Articles Posted in Hotel Development

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08 August 2016

Click here for the latest articles on EB-5 Financing. 

A primer on EB-5 and key issues in its renewal
 

What is the EB-5 Immigrant Investor Visa Program?

The EB-5 immigrant investment visa program provides a “fast track” to obtain permanent U.S. residency (a “green card”) to qualified foreign investors who satisfy specified requirements, including investing at least $500,000 in a U.S. enterprise or project that creates at least 10 new permanent jobs for U.S. citizens, and otherwise comply with the immigration visa process.

The regional center pilot program

In addition to the basic permanent EB-5 legislation, a “pilot program” regarding Regional Centers (or RCs) was adopted in 1992. Although it has never lapsed, the Regional Center provisions have typically been renewed for relatively short periods (e.g. 1 to 5 years). The current authorizing legislation for this Regional Center aspect of the program is set to expire or “sunset” September 30, 2016.

Before the Regional Center pilot program expired last year in September, a bi-partisan effort in both houses of Congress worked with industry leaders to propose legislation with a broad consensus of stakeholders that would have addressed a full range of issues concerning the EB-5 program. But at the proverbial 11th hour, Congress dropped the comprehensive reform and decided to renew the existing law (without change) for 12 months (expiring September 30, 2016).

Now that the sunset date is approaching again, many stakeholders in the EB-5 process are working with Congress for a better and longer-lasting resolution of the EB-5 issues.

none of the experts we talk to believe that the EB-5 program will be allowed to lapse

Some of the proposals to revise EB-5

Although a review of last year’s drafts of legislation may be helpful in understanding the “big picture issues,” the political environment is different this year, particularly with election-year dynamics. It is too early to predict what approaches and proposals will succeed, but there is almost universal belief that a workable resolution will be achieved for all legitimate stakeholders. Some of the major proposals are listed below.

JMBM’s EB-5 Financing team follows these developments closely, and you should talk with us to get the latest update.

  • How long should the re-authorization last? After almost 25 years, hasn’t the Pilot Program shown results justifying making it permanent or doing away with it? Why is it permitted to become a political football every year or two? Why does it need to come up for renewal?
  • What is the required investment for an EB-5 visa applicant? Currently the minimum investment is $500,000, and more than 90% of all EB-5 visa immigrants have qualified for this amount. Only 10% have used the $1 million investment level. Should one or both investment levels be raised (e.g. to $800,000 and $1.2 million)? Should there just be one level of investment? Should the difference between the lowest and highest investment requirements be reduced?
  • What does it take to qualify for the lowest investment requirement? Currently, only projects in Targeted Employment Areas or “TEAs” (rural locations or areas with high unemployment equal to 150% or more of national unemployment levels) qualify for the lower investment of $500,000. Should rural areas be more strictly defined? Should national standards be imposed to replace the current state-by-state approach to TEA designation based on unemployment? What should those standards be?
  • How do you calculate job creation? To obtain an EB-5 visa, each investor must invest the required minimum and that investment must create at least 10 new permanent jobs. Certainly it is easy to calculate the number of direct employees — those with W-2s, but what else counts? Construction jobs? Indirect and induced jobs (not direct or W-2 employees but workers servicing the project such as an outside laundry service for a hotel, the window washers for the building, the workers in the restaurants and retailers who reside in the project). Currently, indirect and induced jobs can be included in the job count when calculated by one of the four established USCIS-approved formulas – should this approach be changed? Should the job count requirement be changed?
  • How many visas should the program permit and how do you count them? Is the current 10,000 EB-5 visas per year the right amount or should it be increased? Should any of those visas be set aside or earmarked for certain projects such as projects in rural areas of public infrastructure? Should the permitted number of visas (10,000 or whatever it may be changed to) count only the EB-5 investors, or should it include the investor’s spouse and minor children? Should unused EB-5 visa allocations accumulate from year to year or be spread amongst all employment based immigration programs?
  • Should something be done about the “aging out” problem? Is it appropriate to exclude minor children from the benefits of EB-5 when they exceed the age of minority because of long delays — up to several years — by the U.S. immigration service in processing the visas?
  • Should Regional Centers be charged an annual fee? Should there be an annual fee for a Regional Center to retain its designation? Should that be $25,000, $50,000 or some other number? Do we want to discourage inactive RCs and those who just “bought a charter” for speculation with no intention to use it for the intended purpose? What should these fees, if any, pay for?
  • Should there be more Federal oversight? Proposals in this area have included greater reporting, oversight and involvement by a host of federal government agencies such as the SEC, FBI, NSA, and Homeland Security. Such proposals also generally include civil and criminal penalties for noncompliance. Nobody in the EB-5 industry favors fraud or terrorism, but is there really enough of a problem to warrant this attention? Aren’t current laws adequate? Could this be over-regulation?

