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Published on:

29 April 2022

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on EB-5 Financing and here for alternative C-PACE Financing.

JMBM’s Global Hospitality Group® and EB-5 Finance Group™ are pleased to publish an updated edition of The Developer’s EB-5 Handbook for Construction Financing. This new and improved handbook provides essential resources for developers considering EB-5 financing for their next project.

The recent EB-5 Reform and Integrity Act of 2022 and the reauthorization of the Regional Center Program, a crucial part of EB-5’s success, has generated renewed interest in the program’s low-cost funding opportunities. The Global Hospitality Group® has developed an approach to guide clients through the current EB-5 process with a minimal amount of financial risk and execute financing with a high degree of confidence.

The Developer’s EB-5 Handbook for Construction Financing helps developers assess potential opportunities for EB-5 financing while avoiding potential traps for the unwary.

The Handbook includes articles addressing the following topics:

  • What EB-5 is all about? What are its essentials?
  • What’s different about EB-5 this time around?
  • Is EB-5 still viable for developers now that it’s been reauthorized?
  • What is the optimum EB-5 construction financing structure for development projects?
  • How much? How cheap? How certain? How long?
  • What are the most common mistakes developers make with EB-5 financing?
  • Who do I need on my EB-5 financing team?

To download a free copy of The Developer’s EB-5 Handbook, click here.

If you would like to discuss any of the issues presented in the Handbook, please contact us. CONTINUE READING →

Published on:

25 April 2022

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on EB-5 Financing.

Part two of our recent article in Westlaw Today explores the opportunities available to developers and investors now that the EB-5 program is back on track. For part 1, click here.

This article was originally published on Westlaw Today on April 14, 2022.

 

What the 2022 Revitalization of EB-5 Financing Means
for Real Estate Developers and Other Entrepreneurs: Part 2

What are foreign investors looking for?

Experts expect to see a flood of interest in the EB-5 program, both from foreign investors anxious to immigrate to the US, and from real estate developers with shovel-ready projects seeking capital.

There is no limitation in the law as to the type of project that can be funded with EB-5 financing. The critical requirement is that the minimum number of 10 new US jobs for each investor will be created within a specified period of time.

In the past, up to 70 or 80 percent of all EB-5 investors selected real estate-related investments, particularly those that create a large number of new US jobs such as hotels, restaurants, night clubs, resorts, hospitals, and senior living. Alternate energy projects and a host of other new businesses, however, could tap this financing source as the program comes back online.

Under the new law, it appears that retail and office projects may also be feasible, because new jobs created by tenants of a project appear to satisfy the job creation requirement. Previously, the law excluded jobs created through “tenant occupancy.” CONTINUE READING →

Published on:

18 April 2022

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on EB-5 Financing.

Since the renewal of the EB-5 program this year, there has been a lot of talk about what this means for developers interested in taking on new projects. Our recent article in Westlaw Today sums up the latest information about the program. Part one is below; part two will be published next week.

This article was originally published on Westlaw Today on April 14, 2022.

 

What the 2022 Revitalization of EB-5 Financing Means
for Real Estate Developers and Other Entrepreneurs: Part 1

After being sidelined for the last few years by circumstances culminating with the pandemic and the lapse of the Regional Center Program in June of 2021, the EB-5 foreign investment program looks like it has returned as a viable option for developers seeking low-cost funding for new construction projects.

On March 15, President Biden signed the Omnibus Spending Bill, which included the “EB-5 Reform and Integrity Act of 2022,” sponsored by Senators Pat Leahy (D-VT) and Chuck Grassley (R-IA). This bipartisan bill restores viability to EB-5 by reauthorizing the lapsed Regional Center Program, a component essential to the success of EB-5.

What is EB-5?

EB-5 refers to a program that is authorized by Section 203(b)(5) of the Immigration and Nationality Act. EB-5 is the fifth “Employment-Based” immigration program set forth in Section 203 and provides expedited visa processing for foreign investors making a minimum required investment in a project that directly creates at least 10 new jobs in the United States.

In short, it is both an immigration program for foreign investor immigrants, and a program that requires substantial capital investment in new business enterprises creating jobs in the United States.

