News for the Hospitality Executive |
By
Jim
Butler of the Global Hospitality
Group®
Author of www.HotelLawBlog.com June 21, 2012 Update
on
California's EB-5 policy regarding designation of Targeted Employment
Areas or
TEAs. California
adopted a new TEA policy as of April 30, 2012 which my partners
Catherine
Holmes and Victor Shum have been on top of from the outset. (See: EB-5
ALERT: California's new TEA approach will discourage EB-5 investment in
Californiaand EB-5
Lawyer Alert #2: Update on California TEA designation procedure.) On
June 19,
2012, the California Governor's Office held an open conference call to
discuss
further changes in California's procedures for designating Targeted
Employment
Areas or TEAs. There is some good news and some bad news. Here is an
update on
what transpired.
by Catherine
DeBono Holmes and Victor T. Shum | Hotel Lawyers The
Governor's Office of Business and Economic Development held
a stakeholders conference call to announce modifications to its new
procedures
for designating "Targeted Employment Areas." On
June 19, 2012, Brook Taylor, Deputy Director for
Communications and Policy of the California Governor's Office of
Business and
Economic Development (known as "GoBiz") held an open conference call
to discuss further changes in the procedures adopted on April 30, 2012
by the
State of California for designation of "Targeted Employment Areas" or
"TEAs". TEA
Designation is critical to the viability of an EB-5 project. As
our readers know, the EB-5 investor visa program allows
non-U.S. persons to obtain United States permanent residency (green
card) if
they invest $1,000,000 in a new commercial enterprise that creates at
least 10
new, permanent, full-time jobs per investor. If the new commercial
enterprise
is located within a TEA, the required investment is reduced to the
$500,000
level (while still creating 10 full-time jobs). If a project in not
located in
a TEA, then the project is for all purposes shut out from raising EB-5
funds
because EB-5 investors will not want to invest at the $1,000,000 level
when
other projects are available at the reduced $500,000 threshold. The
new procedure
will designate individual census tracts with qualifying high
unemployment as
TEAs. As
modified effective yesterday, the
California TEA designation procedure will now allow individual census
tracts
with qualifying high unemployment to be designated as TEAs, in addition
to
metropolitan statistical areas ("MSAs"), counties, cities with
qualifying high unemployment and rural areas. In addition, California
will
issue individual letters to project developers certifying qualified TEA
areas
for specific project locations, in order to provide assurance to EB-5
investors
that the projects they invest in are qualified at the $500,000
investment
level. The
good
news: This
inclusion of individual census
tracts with high unemployment is good news for many project developers
who have
projects located in individual qualifying census tracts, and some good
news for
cities, such as San Francisco, San Diego, San Jose and Anaheim, that
had been
completely disqualified under the prior policy since individual census
tracts
with high unemployment within these cities can now qualify for TEA
designation.
In addition, the Deputy Director reiterated the support of the
Governor's
Office for projects throughout California using the EB-5 immigrant
investor
program. We appreciate the willingness of the Governor's Office to
review and
further refine its policy in the future. The
bad
news: While
we appreciate that the Governor's
Office has expanded the TEA designation procedure to include individual
census
tracts with qualifying high unemployment, we are disappointed that the
new
procedure stopped there. We believe that it would have been relatively
easy to
aggregate census tracts in a sensible manner -- particularly census
tracts that
are immediately contiguous to the project location census tract -- to
achieve a
TEA. The fact that California has failed to consider census tract
aggregation
was particularly frustrating to many of the callers whose projects are
now in
jeopardy because of the inability to raise EB-5 funds. It should be
noted that
California is now the only state in the nation that does not have a
policy of
designating TEA areas based on contiguous census tracts, and that means
that
California will still have a disadvantage in competing for EB-5
investments. The
Governor's Office believes that project developers can get TEA
designation from
the USCIS. We
know that the Governor's Office
recognizes that this is an important issue, and it has even included a
statement on its website EB-5
Investor Visa
Program that seems to address this issue, stating as follows: "IMPORTANT:
If your project is NOT in a qualifying metropolitan statistical area,
county,
city, or individual census tract designated as a TEA by the State of
California, your project does NOT qualify for certification from the
state.
