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By
Jim
Butler
and the Global Hospitality Group®,
Author of www.HotelLawBlog.com July 12, 2011 Hotel
Lawyer: Chinese investment in hotels, restaurants, and other commercial
real
estate is becoming an important potential capital source for
development,
acquisition and renovation Although
it has been around for many years, the U.S. EB-5 visa immigrant
investor
program is now becoming an exciting potential source of capital for
hotel
development, acquisition and renovation projects. Some high-profile
hotel
projects are now being funded using this program, such as portions of
the W
Hotel and Residences Hollywood, one of the largest public-private
partnership
in California, and a stunning mixed-use project with 305 luxury rooms,
143
private residences, a 5,500 square foot Bliss spa, restaurants and
24,720
square feet of meeting space. At the
W Hollywood, we worked on a complex $20 million EB-5 financing to fund
the
opening of a Las Vegas-style Drai's rooftop nightclub (with an
8,450-square
foot rooftop nightclub and an additional 2,482 square feet of dining
space) and
the Delphine Restaurant (the Hotel's lobby-level signature restaurant
able to
accommodate up to 275 patrons in its 6,162 square feet plus 826 square
foot
adjacent terrace). Elsewhere,
approximately $118 million in financing is now being raised using the
EB-5
investment program to finance construction of a 377-room hotel tower
now being
developed adjacent to L.A. LIVE to house both a Courtyard by
Marriott® and
Residence Inn by Marriott. In New York, another EB-5 investment program
is
seeking to finance a new Westin Hotel in the Flushing area of New York
City.
These are just a few examples of how the EB-5 investment program could
provide
much needed financing to help new hotel projects get off the ground. An
old program with a new Chinese twist As
noted, although the EB-5 immigrant investor visa program is not new, in
the
past two years, the popularity of the program with investors --
particularly
investors from mainland China --has grown exponentially. According to
the U.S.
Citizenship and Immigration Services ("USCIS"), applications
for EB-5 visas have increased to 1,927 for the just the first half of
the 2011
fiscal year, over 70% of which were from mainland China, compared to
1,885 for
the entire 2010 fiscal year. The good news for hotel developers and
owners is
these EB-5 investors are most interested in real estate development
projects.
And hotel development is one of the best investment options for the
EB-5
investment program. That is because hotels create jobs in the U.S.
(which is
one of the key criteria for an EB-5 investment), and because hotels are
an
attractive asset class to the Chinese investors that currently are the
majority
of all applicants for the EB-5 visa program. In
this article, my colleagues Catherine Holmes and Eudeen Chang discuss
the
fundamentals of the EB-5 investment program, including what it is and
how it
works. Cathy and Eudeen, along with our other interdisciplinary team
members
who make up our Chinese Investment Group™, Jim Butler, Guy Maisnik,
Mark Adams,
Ben Reznik, David Sudeck, Victor Shum, Monica Vu and Amy Tsai-Shen,
help
clients insure that their investments or projects will meet the EB-5
standards,
run investments through a rigorous due diligence checklist, structure
and
document compliant EB-5 investments and guide the project developers
through
the process. Our Chinese Investment Group™ members, together with our
well-established JMBM Global Hospitality Group®, work together as a
team to
provide a gateway for Chinese investment in the United States --
whether for
EB-5 purposes or otherwise. In some cases our team represents the
inbound
Chinese investors and in other cases we represent U.S.-based owners and
developers seeking EB-5 capital.
EB-5 Immigrant
Investor Visas
- The Fundamentals of EB-5
by Catherine
Holmes | Hotel Lawyer, JMBM Global Hospitality
Group® EB-5
is an immigrant investor visa category created in 1990 for foreign
nationals
who invest in a new commercial enterprise that will benefit the U.S.
economy
and create at least 10 full-time jobs. The name comes from the fact
that this
visa is the 5th category of employment based (EB) visas. Ten thousand
visas are
set aside annually for investors and their immediate family members
under the
EB-5 visa program. An EB-5 applicant will receive a visa for himself or
herself, his or her spouse, and all of their children under the age of
21. The U.S. Citizenship and Immigration
Services ("USCIS")
will issue a conditional visa within about five months of application
by an
EB-5 investor, as long as the investor and the project they invest in
are
qualified. If the investment project fulfills the job creation criteria
after
two years, the investor can obtain permanent resident status, and can
apply for
U.S. citizenship in five years. This makes the EB-5 program a very
attractive
means of obtaining a U.S. visa for foreign investors. What
Are the Basic Criteria Required for an EB-5 Visa? In
order to qualify for an EB-5 Visa, an investor must invest at least
$1,000,000,
or $500,000 for a project in a "targeted employment area" (as
discussed below), in an enterprise that will create at least 10 new
full-time
jobs for U.S. citizens and legal residents. The entire amount invested
by the
EB-5 investor must be invested in the business within two years, and
all fees
must be paid from other funds of the investor. If the project is an existing
business, the 10 new jobs
have to be in addition to the existing jobs in the business. The
investor
usually purchases a limited partnership interest in a limited
partnership made
up of multiple investors seeking EB-5 visas. Limited partnerships are
almost
always used, because EB-5 regulations require the EB-5 investor to
control the
business, unless the investor is a limited partner in the business.
Each
limited partnership generally invests in a single project, either as an
equity
investor in or a lender to a special purpose entity established for the
project
controlled by the developer. How
Are Jobs Counted for the EB-5 Visa? The
jobs requirement must be met by the direct employment of at least 10
full-time
employees for each EB-5 investor, unless the project is part of an
approved
Regional Center, in which case both direct and indirect job creation
within the
designated geographic area of the Regional Center will be counted.