The character of available financing and the projects most desirable for EB-5 investment are directly influenced by program requirements that must be met to qualify investors for a green card. For example, lower program investment minimums ($800,000 vs. $1,050,000) make projects more desirable in targeted areas of high unemployment and rural areas. CONTINUE READING →

Published on:

31 March 2022
See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on EB-5 Financing, and here for C-PACE Financing.

The hotel development and financing world is buzzing with the news that the EB-5 program has been renewed, creating new opportunities for upcoming projects. My partner David Sudeck and I have written the short update below to help get you up to speed.

 

EB-5 Reform and Integrity Act of 2022
EB-5 is revitalized and renewed

by Jim Butler & David Sudeck

In case you haven’t heard, EB-5 is back! On March 15, President Biden signed the Omnibus Spending Bill, which included the “EB-5 Reform and Integrity Act of 2022,” sponsored by Senators Pat Leahy (D-VT) and Chuck Grassley (R-IA). This bipartisan bill restores viability to EB-5 by reauthorizing the lapsed Regional Center Program, a component essential to the success of EB-5.

What’s different about EB-5 this time around?

While the basics of the program remain the same–foreign investors provide a specified amount of capital to development projects that create American jobs, and are put on a fast track to green cards for themselves and their families–some aspects of the Regional Center Program have changed. The Regional Center Program, which was authorized until June 2021, allows investors to pool their resources to finance new projects and enterprises. Regional centers also have different requirements for the types of jobs created by a development project.

The new bill raises the minimum investment in qualified projects to $1,050,000, except in Targeted Employment Areas (TEAs) where the investment minimum will be $800,000. TEAs are areas that the program prioritizes for job creation, usually rural or areas with high unemployment–where the investment minimum remains $800,000. The new minimum investment requirement will hold for the next five years, and then will be subject to reevaluation. The bill also puts a premium on investment in rural areas by expediting visa applications for investors involved in those projects; ten percent of EB-5 visas are set aside for these investors. Infrastructure projects are also subject to lower minimum investment requirements, but do not qualify for expedited visa processing. CONTINUE READING →

Published on:

18 January 2022

See how JMBM’s Global Hospitality Group® can help you.

“Practice Group of the Year” awarded to
JMBM’s Global Hospitality Group
by Law360

Jeffer Mangels Butler & Mitchell LLP (JMBM) is proud to announce that the Global Hospitality Group® (GHG) has been selected as one of Law360’s Practice Groups of the Year. This award “honors the practices behind the litigation wins and major deals that resonated throughout the legal industry in 2021” and winners are chosen out of hundreds of submissions. The recognition is a result of the unsurpassed experience of the GHG team members who, for the past 30 years, have helped clients with more than 4,500 hospitality properties, valued at more than $112 billion.

Some notable accomplishments by members of the GHG in 2021 include:

  • Workout, recapitalization, and repositioning of a $1 billion mixed-use lifestyle hotel project
  • Sale of an NYSE-traded hotel REIT’s entire portfolio of 15 upscale, select-service hotels for $305 million
  • Closing more than $210 million in Commercial Property Assessed Clean Energy loans (C-PACE)
  • Assisting clients with hotel management and franchise agreements for properties worth more than $1.5 billion
  • Serving as primary counsel for lenders on more than $2.2 billion in the distressed hotel, retail, and office loans during the global pandemic, including over $500 million for a single client

CONTINUE READING →

Published on:

10 December 2020
Click to see our category-killer experience with hotels. See also our distressed loan credentials and The Lenders Handbook for Troubled Hotels. And click here for the latest blog articles on loan modifications, workouts, bankruptcies and receiverships, and outlooks and trends.

Most of the receiverships in the United States are state court receiverships. But lenders seeking the relief and protection of receiverships are giving new consideration to filing in federal court.
Our partner Nick De Lancie took the lead in putting together this summary of some key factors in making this choice today.

Time for a new look at
Federal vs. State Receiverships

Many state courts are closed or backlogged

Due to the Covid-19 crisis, getting receivers appointed in many state courts may be difficult. Some state courts are effectively closed, others are backlogged, and still others have temporary restrictions on receivership or foreclosures proceedings that push receivership applications even further down the stack.