However, you can still apply to U.S. Immigration Services without the
state
certification and provide evidence on your own showing that the new
enterprise
is in a high unemployment area." There
is a
problem with this approach. The
problem with this
approach is that the USCIS regulations specifically provide that an
authorized
body of the state can designate a geographic or political subdivision
of a
metropolitan statistical area, city or town with a population of 20,000
as a
TEA - but the regulations do not state that the USCIS is authorized to
make
this determination. California seems to be ceding this authority to the
USCIS,
but we do not know whether the USCIS will in fact accept this
responsibility.
In addition, USCIS TEA designation is typically made at the time a
regional
center application is filed as part of an I-526 exemplar application,
or as
part of the I-526 petition, which requires that all project documents
be filed
along with the application. The USCIS processing time could take more 6
months
or longer, which effectively precludes USCIS TEA designation for all
practical
purposes. Why
won't
California designate TEAs for qualifying geographic or political
subdivisions? If
every other state in the U.S. is willing and able to
designate TEA areas consisting of contiguous census tracts that are
geographic
or political subdivisions of a city or county, why is the state of
California
not able to do that? According to the Deputy Director, it is because
the
Governor's Office wants a procedure that is consistent, transparent,
meeting
the goals of locating projects in areas of high unemployment and easy
for the
state to administer without devoting significant time to the process.
While we
do not disagree with these goals, we believe that all of these goals
can be met
- in fact can be better met - by a process that would include the
designation
of TEAs based on a reasonable number of contiguous, qualifying census
tracts. All
of the
other states are doing just that, each a bit differently, but each
designed to
meet the same goals as the state of California. For example, in
Arizona, the
state uses a policy it calls "solid configuration," meaning the
census tracts make up an area that is a reasonable geographic area
around the
project in which jobs will be created. We hope that the Governor's
Office will
continue to review its procedure and refine its TEA policy to make it
competitive with other states. Billions of dollars of investment and
thousands
of California jobs are dependent on it. In fact, based on our
discussions, the
stakeholder group with the greatest support of the new policy are
regional
centers located in other states that now believe their projects will be
more
attractive to EB-5 investors. Why
did
California decide that its prior procedures were taking too much staff
time? According
to the Deputy Director, the California Business,
Transportation and Housing Agency ("BTHA") (which was formerly
responsible for designating TEAs), was inundated with requests for TEA
designations using a wide variety of political and geographic
subdivisions to
establish the area to be designated as a TEA. The reason for this was
that a
year ago, the BTHA decided that it would require project developers to
use a
pre-existing political area as a TEA, such as a community planning
district,
rather than simply designating one or more census tracts. As a result,
project
developers spent time trying to locate a pre-existing political area,
which could
in some cases be made up of over 100 census tracts. We agree that the
old
requirement of a pre-existing political area is not required by the
regulations
and creates needless additional work for the state as well as project
developers. The
better
policy, as other states recognize, is to look at a reasonable number of
adjoining census tracts from which it can logically be expected that a
project
will draw its employees. In a large project, such as a hotel, employees
will
not only come from the census tract where the project is located - they
will
come from the surrounding areas. There is no need for the state to
designate a
minimum or maximum number of census tracts - the state can examine the
evidence
compiled by the developer and make a decision whether the area covered
by the
proposed TEA is reasonable. A developer with an actual project will be
motivated to provide the necessary supporting information, from a
professional
economist, that will support the rationale for defining a reasonable
aggregation
of census tracts. By doing this, project developers can reduce the
workload of
the staff of the Governor's Office, without denying developers, cities
and the
people who could be employed at dozens of projects throughout
California, the
ability to get the EB-5 financing they need to get these projects off
the
ground. If the Governor's Office is truly committed to creating jobs in