Approximately 90% to 95% of all EB-5 visa investments are made through
Regional
Centers. What
is a Regional Center? A
Regional Center is an entity created by either a public or private
group to
sponsor projects for EB-5 investors. There are currently about 150
approved
Regional Centers, but many more applications are pending with the USCIS
and are
expected to be approved if their business plans are considered feasible
and
meet the job creation criteria. According to the trade association
IIUSA,
Regional Centers have invested over $2.0 billion of foreign capital,
creating
over 50,000 jobs in the U.S. Any business owner can create their
own Regional Center
for one or more projects within a designated geographic area, but it
currently
takes at least nine months for the USCIS to approve each application.
However,
the USCIS has issued a proposal to provide "premium processing" for
Regional Centers for "shovel-ready" projects, and we anticipate that
this proposal will be approved relatively soon. When
premium processing is made available, it will take only a few weeks to
obtain
approval for a Regional Center - provided that it has a solid and
sufficiently
detailed business plan that shows what projects will be undertaken,
what the
costs will be and what direct and indirect jobs will be created as a
result of
the Regional Center's projects. How
Do You Find EB-5 Investors? EB-5
investors can come from any country outside the U.S., and can even
include
people who are in the U.S. legally under a temporary visa. In the first
three
quarters of fiscal 2011, over 70% of all EB-5 investors have come from
mainland
China. There is a well developed network of brokers and licensed
emigration
agents in China who work with U.S. business owners to raise financing
for EB-5
projects, usually through seminars attended by individual Chinese
investors in
cities throughout China. What
Are EB-5 Investors Looking for in an EB-5 Investment? Most
importantly, EB-5 investors are looking for assurance that the project
they
invest in will qualify them for a permanent U.S. visa, which means that
the
project must be able to prove that it created the number of jobs
promised in
the business plan. For a Regional Center, rather than counting the
actual direct
and indirect jobs that have been created, the USCIS requires evidence
that the
Regional Center actually carried out all of the material aspects of the
business program it proposed in its approved application. The
second most important feature of an investment for the EB-5 investor is
a
reasonable likelihood of receiving a return of his or her original
investment
within a period of about five years. The EB-5 investor is not looking
for a
high return on their investment - - some investments offer only a 1%
return on
the investment - - just a return of their original capital. Almost
all EB-5 investors will want to invest at the $500,000 level, which
means that
a hotel owner or developer will have to have a project in a "targeted
employment area." What
is a Targeted Employment Area? A
targeted employment area is any city, county, census tract or other
geographical area accepted by the USCIS that has an unemployment rate
over 150%
of the national average rate, or a "rural area." A rural area is an
area outside a metropolitan statistical area or outer boundary of any
city or
town having a population of 20,000 or more. Since most EB-5 investors
are
looking for investments at the $500,000 level, this means that for
purposes of
finding investors, a project will generally need to be located in one
of these
targeted employment areas. What
is the maximum size of the EB-5 investment available for your hotel? While most investors want to make the
minimum $500,000
investment required to get their green card, that is too small an
investment to
be of much use for most hotel developments, acquisitions, or
renovations.
Fortunately, there is no limit on the number of investors who can be
aggregated
into a limited partnership or other appropriate investment vehicle in
order to
make a bigger investment. And as a result there is no limit on the size
of the
EB-5 investment that can be made, as long as solid deal structuring and
documentation are prepared, and as long as 10 jobs are created for
every EB-5
individual investor. That's
how our W Hotel and Residences project was able to raise $20 million in
EB-5
financing, and even bigger EB-5 financing projects have been done and
are now
underway. Related
articles In future
blogs, we will talk more about how to structure EB-5 investments, how
to apply
for Regional Center status, and other topics of interest to hotel
owners,
developers, lenders and foreign investors. ________________________ Catherine
Holmes is a
transaction and finance
expert with JMBM's Global Hospitality 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 310.201.3553 or
[email protected]. Eudeen
Chang is a litigation
and business
expert with JMBM's Global Hospitality Group® specializing in
contract disputes,
trade secrets, patent issues, products liability, class actions, real
estate,
hospitality, construction defect litigation, and employment matters. He
has
particular interest and focus in assisting Asian American businesses
and
organizations, and with his Mandarin language fluency he is a trusted
counselor
of Chinese business owners newly arrived in the U.S. on their personal
and
business matters. For more information, please contact Eudeen Chang at 949.623.7232
or [email protected]. ________________________ About JMBM's
Chinese
Investment Group The Chinese Investment Group™ is a dedicated team of hotel and real
estate lawyers in
JMBM's Global Hospitality Group® that provides a gateway for
Chinese investment
in the United States. Using experience gained from more than $60
billion in
hotel transactions, involving more than 1,300 properties worldwide,
together
with substantial experience in general real estate transactions, the
Group
provides Chinese investors with legal and business advice to make
prudent and
economically successful hotel and real estate investments in the United
States. The
Group and its network of reliable professional resources help Chinese
investors
identify, analyze, evaluate, validate, acquire, finance and manage
hotel and
real estate opportunities. The Group does not receive any finder's
fees,
incentive fees, commissions or payments from any promoters, and
provides
independent advice to Chinese investors regarding all hotel and real
estate
opportunities. The Group also represents selected hotel, restaurant and
other
real property owners and developers in structuring investments for
foreign
investors -- particularly Chinese investors -- using the EB 5 immigrant
investor visa program. Click
here to learn more about JMBM's Chinese
Investment Group™. Click
here to download a PDF
file about the Chinese Ivestment Group™. ________________________ ________________________ 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. 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 1,000 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. |
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