These 8 broad areas of inquiry about the EB-5 program are worth discussing and, in fact, have been discussed at length for some time. (See our December 8, 2015 blog for changes that almost went into effect in 2016.)

Time to evaluate the right EB-5 strategy for you?

We have a lot of practical experience in helping our developer clients raise EB-5 funding. If you would like some help to evaluate whether EB-5 could work for you, or what strategy is best for you, then give us a call. There is no cost for an initial discussion.

Jim Butler, +1-310-201-3526 or jbutler@jmbm.com

David Sudeck, +1-310-201-3518 or dsudeck@jmbm.com

 

Other articles on EB-5 Financing

To access our rich library of 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:

EB-5 funding for new development: JMBM has closed more than $1.5 billion of EB-5 financing.

EB-5 extended without change: President Donald Trump signs bill

What’s happening with EB-5 financing for new development projects? Is it still available?

JMBM’s “preferred” EB-5 construction financing program for top developers and projects.

FAQs about EB-5 project financing for new hotel development

Hotel development & EB-5 financing: Why you don’t want to form your own regional center

Financing hotel development today: The 5 questions every hotel developer is asking about EB-5 financing

Picture of Jim Butler
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer. We represent hotel owners, developers and investors. We have helped our clients find business and legal solutions for more than $125 billion of hotel transactions, involving more than 4,700 hotels. As of January 31, 2017, we have closed more than $1.5 billion of EB-5 financing for our clients’ projects, and sourced most of that. I invite you to contact me to explore how our experience and resources might help you accomplish your goals. 310.201-3526 or jbutler@jmbm.com
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Patrick Hogan, CEO of CMB Regional Centers, speaks with David Sudeck, senior member of JMBM’s Global Hospitality Group® at JMBM’s 2016 Meet the Money® – the national hotel finance and investment conference. They discuss the evolution of the EB-5 Immigrant Investment Visa Program, indirect jobs, completion guarantees, and taking care of the investor.

A transcript follows the video. See other videos in this series on the Jeffer Mangels YouTube channel.

David Sudeck: Hi, I’m David Sudeck, I’m here at the 26th annual Meet the Money® Conference with Pat Hogan, CEO of CMB Regional Centers. Welcome Pat. And thanks again for participating this year. You were on stage earlier on the CEO panel and you did a fantastic job.

Patrick Hogan: Well thank you, I’m pretty excited to be here. It’s an interesting group of people.

David Sudeck: EB-5 is hot right now. I was wondering if you could tell us a little bit about the roots of CMB, how things have changed from the 1990s to today, and what you see as your current platform.

Patrick Hogan: We started in 1994, before regional centers were ever involved.

The EB-5 program is actually a permanent program. Most people don’t know that because everybody does business with the regional center. But I started in 1997, getting my first regional center, and we actually got an approval in the year 2000. But as you know, fraud crept into that particular program and I just couldn’t take it anymore. It wasn’t really a business at that point in time. So I just said, “Okay, I quit, and until Congress can put some reforms through, I don’t want to do it anymore.”