Federal courts are generally open and working. Federal courts, however, have generally been proceeding with their cases in a more-or-less normal fashion. Even though federal courts do not have the quick receivership hearings that some states permit in ordinary times, federal receiverships, which are not commonly used by secured creditors, can be a very useful remedy for defaulted loans. This is particularly true even when state courts are fully “open for business” where the borrower’s operations and the creditor’s collateral are located in multiple states.

Similarities to state receiverships. Federal receiverships are similar to traditional state court receiverships but they have nationwide scope and may avoid many of the problems that arise from seeking and using multiple receivers, each from a court in a different state. They are historically recognized by federal law and are recognized and governed by the Federal Rules of Civil Procedure. CONTINUE READING →

Published on:

17 May 2020
Click to see our category-killer experience with hotels. See also our distressed loan credentials. And click here for the latest blog articles on loan modifications, workouts, bankruptcies and receiverships, and here for The Lenders Handbook for Troubled Hotels.

 

Hotel Lawyer: Increasing Distressed Hotel Loans and Troubled Hotel Assets

Originally published in November 2008 on HotelLawBlog.com, then updated in 2010 for our Lenders Handbook for Troubled Hotels, we have updated this article through May 2020 to assist industry friends in dealing with distressed loans provoked by the COVID-19 crisis. 

How can a “special purpose entity” borrower ever file bankruptcy
if independent directors must approve the filing?
by
Jim Butler, Bob Kaplan, and Nick De Lancie

Since the mid-1990s, lenders on hotels and resorts have generally required their borrowers to transfer the asset being financed into a “single purpose” LLC or other “bankruptcy remote” entity sometimes respectively referred to as an “SPE” and “BRE.” The main feature of an SPE is that it owns only the single asset being mortgaged, is unlikely to become insolvent due to its own activities, and is generally protected from the effects of the insolvency of its affiliates. The main feature of a BRE is that filing bankruptcy is only a remote possibility because of various inherent or contractual legal requirements built into the very entity.

What is a bankruptcy remote entity? Why use one?

A BRE is an entity (usually an SPE) that has a structural layer of protection in its organic documents that makes it more difficult for the entity to seek bankruptcy protection. A number of approaches have been developed to create this “bankruptcy remote” structural layer.

Today, a BRE’s structural protection for the lender typically provides in its organic documents that in order to commence a bankruptcy case, approval must first be obtained from one or more independent directors or the equivalent, depending on the entity. Such a person must be independent of the borrower and is appointed by the lender, or approved by the lender. For simplicity, we will call such persons “independent directors.”

The lender expects that the independent director simply will not approve the entity’s commencement of any bankruptcy case. Thus, without a bankruptcy, the lender would be able to foreclose on the hotel or real estate without the delay and cost of bankruptcy.

Clashing fundamental principles – state corporate governance vs federal bankruptcy relief

At root, each BRE approach or strategy is based on the long-established, fundamental principle that, even though bankruptcy is a federal law matter, the entities in question are created under and governed by state law. Some believe that such corporations, limited liability companies, limited partnerships or other types of “corporate” entities can only be governed by the law of the state in which the corporate entity was organized. Therefore, the organic documents of the entity (adopted pursuant to that state’s law), govern who has the authority to decide that the entity will commence a bankruptcy case.

But this long-established principle of state law controlling corporate governance runs headlong into another long-established, fundamental principle of bankruptcy. The Bankruptcy Code (section 109(a)) expressly authorizes any “person” to file a bankruptcy petition. A person includes any corporation, limited liability company, and general or limited partnership. Waivers or attempts to contractually surrender this right are void as against public policy and, thus, unenforceable. CONTINUE READING →

Published on:

27 April 2020

Click to see our category-killer experience with hotels. See also our distressed loan credentials. And click here for the latest blog articles on loan modifications, workouts, bankruptcies and receiverships, and here for The Lenders Handbook for Troubled Hotels.