California, expanding EB-5 financing is one of the best possible ways
to
achieve this goal - at no cost to the state or the taxpayers of
California. The
new
California procedure will not drive more EB-5 projects to high
unemployment
areas in California - but it may drive more EB-5 projects to other
states. We
understand that the Governor's Office wants to focus on job
creation in the areas that need it most in keeping with the spirit of
the
program - but in fact the largest projects that will create significant
jobs
will often not be located directly in the areas of highest
unemployment. The
competition for EB-5 dollars is not between EB-5 projects located
within have
and have-not regions of California. The competition for hundreds of
millions of
EB-5 dollars is between EB-5 projects located within globally
recognized areas
of California and globally recognized areas of other states. If
projects within
globally recognized areas of California are unable to secure a TEA
designation
in more than individual census tracts, then the EB-5 funds will flow to
globally recognized areas of states that interpret the TEA rules more
broadly. For
example,
no one is going to build an 800 room hotel in an area that does not
have high
tourist demand, but there is currently a demand for large hotels in
Anaheim
near Disneyland. EB-5 investors are looking for high profile projects
in highly
desirable areas - not small projects where there is a high risk that
the
project will fail. So, EB-5 investors will be attracted to the best
projects in
the U.S. Which means that if the EB-5 investor has a choice between
investing
in a hotel in Manhattan, New York and a hotel in a town somewhere in
California
that no one in China has ever heard of - the foreign investor will
invest in
the hotel in Manhattan. But if the choice is between investing in a
hotel in
Manhattan and an 800 room hotel next to Disneyland - the Disneyland
hotel will
attract many of those EB-5 investors. We
hope to
continue discussions with the Governor's Office on the new TEA
designation
policy. We
greatly appreciate that the Governor's
Office representatives have been open to discussion with us and other
stakeholders, and we understand that there are many factors that must
be
considered in making policy decisions that affect the millions of
stakeholders
in the EB-5 investment program - and we include the millions of
Californians
that will benefit from job creation as a result of EB-5 projects in
California.
We hope to continue the dialogue with the Governor's Office, and we
believe
that more can be done to encourage EB-5 investment in California. We
urge other
stakeholders to make their views known to the Governor's Office. For
more information about EB-5 financing This
is Jim Butler, author of www.HotelLawBlog.com
and hotel lawyer, signing off. We've done more than $60 billion of
hotel
transactions and have developed innovative solutions to unlock value
from
hotels. Who's your hotel lawyer? Catherine
Holmes is a transaction and finance partner with JMBM's Global
Hospitality Group® and Chinese Investment Group™ and specializes in
resort and
hotel purchase and sale transactions, resort and urban mixed-use
financing and
development, hotel management and franchise agreements, and hospitality
asset
workouts. With her background in securities transactions, she also
assists
hotel developers with public and private offerings of securities. For
more
information, please contact Catherine Holmes at +1 310.201.3553 or [email protected]. Victor
Shum is a corporate and securities partner in JMBM's Global Hospitality
Group® and Chinese Investment Group™. He has advised clients on
EB-5 matters
since 1999 and assists hotel developers on EB-5 financing as well as
public and
private securities, mergers and acquisitions, cross-border issues, and
other
strategic business transactions, including real estate transactions and
intellectual property and technology licensing matters. For more
information,
please contact Victor Shum at +1 415.984.9611 or [email protected]. ________________________
Our
Perspective. We represent hotel lenders, owners and investors.
We have helped
our clients find business and legal solutions for more than $60 billion
of
hotel transactions, involving more than 1,300 properties all over the
world.
For more information, please contact Jim Butler at [email protected] or +1 (310)
201-3526. Jim
Butler
is a founding partner of JMBM, and Chairman of its Global Hospitality
Group®
and Chinese Investment Group™. Jim is one of the top hospitality
attorneys in
the world. GOOGLE "hotel lawyer" and you will see why. Jim
and his
team are more than "just" great hotel lawyers. They are also
hospitality consultants and business advisors. They are deal makers.
They can
help find the right operator or capital provider. They know who to call
and how
to reach them. |
Contact: Jim Butler [email protected] 310.201.3526
|