David Sudeck: So you were pushing for regulation?

Patrick Hogan: Yes, even back then. So, fast forward to today – and we’ve been rocked with all kinds of scandals and things like that within EB-5 – which you would expect. Because if you go back to 2007 there were eleven regional centers, and maybe five of us doing something. And then to go to today where you have 800 regional centers – there’s bound to be some individuals that don’t have a clue.

David Sudeck: Do you have any sense as to how many of those 800 actually do business of any kind? CONTINUE READING →

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18 December 2015

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Hotel lawyer with great news for developers: the EB-5 immigrant visa financing program has been renewed — approved by Congress and signed by the President. It is being continued without change through September 30, 2016.

JMBM’s team has closed more than $1.5 billion of EB-5 financing and sourced more than half of that for our clients

A funny thing happened on the way to the 2016 Federal budget approval last week. One of the “riders” to the omnibus appropriations bill was the EB-5 legislation sponsored by Senators Leahy and Grassley. For months preceding the scheduled Congressional action, many stakeholders in the EB-5 industry spent untold hours in negotiating complex provisions to deal with certain concerns regarding the program. These negotiations resulted in multiple drafts of the proposed legislation being exchanged between Congressional staff and industry leaders, with the “final” draft receiving the unanimous approval of the trade organization for regional centers, the Invest in the USA or IIUSA. It was a good compromise on many knotty issues.

Then at the proverbial 11th hour . . . on Wednesday, December 16, the elaborate “final” compromise proposal was jettisoned in favor of a simple extension of the expiration date for the Regional Center program to September 30, 2016, without any other changes to the program.

The EB-5 regional center program is extended without any other changes.

Yes. That is right. After all the discussions and proposals, THE ONLY CHANGE IN THE LAW IS AN EXTENSION OF THE EFFECTIVE DATE FOR THE PROGRAM THROUGH NEXT YEAR.

Now, as the program has been renewed without a single change, lenders and foreign investors are now rushing to fill the pipeline again. And it is much more desirable to be at the front of the line, rather than at the back of the line.

Nothing was done about any other issues, including the following: CONTINUE READING →

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23 November 2015

As the biggest merger in the history of the hospitality industry,  the Marriott-Starwood merger, is grabbing headlines worldwide. Most of the recent press has focused on the sheer size of the potential transaction. But in his article below, my partner and hotel lawyer Bob Braun, considers the practical impact of the merger on hotel owners, franchisees and developers. With the loss of the Starwood family of brands as an independent and significant competitive force in the industry, the merger will bring mixed blessings to stakeholders.

The Marriott-Starwood merger – Is bigger really better?
Impact of the merger on hotel owners, franchisees and developers
by
Robert E. Braun | Hotel Lawyer
The proposed merger between Marriott and Starwood will, by all accounts, create a behemoth in the hotel industry. If the merger goes through as planned, the combined company will be the world’s largest hotel company, with more than 5,500 hotels under management or franchise, 1.1 million hotel rooms around the world, 30 hotel brands and up to 75 million hotel loyalty members.

While commentators have speculated as to whether the combined entity will benefit consumers, stockholders or frequent guests, little has been said about how it could impact hotel owners, franchisees and developers currently in either of the brand families or looking to them in the future. No one will really know until after the merger (if it is, in fact consummated, and there are a variety of hurdles to closing such a complex transaction), but the JMBM Global Hospitality Group has negotiated many hundreds of franchise agreements, including agreements with virtually every major hotel brand, and we believe hotel owners should consider a few important factors:

Will Owners Have Fewer Choices? The first, and most obvious, impact on any potential owner is that the field has been reduced by a significant player. Thirty brands (31, if we include the new Grand Sheraton brand) may remain, but in fact they will be operated by a single entity, and that entity will decide on what brands will be available in a given market. Moreover, the differences between particular brands in a given price or quality segment are likely to be reduced. How long, for example, will Sheraton or Le Meridien hotels be markedly different from Marriott or Renaissance properties? Where will they be positioned relative to other brands in the new combined family?

