When the financial crisis made it more difficult to acquire financing through traditional venues, hotel developers started turning to the Federal EB-5 program for sources of capital. Since 2008, developers for hotel chains such as Hilton Worldwide, Hyatt Hotels, and Starwood Hotels & Resorts Worldwide, have taken advantage of the influx of foreign funds made available through the EB-5 program.
The EB-5 program presents a relatively inexpensive financing option for developers, who can offer returns of less than 4%, to an investor, who is more interested in obtaining a green card than their return on investment; even with the interest rate on debt starting at 6%, and equity investors typically aim for a 20% return on investment. The EB-5 program is gaining popularity with industry leaders.
EB-5 is the investment visa category that was created by Congress in 1990, and enacted in 1992, with the purpose of stimulating the economy through foreign investments and job creation. The program offers permanent resident status (green cards) to high net worth foreign entrepreneurs and their dependents, so long as they invest $1 million (or $500,000 if invested into a “Targeted Employment Area”—an area designated by the U.S. with high unemployment) into a new commercial enterprise, and create at least 10 full-time, permanent jobs for U.S. employees within a two year time period.
Originally skeptical of the program, developers previously viewed EB-5 funding as a source of capital for questionable projects that couldn’t get financing any other way. However, the number of hotel projects utilizing these funds has sharply increased over the last few years and it appears as if the program’s benefits and track record, coupled with the economic climate, have legitimized the source of financing to the big industry players. For instance, Hilton North America currently has 10 projects relying on funding through the EB-5 program.
In general, there are two ways for a foreign entrepreneur to obtain an EB-5 investment visa: investing $1 million into a new commercial enterprise to be run directly by the foreign national in the U.S., or to invest into a “regional center.” The latter is an economic unit that is privately owned or sponsored by the government, and will manage the investment, assisting the investor in complying with U.S. Citizenship and Immigration Services (USCIS) requirements—including job creation. *Since most regional centers are located in “Targeted Employment Areas,” they usually qualify for the lower investment amount of $500,000, another reason that they are attractive to the EB-5 investor. Regional Centers also have a less stringent job creation requirement that allows for indirect job creation.
Since hotels create both, direct jobs (managers and house keeping for example) and indirect jobs (suppliers of towels and soaps), they are a good fit for foreign investors whose permanent resident status is dependent on meeting the USCIS requirements. Pairing with a regional center also benefits the hotel developers since they assist with business plans and help to attract foreign investors.
Some upcoming hotel projects slated to acquire financing through the EB-5 program include: a redevelopment of the Knickerbocker Hotel in NYC by FelCor Lodging Trust, a SLS hotel in NY from entrepreneur Sam Nazarian, and a hotel in Haines City, FL from real estate developer Garrett Kenny.
EB5Investors.com is a site for those interested in learning more about the eb-5 visa program and potentially looking for a regional center or immigration attorney.