 

Hotel Lawyer: Increasing Distressed Hotel Loans and Troubled Hotel Assets

This article was published originally in November 2008 on HotelLawBlog.com and then updated in 2010 for our Lenders Handbook for Troubled Hotels. In light of the recent increase in distressed loans provoked by the COVID-19 crisis and resulting economic impact, we thought it might be important to bring the information current through April 2020.

Can a hotel ever be “single asset real estate” for bankruptcy purposes?
What is “SARE” and who cares?

by
Jim Butler, Bob Kaplan, and Nick De Lancie

Hotel Lawyers: Lender tips on forbearances, loan modifications, recapitalizations, receiverships, workouts, turnarounds, restructurings, and bankruptcies

CMBS lenders and others use SPEs for expedited remedies

Hotels, resorts, marinas, retail mixed-use, and other hospitality-related assets will likely continue to present challenges to lenders seeking expedited relief from bankruptcy stay provisions available to creditors in “single asset real estate” bankruptcy cases.

Since the mid-1990s, lenders on hotels, resorts, and other hospitality properties have generally required their borrowers to transfer the asset being financed into an entity (generally a corporation, limited liability company, or limited partnership) that was both “bankruptcy remote” (a “BRE”) and “special purpose” (also called “single purpose”) (an “SPE”). An SPE is an entity that owns only the asset being mortgaged, is unlikely to become insolvent due to its own activities, and is generally protected from the effects of the insolvency of its affiliates. A BRE is an SPE that has a further, structural layer of protection for the lender provided by provisions, such as the requirement for an independent director or manager who must approve the commencement of any bankruptcy case, that make its bankruptcy case more difficult.

Under the Bankruptcy Code, if a bankruptcy case involves “single asset real estate” (often called “SARE”), the proceedings will tilt greatly in favor of the lender/creditor secured by that SARE. Intuitively, then, an SPE that holds a single real estate asset would seem automatically to hold “single asset real estate” under the Bankruptcy Code. It is not, however, that simple.

This article will examine why this is important to lenders and borrowers, give an overview of the SARE determination, and provide some practical strategies.

The legal significance of SARE status (or not) for lenders

The determination that a borrower/debtor holds “single asset real estate” has important consequences for its bankruptcy case. In a SARE case, the creditor/lender secured by the real estate asset will be entitled to relief from Bankruptcy Code’s automatic stay as a matter of right unless the debtor does one of two things within 90 days (subject to extension) of commencing its case.

Under Bankruptcy Code section 363(d)(3), to avoid relief from the automatic stay being granted to a secured creditor (if it seeks it) with “single asset real estate” collateral, the debtor that holds that collateral must, within that 90 days, either:

  1. File a plan of reorganization in its case that has a reasonable possibility of being confirmed within a reasonable time; or
  2. Commence making monthly, interest-only payments to the secured creditor at the then-applicable non-default contract rate of interest on the value of the creditor’s interest in the SARE.

These are often difficult to accomplish unless the real estate asset is really viable and cash is flowing. CONTINUE READING →

Published on:

5 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the coronavirus and here for the latest on force majeure.

Note: If you are an individual consumer with coronavirus-related travel issues, please do NOT contact us! We do not represent individual consumers. We advise businesses on major contracts, investments and financing. 

Coronavirus issues are likely to affect every business and industry, and the hotel industry is looking at an immediate and out-sized impact. JMBM partner Mark Adams deals with these issues across all industries on an international basis, and he has a deep involvement and understanding of the hospitality industry’s unique contracts, issues, customs and practices. In the second of his series of articles regarding the coronavirus, Mark discusses the importance of jurisdiction and contract wording when considering force majeure as a defense.
Coronavirus COVID-19 force majeure:
Contract provisions and governing law are important
by
Mark Adams

Force majeure provides an excuse for a party’s non-performance of its contractual obligations as a result of an extraordinary event or circumstance beyond the control of the parties, such as act of God, war, strike, riot, etc.

What law governs the contract? Common law or civil law principles?

Unless there is an express provision in the contract, force majeure does not exist as a standalone defense in common law jurisdictions such as the U.S. and the U.K. In civil law jurisdictions, such as France and Germany, however, force majeure is implied into every contract, unless the parties agree otherwise. In order to minimize unintended consequences, contracting parties in both jurisdictions include force majeure provisions in their agreements.

