Bloggings On EB-5

by

EB5Investors.com Staff









Funding Hotel Development Projects with EB-5 Capital





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.










About The Author




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.






The opinions expressed in this article are those of the author(s) alone and should not be imputed to ILW.COM.