Any hotel owner, franchisee or investor should also recognize that the Marriott-Starwood merger might only be the first of its kind. Many analysts predict that other brands will merge to create the size and influence that will allow them better to compete with the largest hotel branding company in the world. If that happens – and transactions like this seem to occur in bunches – owners will have even fewer choices.

Will Owners Have Reduced Leverage? The immediate corollary to fewer choices is reduced leverage. A hotel owner will no longer be able to create a competition between two of the largest players in the business; Marriott/Starwood is unlikely to bid against itself for management or franchise opportunities.

This challenge is likely to extend beyond just the merger of Marriott and Starwood. Other major brands – Intercontinental Hotel Group, Hilton Hotels, Hyatt Hotels to name a few – will have greater bargaining power when negotiating with owners because there will simply be fewer competing companies.

Will Hotel Companies be Less Flexible? A common concern among hotel owners is the desire for their brands to acknowledge the unique qualities of each property. While some franchised or branded businesses can achieve a high degree of uniformity, hotels are special, and hotel owners need brands to recognize that. As much as brands strive to create a consistent experience at all properties operating under the same name, local differences – whether it be location, common amenities, zoning, legal restrictions, competition or otherwise – have to be addressed. But larger companies have greater reasons to increase efficiency and reduce variations between different properties, and hotel owners may have difficulty ensuring that local needs are met.

Will New Players Step Into the Breach? At the same time, it may be possible for new, smaller and more nimble brands to make inroads in this market. If there is less differentiation between different flags, if the larger players are less flexible, the smaller players may find inroads and opportunities that are closed to them now. It’s even possible that Marriott-Starwood may choose to shed some brands, for antitrust or business reasons, giving rise to new competition.

The JMBM Global Hospitality Group® believes that hotel owners should be mindful of these concerns when considering their branding opportunities, and when negotiating with brands. Our practice focuses on leveling the playing field between brands and owners, and creating a lasting, functional relationship between them. While this merger may lead to a new set of rules for the road, we are ready to help our clients understand the new realities navigate the new landscape.

CONTINUE READING →

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09 September 2015

Click here for the latest articles on EB-5 Financing. 

Editor’s note: The EB-5 program has been renewed! Congress completely shelved all the proposals discussed below, and instead decided to continue the program, without any change, through September 15, 2016. 

For the current status of the EB-5 financing program, see “EB-5 Immigrant Visa program extension signed into law — without any changes. EB-5 financing continues for new development projects.“

EB-5 is at a critical renewal point

The next 3 weeks are going to be crucial for the EB-5 industry as the current legislation sunsets on September 30, 2015. While the consensus is that this important program will be renewed, and perhaps made permanent, there are lots of currents circulating about possible changes in the program.

We want to share with you some keen insights we recently received.

EB-5 update and insights from an industry insider

Below is the full text of a letter recently sent to industry colleagues by Pat Hogan, President, CMB. Pat is one of the leading proponents of EB-5, and is also a founder and board member of the IIUSA (Invest In the USA) which is the national industry trade association for the EB-5 Regional Center Program.

Greetings,

I wanted to share my thoughts with you after having recently visited no less than 60 Congressional and Senatorial offices within the last 40 days. I also just attended the American Immigration Lawyers Association (AILA) EB-5 Investors Summit this past weekend in Las Vegas.

CONTINUE READING →

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24 June 2015

Bill Sipple, Executive Managing Director of HVS Capital, speaks in the video below about activity in different markets, limited service properties, and whether rising interest rates will have an effect on transactional activity.

Bill sat down with Bob Braun, a senior partner in the JMBM Global Hospitality Group®, as part of our video interview series on hotel finance and investment opportunities in 2015.

