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Finally, Some Good News for Hotels from Washington, DC
By Jim Butler and the Global Hospitality Group®Hotel Lawyers
Hotel Lawyer with some good news from Washington, DC. With the continuous flow of depressing news from Washington, it is nice to see some good news for a change. And that is what we got yesterday on the EB-5 front.
Here is the latest update on the developments.
EB-5 Alert: Congress approves 3 year extension for regional centers
by Jim Butler, Catherine Holmes and Victor T. Shum | Hotel Lawyers
EB-5 program regional centers have been re-authorized until 2015.
EB-5 regional centers play an important role in raising EB-5 financing for new hotel development, and there has been some concern among investors and project developers that the federal regulations authorizing EB-5 regional centers were set to expire on September 30, 2012. We have been expecting that this portion of the EB-5 program would be reauthorized for some time, but we are now able to announce that an important step in the reauthorization has now been accomplished. Yesterday, the U.S. House of Representatives passed S. 3245 (412-3) - which includes a three year re-authorization of the EB-5 Regional Center Program through September 2015. The U.S. Senate previously approved the reauthorization on August 2, and the bill will now be submitted to President Obama for signature. His approval is expected.
EB-5 Regional Centers are an important part of the EB-5 financing program.
As our readers know, over 90% of all EB-5 visas are issued in connection with projects sponsored by regional centers, and there are several reasons for that. First, offerings sponsored through regional centers are permitted to count indirect, as well as direct, job creation for determining how much EB-5 financing can be raised for a project.
The basic requirement for an EB-5 financing is that, for every investor who invests $1,000,000 or $500,000 if the project is located in a targeted employment area (TEA), there must be 10 new permanent, full-time jobs created. In a direct EB-5 offering that is not sponsored by a regional center, the only jobs that can be counted are the direct permanent jobs created when a project is complete and in operation. So, for example, a hotel with 100 employees located in a TEA could only raise a maximum of $5 million, using the ratio of 10 jobs per $500,000.
However, if the hotel developer can count not only the direct jobs, but indirect jobs created from the construction of the hotel, and operations of the hotel, there will be a much larger number of jobs available to be counted, which has the effect of multiplying the amount of financing that can be raised in an EB-5 financing by several times the number of direct jobs.
Experienced EB-5 regional centers also provide a valuable source of experience and credibility in the market for investors.
Persons who invest in an EB-5 offering generally live outside of the U.S., and do not have knowledge or prior experience in the U.S. markets. A reputable EB-5 regional center with a track record of successful projects (approved I-526 and I-829 petitions and repayment of investors' capital) will provide a valuable source of credibility in marketing projects overseas. This is particularly important in China, because more than 70% of all EB-5 visas have been issued to investors from China for the past two years.
Experienced regional centers have established marketing networks that can help sell large EB-5 offerings.
As we tell our clients, once we know that a project will meet the eligibility criteria for an EB-5 offering, the most important issue is whether the offering can be successfully marketed and sold overseas. This requires personal relationships with brokers in the areas where a project is being marketed. Experienced regional centers have established these networks, and are able to use these relationships for each new project that they bring to market. Therefore, experienced regional centers can offer developers more assurance that they can complete an EB-5 offering.
The reauthorization of EB-5 regional centers will have a positive effect on new project financing and new job creation in the U.S.
We have been reporting for some time that the EB-5 financing program is an important way of raising financing for new hotel development, primarily because traditional construction financing has not been available since the end of 2008. Over the last year in particular, the number of hotel projects using EB-5 financing has increased substantially, and it has now gained acceptance in the mainstream of the hospitality industry, including with major hotel developers and hotel brands. (See our posting from September 9, which includes the New York Times Article "Visas - for - Dollars Program a Boon for Hotel Developers".) We have participated in a number of EB-5 offerings that have raised hundreds of millions of dollars in financing for hotel development, and we are continuing to see strong demand for EB-5 financing, both on the developer and investor side.
Thank you to the IIUSA and its member for their efforts in reauthorizing this valuable program.
The Association to Invest In the USA (IIUSA), which is the organization of EB-5 Regional Centers, played an important role in educating Congress about the benefits of the EB-5 program and getting the reauthorization passed. The members of this organization are the most experienced and professional group of regional centers in the U.S. today, and it is largely due to their efforts that the EB-5 program has become such an important financing source for U.S. businesses today. We applaud the efforts of all of the members of IIUSA in obtaining the reauthorization of the EB-5 regional center program, and in making the EB-5 program a success.
How to find out if EB-5 financing could work for your hotel development project
Yes, EB-5 financing is real! In an time where debt is difficult to secure, it can play a meaningful role in the capital stack. But EB-5 financing must be used appropriately and its requirements (set forth by the U.S. Citizen and Immigration Services or USCIS) are very specific.
My partners, Catherine Holmes and Victor Shum, have written some great articles on various key aspects of the EB-5 Immigrant Investor Visa Program and regularly help hotel developers take advantage of this opportunity where it is appropriate. We invite you to take a look at the free information on EB-5 financing for hotel development and to call us if you would like to discuss it further.
To learn more, go the HotelLawyer.com. Scroll down on the home page until you see "EB-5 financing" on the right side and click there. You will then see all the EB-5 articles we have posted.
Alternatively, here are links to a few of the articles in the collection.
About the Author
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 including EB-5 financing and public and private securities offerings, hotel management and franchise agreements, and hospitality asset workouts. Contact Catherine at +1 310.201.3553 or email@example.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 firstname.lastname@example.org.
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@example.com or +1 (310) 201-3526.
Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment GroupTM. 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.
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