In common law jurisdictions, the general rule is strict liability for the breach of a contract. This reflects the principle of pacta sunt servanda (preserving the sanctity of the contract). But there are exceptions. Common law jurisdictions excuse performance when it is not practical and could only be done at excessive and unreasonable cost. In the U.S., the Restatement (Second) of Contracts § 261 (1981), states:

“Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.”

In the U.K., the similar doctrine of “frustration of purpose” is likewise a defense to non-performance. Frustration of purpose occurs when an unforeseen event undermines a party’s principal purpose for entering into a contract such that the performance of the contract is radically different from performance of the contract that was originally contemplated by both parties. Whether under an “impracticable” or “frustration” jurisdiction, the standard for relief is a high one, and is subjective. That subjectivity can only be definitively resolved by litigation and judicial intervention.

Specify conditions short of “impracticable”

To avoid the uncertainty of such subjective standards, contracting parties in common law jurisdictions typically include force majeure provisions to specify events or circumstances that will excuse performance of contractual obligations by a party. Such specified force majeure events might not rise to the level of “impracticable” or “frustration.” By negotiating force majeure provisions, the parties can better allocate the consequences of non-performance as between themselves. For example, in a supply contract for the purchase of medical grade masks, if the manufacturer/seller is suddenly unable to timely deliver the masks to the buyer because of a trucking strike, the manufacturer could suffer the consequences of the substantially increased costs of delivering the masks by a private carrier. So long as the delivery costs are not prohibitively higher, the manufacturer will be liable for breach of contract if the manufacturer does not perform.

The doctrines of “impracticable” or “frustration” are of no avail in these circumstances. And even if they might be available, the application of them would have to be litigated. But if a properly worded force majeure provision is in the contract it could excuse performance in the event of trucking strikes, and the manufacturer would be off the hook. CONTINUE READING →

Published on:

3 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the coronavirus and here for the latest on force majeure.

Note: If you are an individual consumer with coronavirus-related travel issues, please do NOT contact us! We do not represent individual consumers. We advise businesses on major contracts, investments and financing. 

In the article below, JMBM partner Mark Adams discusses the coronavirus in relation to force majeure provisions in contracts. This legal concept goes back centuries, but has become increasingly relevant as COVID-19 may be advanced by many in the coming days as a defense to breach of contract. This article is one of a series which will discuss the principles of force majeure and the commercial implications of the coronavirus.

We start with a brief explanation of the concept and trace its roots.
COVID-19 coronavirus as a force majeure defense to contractual non-performance
by
Mark Adams

One often doesn’t know the extent of one’s insurance coverage until a calamity occurs. So it is with force majeure provisions in contracts.

Typically, force majeure provisions are included in contracts to excuse a party from contractual obligations if some unforeseen event beyond its control prevents performance of its contractual obligations.

As of March 2, 2020, there have been 88,948 confirmed cases of this strain of the coronavirus (COVID-19) in 64 countries with 3,043 confirmed deaths. The first reported case of COVID-19 was just over two months ago on December 31, 2019 from Wuhan, China. The effects of this coronavirus have already prevented or delayed performance in countless agreements in numerous industries causing widespread commercial loss and business interruption. It is likely that travel restrictions, worker shortages, immigration quarantines, supply-chain disruptions, and event cancellations will worsen before they begin to recover. And now, those affected are dusting off their agreements to examine their force majeure provisions and determine whether they might cover a coronavirus event.

The concept of force majeure (meaning superior force) originated in the Napoleonic Code of 1804. The breaching party to an agreement was condemned unless their non-performance or delay in performance resulted from a cause that could not be imputed to them, and by a cause of a superior force or of a fortuitous occurrence. Today, most tribunals, both in common law and civil law systems, recognize that contractual performance that becomes impossible or commercially impracticable under certain contexts may be excused. That said, the words in the parties’ force majeure provision controls, and that provision is deemed to be the parties’ negotiated allocation of who bears the risks of particular catastrophic events as between them. CONTINUE READING →

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