Outlook 2016: New Rules for Developers Raising Inexpensive Capital with EB-5 Financing for Hotels
December 9, 2015 9:37am
By Jim Butler and the Global Hospitality Group®
Hotel Lawyer preview of the new EB-5 financing rules.
Although minor tweaks and adjustments continue to be made to legislation in the final hours before Congress votes, it looks like we have a pretty good idea of what the new rules will be for EB-5 financing. Top takeaways for developers are:
Read on for more details.
What is all the talk about EB-5 and the new legislation?
EB-5 is a program administered by the United States Citizenship and Immigration Service (USCIS). It is sometimes referred to as the “EB-5 Program” or the “Immigrant Investor Program.” It was created by Congress in 1990 to stimulate the US economy through job creation and capital investment by foreign investors. In essence, it offers foreign aliens a fast track to obtain a US green card, provided they invest a minimum amount of capital which creates at least 10 new jobs for US citizens per alien investor. The program offers a maximum of 10,000 visas per year which represents less than 1% of the total annual immigration to the United States.
Although the program was authorized almost 25 years ago, the EB-5 program was not a serious source of capital until 2010 and 2011, when the economy slowly recovered from the Great Recession and developers found a shortage of traditional bank loans for new development. Since then, use of the program has exploded. It is being used by major institutional players for significant development projects and reached its cap of 10,000 visas before the end of the fiscal year in each of the last two fiscal years, prompting many to hope that Congress would authorize more visas for the program, or accomplish a similar result by counting only the visas granted to each investor (and not those of the investor’s spouse or children).
JMBM and its Global Hospitality Group® were “early adoptors” in helping developer-clients tap into the EB-5 program to raise capital for new construction projects — particularly for hotels, resorts and mixed use projects. As the Regional Center element of the program approached its “sunset” by expiration of its Congressional authorization, we have actively participated with the IIUSA in the dialog with Congress on revising and extending the EB-5 program.
Subject to final tweaks, it now appears that the final format for the EB-5 legislation has been set, and it is expected to be adopted on December 11, 2015 as part of the omnibus appropriations bill.
It is always perilous to “assume” or predict anything about legislation until the final votes have been counted, but as of now, most knowledgeable industry experts and political commentators believe we know what the final outcome will be. Subject to those changes, this article provides a preview of the practical impact that the new rules for EB-5 will have on development projects.
If you want to know more about EB-5, please click here to see a number of articles that cover the basics of EB-5 and also discuss many of the more advanced issues.If you want the detailed section-by-section analysis of the new law and all the minutia about immigration and security processing, please look to immigration publications.
This article is focused on the practical aspects of the new rules for EB-5 for serious developers of hotels and other commercial real estate projects.
A preview of what every developer should know about major changes in the rules for raising capital with EB-5.
Other implications may be important too
Importance of particular legislative changes will vary depending upon your specific role and goals. But after our “top 6” considerations above, we think industry stakeholders will also find the balance of our baker’s dozen to be important:
The bottom line is great news for developers who want to use the EB-5 program to raise capital for new development projects.
Why you want to start raising your EB-5 capital now . . .
With the vital future of EB-5 assured in the next few days, we are advising our developer clients who are ready to proceed with all due haste in pursuing EB-5 financing. On this timing issue, our thinking is very simple:
There has been something of a hiatus or gap in EB-5 financings as developers and lenders waited to see what would happen. As lenders and foreign investors rush to fill the pipeline again with certainty restored, it is much more desirable to be at the front of the line, rather than at the back of the line.
We have now closed more than $1 billion in EB-5 financings for our clients, and have sourced more than $700 million for them. Please give us a call if you would like to see if we can help you.
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:
Outlook 2016: The new rules for developers raising inexpensive capital with EB-5 financing for hotel, hotel condo and mixed-use development projects
Hotel Lawyer on EB-5 developments? What’s happening with EB-5 renewal legislation?
JMBM has sourced more than $700 million of EB-5 financing for new development projects
Hotel Financing 2015: 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
Hotel development financing: How to win the race for EB-5 capital
Financing hotel development today: The 5 questions every hotel developer is asking about EB-5 financing
Executive Summary of the EB-5 Immigrant Investor Program
Hotel Lawyer to Developers: Looking for EB-5 Financing? The China “Retrogression” means you should act sooner than later!
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. Why don’t you give us a call (or send an email) and let us know what you working on? We would like to see if our experience might help you create value or avoid unnecessary pitfalls. Who’s your hotel lawyer
Tags: jim butler,
global hospitality group
Jim Butler is a founding partner of JMBM, and the founder and chairman of JMBM’s Global Hospitality Group® and Chinese Investment Group™. He is recognized as one of the top hotel lawyers in the world and has authored or co-authored The HMA & Franchise Agreement Handbook, How to Buy a Hotel Handbook, and The Lenders Handbook. Jim has led the Global Hospitality Group® in more than $71 billion of hotel transactional experience, involving more than 3,800 hotel properties located around the globe.
Contact: Jim Butler
Jonathan Bloch is a corporate partner and a senior member of the Global Hospitality Group® at JMBM. He has more than 15 years of experience in venture capital, private equity and alternative investments focused on large institutional investors specializing in operations, sophisticated fund formation issues and legal and regulatory compliance. Jonathan works with developers of hotel and other commercial real estate, as well as energy infrastructure companies, in sourcing, structuring, negotiating, documenting and closing EB-5 loans. He was the founder and Senior Managing Director of a large fund-of-funds firm (over $700 million in investments), which was targeted at venture capital, growth equity, medium-size buyout funds and clean-tech investing.
Contact: Jonathan Bloch
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