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Update on California's EB-5 Policy Regarding Designation
of Targeted Employment Areas or TEAs



By Jim Butler of the Global Hospitality Group®
Author of www.HotelLawBlog.com
May 25, 2012

California adopted a new TEA policy as of April 30, 2012 which my partners Catherine Holmes and Victor Shum wrote about a few days after publication. (See: EB-5 ALERT: California's new TEA approach will discourage EB-5 investment in California.)

Last Friday, Catherine and Victor met with the California Governor's office to discuss concerns they have raised along with those of the EB-5 community. They appreciated the seeming responsiveness of the Governor's office and the meeting bodes well for the outcome. Ultimately, the test of the Governor's office will be in the approach that California takes on designating TEAs, but here is an update on what transpired.

EB-5 ALERT: Update on California's new TEA designation procedures for EB-5

Governor's office working with stakeholders to address concerns with new procedures
by
Catherine DeBono Holmes and Victor Shum | Hotel Lawyers

In California, the Governor's Office is talking with EB-5 stakeholders about concerns with the new procedure for designating TEAs or Targeted Employment Areas.

On May 18, 2012, we met with Brook Taylor and Mather Kearney of the California Governor's Office of Business and Economic Development (known as "GoBiz"), to discuss our suggestions for refining the new procedure announced by the State of California for designation of "Targeted Employment Areas" or "TEAs." Economists Jeffrey Carr and Ashleigh Sewell of Economic and Policy Resources, Inc., also participated in the meeting by telephone.

As our readers know, our concern with the new California TEA designation procedure that became effective on May 1, 2012 is that it does not allow designation of TEAs within dozens of cities throughout California, including San Francisco, San Diego, San Jose and Anaheim, that do not qualify on a city-wide basis. In our meeting last week, the representatives of the Governor's Office expressed a willingness to work with stakeholders in the EB-5 program to address these concerns. The Governor's Office also made clear that the State of California strongly supports investments for projects throughout California using the EB-5 immigrant investor program and that the change in procedure was based on policy and resource considerations, not on a desire to reduce the ability of cities and project owners to obtain EB-5 financing.

The goals of California's new procedure include job growth in the high unemployment areas that need it most, using a consistent and efficient methodology.

In articulating the rationale behind the new procedure, the Governor's Office explained the new procedures were first, to encourage job growth in high unemployment areas of California within the rules and spirit of the EB-5 program, second, to be consistent in the methodology used by the State to designate TEAs, and third to streamline the process for obtaining TEA designations. We believe that EB-5 stakeholders would agree with all of those goals, and that with some important modifications, the new TEA procedures could promote more EB-5 investment projects throughout California.

The Governor's Office also explained that the State was hindered by a lack of resources in processing the large number of customized TEA designation requests and that they were prohibited by law from accepting fees or reimbursement for their services. The uniform certification letter was partially implemented to address the lack of resources by eliminating the multiple TEA designation requests. With this in mind, the modifications of the TEA procedure in California need to be adapted to the limited resources of the state to process TEA applications.

The new procedure should be refined to allow any California city to have TEAs in areas of high unemployment.

We stressed the importance for developers in every California city with areas of high unemployment to have the potential to qualify for TEA status, because without a TEA designation, it is virtually impossible to sell EB-5 investments in the foreign investor market today. Although the new California procedures designate some entire cities as TEAs, including Los Angeles, Oakland, Sacramento, Fresno, and Long Beach, dozens of other cities in California, including San Francisco, San Diego, San Jose and Anaheim, are not eligible. However, each of those cities has pockets of high unemployment that could qualify as TEAs based on USCIS requirements. The Governor's Office said it is actively considering proposals that would allow those areas of high unemployment to obtain TEA designations and we thank them for their willingness to discuss the issue.

Some proposals discussed

Here are some of the proposals we suggested for consideration:
  • Grant TEA designation to individual census tracts with high unemployment. This would allow a TEA designation to any project within a single census tract that has unemployment of 150% or more above the national average, and would benefit cities with pockets of high unemployment that were not included in the uniform certification letter. Since the State already publishes employment data for every census tract in the State of California, the State could implement this refinement by including all individual census tracts with high unemployment as part of the uniform TEA certification letter.
  • Grant TEA designation to a combination of census tracts containing the project census tract and census tracts that are immediately contiguous to the project census tract so long as that combination meets the unemployment threshold. This methodology could be consistently applied throughout the State and would not be difficult to implement, because the data could be obtained using publicly available census tract maps and the census tract unemployment data on the GoBiz website. This means that even if a project location is not located in a census tract with high unemployment, it could still receive a TEA designation if the immediately surrounding census tracts are in high unemployment areas.
  • Allow for special consideration in limited circumstances for unique projects. We suggest that California's policy on TEA designation expressly allow for special consideration of TEA designation for unique projects. This would allow the Governor's Office to determine when a project is so unique that it requires additional attention to determine the project's potential impact on high unemployment areas. Retaining some flexibility in limited circumstances should not detract from the main goals of consistency and efficiency of the general procedure for TEA designations.
  • Transition period. We requested that the State implement a transition period between the prior TEA policy and the new one. We are aware of several significant sized projects in communities that had historically received TEA certification which are now in jeopardy because the developer had not secured its TEA certification prior to the procedural change.
Although we also suggested that the State consider granting TEA status to other subareas based on considerations such as city, state or federal incentive zones, or census tracts within a certain number of mile radius from the project location, these proposals would be more difficult to adopt using a consistent methodology. We also talked about allowing customized TEA designations for any project, but these would take more time and resources than are available to the State. Therefore, it appeared that these proposals would not meet the goals of the Governor's Office.

A note of appreciation to the Governor's Office for its willingness to work with the EB-5 community on the new TEA designation policy.

We are pleased that the Governor's Office recognizes the importance and value of the EB-5 program to all Californians. We greatly appreciate that the Governor's Office has listened to many experts in the EB-5 community and allowed us the opportunity to present proposals for modifying the TEA designation process that will allow more communities to qualify for TEA status. We hope that the Governor's Office will act quickly to make the necessary modifications to the TEA designation process.

Thanks to members of the EB-5 community for their assistance.

Since the publication of our May 5, 2012 article, we have been in contact with many members of the EB-5 community to discuss the impact of the new California TEA procedure. Many of these stakeholders have provided invaluable comments and advice and we wish to acknowledge them here. These individuals include: Jeffrey Carr and Ashleigh Sewell of Economic and Policy Resources, Inc.; Elliot Winer of Northeast Economic Analysis Group LLC and former Chief Economist and Director of Economic Analysis at the Massachusetts Department of Workforce Development; Kevin Wright of Wright Johnson LLC; Martin Lawler, Esq. of Lawler & Lawler; Robert Gaffney, Esq. of the Law Offices of Robert P. Gaffney; Joseph McCarthy, Esq., Principal of the American Dream Fund and Legislative Committee Chair of the Association to Invest In the USA (IIUSA), the trade association of EB-5 regional centers; George Ekins, Principal of the American Dream Fund and a member of the Board of Directors of IIUSA; Angel Brunner, President of EB5 Capital; and Darlene Chiu Bryant, Executive Director of ChinaSF, the public-private agency set up to promote investment between the city of San Francisco and China.

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 help investors be successful in bidding for hotel acquisitions, and helping investors and lenders to unlock value from troubled hotel transactions. 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 cholmes@jmbm.com.
 
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 vshum@jmbm.com.
______________________

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 jbutler@jmbm.com 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.



JMBM’s Global Hospitality Group®
The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com.
.
Contact:

Jim Butler

jbutler@jmbm.com
310.201.3526

 

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