Articles Posted in Hotel Finance − Hotel Debt & Hotel Equity

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12 December 2016

EB-5 financing for developers extended. Obama signs “Continuing Resolution”

On December 9, 2016, President Obama signed the “Continuing Resolution” passed by Congress to extend funding of the federal government until April 28, 2017, by which time it is expected that Congress will have approved a budget for the full fiscal year.

EB-5 Regional Center program also extended to April 28, 2017

As with several prior budget extensions, the Continuing Resolution included an extension of the EB-5 program’s Regional Center provisions, validating expectations of industry experts.

This means that developers who followed our advice to “get in line” with their projects last fall (when some concerns over EB-5 renewal were raised) have either raised their EB-5 capital by now or should have plenty of time to do so before the current extension signed by President Obama runs out next April.

Why NOW may be the best time for developers to start EB-5 financing

Developers who followed our advice last fall have been well served. On August 16, 2016, we published a blog article entitled “Why NOW may be the best time for developers to start EB-5 financing.” We feel the same way today.

In our earlier article, we warned that there is always some uncertainty in predicting what Congress will do. However, all people that we know who are knowledgeable about the EB-5 program and the political environment believe that EB-5 will be renewed and continued in a viable form. Some developers are uncomfortable with the uncertainty created by short-term legislative sunsets on the extensions, and on accepting predictions that Congress will continue the program we have maintained since 1992 — almost 25 years. These developers want to wait until everything has settled down and has more certainty.

We believe the “wait and see” approach is a mistake for many developers — particularly those who are ready to start construction now. Here is why: CONTINUE READING →

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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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Alan Reay, President of Atlas Hospitality Group, speaks with Robert Braun, 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 California hotel market including sales and purchases, pricing, RevPAR, financing, and the impact of the Marriott/Starwood merger and Airbnb.

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

Bob Braun: I’m with Alan Reay of Atlas Hospitality. He’s the foremost hotel broker in California, I’d say. At least that’s what I tell my clients, and I’ve always been proved right. Alan, thanks very much for coming and talking to us today. I think you have your pulse on the market, certainly here in California, more than possibly anyone else. What do you see in the hotel market today? What kind of trends do you see?

Alan Reay: During the first quarter we’ve definitely seen a big drop off in sales in California. In the U.S., down 52%; in California, down 35%; that really has nothing to do with the economic fundamentals, because RevPARs are still increasing, profits are up and a lot of the numbers are positive throughout California. It has been a fundamental shift from a buyer’s sentiment in terms of how they’re looking at deals and how they’re pricing them. We had a lot of turmoil in the public markets, as you know, in the first few months of 2016, and a lot of REITs have pulled out of the market, and a lot of lenders have pulled out of the market. So that’s created a disconnect between what buyers and sellers expectations are on pricing, which in turn has created a big drop in hotel sales volume.

Bob Braun: Now do you think this creates an opportunity for people? Or is the lack of lending and the lack of interest something that’s just going to continue through the rest of the year? CONTINUE READING →

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Tom Corcoran, Chairman of the Board of FelCor Lodging Trust, 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 “rational debt,” redevelopment opportunities, and the evolution of FelCor.

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

David Sudeck: I’m David Sudeck, I’m at the 26th annual Meet the Money® conference with Tom Corcoran, the founder of FelCor Lodging Trust. Thank you for joining us. You just got off your panel and you did a great job, so thank you for that. I wanted to hear about in this uncertain time, 2016, where you see us in the market at this point and how it may differ from 2015.

Tom Corcoran: Actually, I think it’s going to be a lot like ’15. I think ’16 and ’15 are going to be very similar. I think we’re going to continue to have positive RevPAR above the GDP and so I think it makes a lot of sense to me that the industry remains very strong; robust. There’s some clouds out there, people are trying to say there’s a storm coming, and I just don’t happen to believe there is. I think those clouds are artificially made up and aren’t really in the real world.

David Sudeck: My experience is some of our lender clients are pulling back in terms of the provisions, particularly of construction lending.

Tom Corcoran: Yeah, I think that’s probably good, I’m okay with that. When people go through getting nervous before things really are bad, it has the net effect of acting as a governor – which is why I call it a governor – because it kind of stops irrational lending. Most people believe supply is the worst enemy of the hotel industry and I would argue that it’s debt that creates the supply. The source, historically, of all the downturns has been where people have borrowed too much money – even in some of the worst cycles we’ve gone through – people had non-recourse, 100% financing. Then people can build hotels that make no rational, economic sense at all.

David Sudeck: So where do you see opportunities in this market given the lack of liquidity? I think that the number of hotel developers is going to shrink, supply will pull back to some extent. Do you see any specific opportunities in this marketplace? CONTINUE READING →

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Jonathan Falik, CEO of JF Capital Advisors, 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 current hotel market, the availability of capital, and what lenders and capital providers are looking for.

