EB-5 Financing: Use of stabilized hotel revenues for determining job creation from new hotel development.
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 our EB-5 team takes on today. Our EB-5 team assists clients with the following:
- 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
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.