A transcript follows the video.

Bill Sipple discusses hospitality market activity and interest rates - Meet the Money® conference

Bob Braun: Hi, I’m Bob Braun. I am a Partner at Jeffer Mangels Butler & Mitchell. I’m here at Meet the Money® 2015, our 25th anniversary. I’m here with Bill Sipple, who is the Executive Managing Director of HVS Capital. Bill, thanks for coming by and talking with us.

Bill Sipple: It’s good to be here, thanks. CONTINUE READING →

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23 June 2015

Jack Westergom, Managing Director of Manhattan Hospitality Advisors, discusses hotel operating agreements, asset management, and the RFP process in the video below.

Jack spoke with David Sudeck, a senior partner in the JMBM Global Hospitality Group®, as part of our video interview series on hotel finance and investment opportunities in 2015.

A transcript follows the video.

Jack Westergom discusses hotel operating agreements, asset management and cycles - Meet the Money®

David Sudeck: I’m David Sudeck. I’m a senior attorney with Global Hospitality Group® at Jeffer Mangels Butler & Mitchell. We’re here at the 25th Annual Meet the Money® Conference. I’m here with Jack Westergom, Managing Director of Manhattan Hospitality Advisors. Welcome.

Jack Westergom: Thank you. CONTINUE READING →

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22 June 2015

Vail Brown, Vice President of STR, discusses all-time highs in the hospitality market for multiple metrics, her predictions for the next few years, and STR’s expansion into food and beverage analysis in the following video.

Vail spoke with David Sudeck, a senior partner in the JMBM Global Hospitality Group®, as part of our video interview series on hotel finance and investment opportunities in 2015.

A transcript follows the video below.

Vail Brown discusses all-time highs in hotel supply growth, and other metrics - Meet the Money®

David Sudeck: I’m David Sudeck, I’m with Jeffer Mangels Global Hospitality Group. We’re here at the 2015 Meet the Money® Conference, which is the 25th Annual Meet the Money® Conference. We’re with Vail Brown, Vice President of STR. Welcome.

Vail Brown: Thank you. CONTINUE READING →

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19 June 2015

Stephen Rushmore, Jr., President and CEO of HVS, speaks in the video below about hotel values in the next few years, new development, and brand proliferation.

Stephen spoke with David Sudeck, a senior partner in the JMBM Global Hospitality Group®, as part of our video interview series on hotel finance and investment opportunities in 2015.

A transcript follows the video.

Stephen Rushmore, Jr. talks about hotel values and brand proliferation - Meet the Money®

David Sudeck: We are at the 25th Annual Meet the Money® Conference 2015. I am happy to be here with Stephen Rushmore, President and CEO of HVS. Welcome, Stephen.

Stephen Rushmore, Jr.: Good to be here. Thanks. CONTINUE READING →

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16 June 2015

Don Li, head of Asia Investment for Interstate Hotels, speaks in the video below about what drives Chinese investment in U.S. assets, why an understanding of language and cultural issues is important, and what types of hotels foreign investors are looking for.

Don sat down with David Sudeck, a senior partner in the JMBM Global Hospitality Group®, as part of our video interview series on hotel finance and investment opportunities in 2015.

A transcript follows the video.

Don Li discusses Chinese investment in U.S. hotels - Meet the Money®

David Sudeck: I’m David Sudeck. I’m a partner with JMBM’s Global Hospitality Group®. We’re here at the 2015 Meet the Money® Conference which is the 25th Annual Meet the Money® Conference. Thank you for joining us. I’m here with Don Li, the head of Asia Investment for Interstate Hotels.

Don Li: Yes. Thank you. CONTINUE READING →

Contact Information
Jim Butler, Chairman
Global Hospitality Group®
Jeffer Mangels Butler & Mitchell LLP
(310) 201-3526 • jbutler@jmbm.com
www.HotelLawyer.com

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