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

David Sudeck: We’re at the 26th Annual Meet the Money Conference. I’m here with Jonathan Falik, CEO and Founder of JF Capital Advisors. Welcome.

Jonathan Falik: Thank you for having me.

David Sudeck: You’ve been a mainstay at Meet the Money® – we appreciate that, by the way.

Jonathan Falik: Well, it’s one of my favorite conferences.

David Sudeck: What’s the temperament like in terms of the marketplace?

Jonathan Falik: People are cautious. Most seem optimistic, but are cautious and are in a learning mode. Everyone’s trying to figure out who’s saying what and who’s thinking what – which is interesting because normally people in our industry think they know everything.

David Sudeck: What are you seeing in the marketplace in general? Let’s talk about the cycle. CONTINUE READING →

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Click here for the latest articles on EB-5 Financing. 
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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07 May 2016

Meet the Money® 2016 – Deals, dialog and learning
Conference presentations now available

JMBM’s Meet the Money® 2016, completed its 26th national hotel finance and investment conference this week in Los Angeles.

While all seem to agree that hotel fundamentals remain strong and that interest rates will remain low in the immediate future, hotel industry leaders expressed more caution than in recent years. They are still doing deals – particularly those that fit into established strategies. In fact, there are a number of creative deals going on, of all sizes, and it is always exciting to hear from so many developers and capital providers who are enthusiastic about their work and the industry.

Many expressed a healthy respect for stricter underwriting and shared the lessons learned from the Great Recession. All our speakers and participants exchanged perspectives, ideas, business cards and lots of good stories.

Presentations available from Vail Brown of STR, Suzanne Mellen of HVS, Mike Cahill of LIIC and HREC, Dan Lesser of LW Hospitality Advisors, Alan Reay of Atlas Hospitality, and Bill Linehan of RLHC

Select presentations from Meet the Money® 2016 can be found on HotelLawyer.com. Individual presentations include: CONTINUE READING →

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Meet the Money® 2016 – May 2-4, 2016: 26th National Hotel Finance & Investment Conference in Los Angeles

Getting to the winner’s circle – marathon, sprint or obstacle course?

LOS ANGELES –  The 26th annual edition of Meet the Money®, the national hotel finance and investment conference, will be at the Sheraton LAX May 2-4, 2016. The conference will host hotel owners, developers, operators, brands, lenders, investors and other capital providers.

Conference speakers will explore financing, re-financing, development, and deals, as they try to answer the questions: what part of the investment cycle are we in? And what should you do about it?

“Industry fundamentals continue to be positive,” said Jim Butler, Chairman of JMBM’s Global Hospitality Group®. “Investor sentiment seems to be shifting. With the REITs on the sidelines, some see this as a great buying opportunity. Others see storm clouds on the horizon and seek shelter from investment risk. Uncertain times like this make it important to decide what strategies will get you to the winner’s circle.”

Meet the Money® 2016 will present 25 panels and special presentations featuring more than 100 industry leaders, including:

  • Thought leaders from the Executive Suite
  • Changes in Chinese investment in U.S. hotels, and what this means to you
  • Investment strategies in a changing market
  • Many panels with lenders, equity investors and other capital providers
  • Construction financing
  • Bread & butter financing
  • EB-5 financing
  • Buying and selling hotels
  • Optimizing hotel value with brands and management
  • Cybersecurity breaches and preventative measures
  • Dress for distress–avoiding pitfalls and finding opportunities

CONTINUE READING →

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08 February 2016

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

Hotel Lawyer in Los Angeles at the latest EB-5 Summit

If you have been thinking about tapping into EB-5 financing for your development project, this is the time to make your decision and act quickly. If you need background on what the EB-5 program is about, how it has gone mainstream with institutional investors for several years, and is now providing a steady stream of reliable capital, please see the articles referenced at the bottom.

We think that JMBM’s Global Hospitality Group® EB-5 financing team has a pretty good perspective on the opportunity, the risks, and how to get clean execution. We have closed more than $1.5 billion of EB-5 financing and sourced more than half of that for our clients.

If you have missed our reporting of key events affecting the availability of EB-5 financing here, you need to know that the EB-5 program was extended for another year through September 30, 2016 without any changes. But just as the maximum number of visas has been reached in each of the past two years, the experts expect that we will “cap out” at the maximum 10,000 visas even earlier in 2016 – possibly as early as May or June.

And the “reformers” are still out there, with proposals to revise the EB-5 program the next time it comes up for renewal. So this is a great time to move into action while EB-5 financing continues to be accessible for top developers with great projects and a strong track record.

We are confident that most people who delay will wish they had started earlier and gotten in on this great source of relatively inexpensive financing early in the game. CONTINUE READING →

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18 December 2015

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

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 →

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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