Articles Posted in EB-5 Financing

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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 →

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Business owners throughout the United States are still finding it difficult to finance development and expansion of their business, almost three years after the start of the Great Recession in September 2008, and weak job creation continues to be a major factor holding back the economic recovery. U.S. business owners are looking for new sources of financing, at the same time as the U.S. government is looking for ways to promote new jobs.

Meanwhile, on the other side of the world, more Chinese and other Asian investors are seeking to emigrate to the United States. As a result, a little known immigrant investor program, designated as Employment-Based Visa Category 5, or “EB-5,” by the United States Immigration and Citizenship Services (“USCIS”), is gaining increasing interest among U.S. business owners as a potential new source of financing. It has been estimated that the EB-5 visa program could result in a total of $1.25 billion in new financing to U.S. businesses in 2011, and even greater amounts in future years.

According to the 2011 China Private Wealth Study issued by China Merchant bank and global management consulting firm Bain & Company on April 19, 2011, the number of Chinese with investable assets of more than $1,500,000 is projected to rise to 585,000 in 2011. The same study indicates that 60% of China’s multimillionaires are considering becoming or have already become immigrant investors.

These two factors – the lack of investment in the U.S. and the demand for U.S. visas in China – have combined to create a recent surge in U.S. business owners seeking financing from Chinese investors through the EB-5 investment program.

This article provides some background information regarding the EB-5 visa program, with a focus on the information most relevant to business owners seeking financing, followed by an explanation of the basic requirements necessary for a business owner to qualify to receive financing through the EB-5 investment program, and a discussion of some of the key legal issues that apply to business owners who raise financing through the EB-5 investment program. Continue reading →

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In a previous posting, we described how the EB-5 investment program can be used by hotel owners and developers to provide an additional source of financing for hotel development, expansion and acquisitions. Although EB-5 financing is not new, the number of potential investors seeking EB-5 visas from mainland China has increased dramatically just in the past year, which is why the amount of financing available through the EB-5 investment program has grown exponentially, and has the capacity to bring over $1 trillion of new financing into the United States. Since traditional sources of hotel development financing continue to be extremely limited, any hotel developer who is looking to finance a hotel development project over $10 million should consider whether the EB-5 investment program could provide a portion of that financing.

In this posting, we explain why hotel developers need to seek EB-5 financing through regional centers, how to find a regional center for a hotel project, how to negotiate with a regional center and whether a developer can establish its own regional center for a hotel development.

What is a regional center? A regional center is an entity, which can be either a public or private entity, that is formed for the purpose of sponsoring EB-5 investment programs. In order to be a sponsor of EB-5 investment programs, a regional center must be approved by the United States Citizenship and Immigration Services (USCIS). Anyone can apply for a regional center by filing an application, a business plan and an economic analysis showing that the business plan will create new jobs meeting the EB-5 investment visa requirements. There are currently approximately 150 existing regional centers operating in 39 states, and 83 new regional center applications pending. In many cases, regional centers have been created by private parties who are not themselves developing any specific projects, in the hope that developers will bring projects to their regional centers for financing. This is why you will often find, when you visit the websites of many regional centers, that they have no specific projects mentioned on their websites. The good news for hotel developers is that many of these regional centers are eager to attract projects to sponsor – which we will talk about more in this article. Continue reading →