some good news for a change. And that is what we got yesterday on the EB-5 front.

Here is the latest update on the developments.

EB-5 Alert: Congress approves 3 year extension for regional centers
by
Jim Butler, Catherine Holmes and Victor T. Shum | Hotel Lawyers

EB-5 program regional centers have been re-authorized until 2015.

EB-5 regional centers play an important role in raising EB-5 financing for new hotel development, and there has been some concern among investors and project developers that the federal regulations authorizing EB-5 regional centers were set to expire on September 30, 2012. We have been expecting that this portion of the EB-5 program would be reauthorized for some time, but we are now able to announce that an important step in the reauthorization has now been accomplished. Yesterday, the U.S. House of Representatives passed S. 3245 (412-3) - which includes a three year re-authorization of the EB-5 Regional Center Program through September 2015. The U.S. Senate previously approved the reauthorization on August 2, and the bill will now be submitted to President Obama for signature. His approval is expected.

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Posted In: EB-5 Financing

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
9 September 2012

Hotel Lawyers: EB-5 financing is gaining widespread recognition and institutional approval

We have been telling our friends and clients for some several years that EB-5 financing is "real" and legitimate. And we have been helping developers take advantage of this opportunity where appropriate.

Although it has been around since 1990, it is only in just the past few years that EB-5 financing has really taken off in terms of financing hotel development. In the past 18 months, developers for Marriott, Hilton, Hyatt and Starwood have used EB-5 financing. In July, FelCor Lodging Trust announced that is using EB-5 to raise $45 million through EB-5 as part of its capital for a planned $230 million redevelopment of the Knickerbocker Hotel in Times Square. And Marriott has endorsed the program for developers in at least 14 projects including downtown Seattle, downtown Milwaukee, a Courtyard by Marriott in Midtown Manhattan and a $168 million dual branded Marriott near the Staples Center in Los Angeles.

In other words, in a very short time EB-5 financing for hotel development has moved from obscurity to the limelight, from summer stock to Broadway, from Little League to the Majors, from somewhat eclectic to institutional mainstream. We expect it to continue growing in importance and public profile for some time to come. It is not too late to take advantage of EB-5 financing for hotel development.

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Posted In: EB-5 Financing

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
29 August 2012

JMBM's Chinese Investment Group™ has been very busy the past few years. Our team of lawyers represents the interests of Chinese investors who are purchasing or building hotels in the United States. We also represent hotel developers seeking to take advantage of the inbound foreign investment to capitalize their projects -- whether through the EB-5 investment program or foreign direct investment.

In the EB-5 area alone, we have worked on more than 40 projects under the EB-5 investment visa program throughout the U.S., most of which are projects made possible with Chinese investment capital.

Here is a recap of some current events involving our Chinese Investment Group™ and Chinese investors.

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Posted In: Chinese Investment , EB-5 Financing