This article appeared in the September 19, 2011 issue of Hotel Business and is reprinted with permission.
With hotel development financing still in short supply, the EB-5 investor visa program is an alternative financing source worth exploring . The EB-5 program allows foreign investors to obtain a U.S. visa for themselves and their families by investing in a business that will create new jobs in the U.S. Hotel projects are one of the most popular types of investments among EB-5 investors. EB-5 financing is raised through an offering of limited partnership or membership interests, and the partnership or LLC then invests the money into the hotel development entity, as either debt or equity. It is estimated that EB-5 investors will invest an aggregate of $1.25 billion in U.S. businesses in 2011, and more in future years.
A number of hotel development projects are being developed now using EB-5 financing, including a new 377-room Los Angeles hotel that will house a Residence Inn by Marriott and Courtyard by Marriott, a new 200-room Milwaukee Marriott Hotel, and three new Marriott Hotels in Washington, D.C., including a 1,167 Marriott Marquis, 250-room Residence Inn by Marriott and 250-room Courtyard by Marriott.
So, how does a developer decide if a hotel project will qualify for EB-5 financing, and what is the process for getting that financing? Here is the step-by-step guide:
Step 1. Find out if your hotel project is in a Targeted Employment Area.
Virtually all investors in the EB-5 investment program are looking for projects that will qualify them for a visa with a $500,000 investment. For the hotel owner or developer, that means that your project will need to be in a Targeted Employment Area (or “TEA”), defined as an area where unemployment is at least 150% of the national average unemployment rate, or certain rural areas. Even in a city that would not qualify as a whole for TEA status, there will be areas within the city that can be a TEA area, even in cities such as New York, Los Angeles and Chicago. Continue reading →