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The Governor’s Office of Business and Economic Development is actively communicating with EB-5 stakeholders to address concerns raised with the new procedures for designating “Targeted Employment Areas.” We met with Brook Taylor and Mather Kearney of the California Governor’s Office of Business and Economic Development (known as “GoBiz”) on May 18, 2012, to discuss our suggestions for refining the new procedures announced by the State of California for designation of “Targeted Employment Areas” or “TEAs”. Economists Jeffrey Carr and Ashleigh Sewell of Economic and Policy Resources, Inc., also participated in the meeting by telephone.

As our readers know, our concern with the new California TEA designation procedure that became effective on May 1, 2012 is that it does not include the ability to designate TEAs within dozens of cities throughout California, including San Francisco, San Diego, San Jose and Anaheim, that do not qualify on a city-wide basis. In our meeting last week, the representatives of the Governor’s Office expressed a willingness to work with stakeholders in the EB-5 program to address these concerns. The Governor’s Office also made clear that the State of California strongly supports investments for projects throughout California using the EB-5 immigrant investor program and that the change in procedure was based on policy and resource considerations, not on a desire to reduce the ability of cities and project owners to obtain EB-5 financing. Continue reading →

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This article was first published by Hotel Business on May 21, 2012

Four years after the collapse of the traditional financing markets for new hotel developments, most hotel developers are still struggling to find the necessary financing to fill the capital stack required to build new hotels. Even for developers with access to construction loans, loan to cost ratios are hovering at 50%, and equity providers expect returns in the mid-teens to the mid-twenties. As a result, the “feasibility gap” between a typical project’s cost and its value is still too high, and hotel developments around the country are stalled.

Meanwhile, most cities and states are no longer providing public dollars to support private development. In California, for example, all community redevelopment agencies were abolished by the California legislature in 2011, and $1.7 billion that had been earmarked for redevelopment projects by approximately 400 redevelopment agencies state was instead required to be returned to state and local governments to fill operating budget deficits.

In other states as well, many governmental entities have no public dollars available, or are unwilling to use public dollars to support hotel development. Even in those areas where government financing is available, the time required to obtain approval is usually much longer than anticipated – often taking two to five years or more. There is also the risk that during that time mayors and city council members will change, and they may not support the projects approved by the prior administrations. Continue reading →

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California has adopted new policies that will deny EB-5 financing too many projects. On April 30, 2012, the California Department of Business, Transportation and Housing Agency released a bombshell that will have substantial negative effects on California businesses seeking to raise financing through the EB-5 immigrant investor visa program. In essence, the State of California has taken an action that will deny for all practical purposes the ability of many California cities to attract EB-5 investments because the State has decided that it will no longer issue “Targeted Employment Area” or “TEA” designations to any new areas other than the ones it designated in a letter dated April 30, 2012. This means that cities like San Francisco, San Diego, San Jose, Anaheim, and dozens of other cities, will be denied the ability for all practical purposes to raise EB-5 financing for new projects. Californians have a strong interest in the EB-5 program, as indicated by the fact that 59 of all approved U.S. Citizenship and Immigration Services (USCIS) regional centers are located in California – which is over 25% of all regional centers. We believe this new policy needs to be changed immediately because California stands to lose out to other States in billions of dollars of foreign investment and thousands of new jobs. We are reaching out to State officials to reconsider this short sighted policy and will update you on any developments.

EB-5 financing is raising billions of dollars in financing for United States businesses and creates thousands of jobs. As our readers know, the EB-5 investor visa program allows non-U.S. persons to obtain United States permanent residency (green card) if they invest $1,000,000 in a new commercial enterprise that creates at least 10 new, permanent, full-time jobs per investor. If the new commercial enterprise is located within a TEA, the required investment is reduced to the $500,000 level (while still creating 10 full-time jobs). This program has already raised billions of dollars in financing for job-creating U.S. businesses since 1992, and is poised this year to top all records for the amount of financing raised for U.S. businesses. As of March 20, 2012, there had already been 2,405 EB-5 visas issued for the first quarter of 2012, with Chinese nationals continuing to dominate the list (accounting for nearly 70% of EB-5 visas issued in 2011 and 2012 to date). The entire EB-5 program has a cap of 10,000 EB-5 visas per year. That could potentially represent several billion dollars of financing for new U.S. businesses every year. Continue reading →

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Since the release of its “Tenant Occupancy” Notice on February 17, 2012, the U.S. Citizenship and Immigration Services (“USCIS”) has begun issuing Requests for Evidence on pending regional center applications and exemplar I-526 petitions that involve “tenant occupancy models”. These Requests for Evidence articulate a new USCIS policy to reject “tenant occupancy” job creation models for employment created by tenants under leases in certain cases. Such Requests for Evidence have also been issued recently with respect to hotel projects that do not have any leases or tenants and that are operated under the industry-standard hotel management agreement. Apparently the USCIS may be questioning whether hotel operators operating a hotel under a hotel management agreement are similar to tenants operating a business under a lease. The answer is no, as explained further in this article. Continue reading →

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Why EB-5 financing is important to hotel developers now: Financing for new hotel development is still in short supply, even for experienced hotel developers. As a result, many hotel developers are exploring the EB-5 financing program as an alternative to traditional financing sources. The EB-5 investor visa program offers non-U.S. persons the opportunity to receive U.S. visas in return for an investment in a U.S. business that creates new jobs. In prior articles, we have discussed the basic requirements for EB-5 financing (See “How to use the EB-5 immigrant investor program for financing hotel development”; “Why a “regional center” may be the key to financing your next hotel development”; and “10 things you can do to win the “race” for EB-5 capital for your hotel development project”). If you want to know more about the basics of EB-5 financing, we encourage you to read those articles.

Beyond the basics of EB-5 financing: Once you understand the basics of EB-5 financing, you know that you will need to work with a United States Citizenship and Immigration Services (“USCIS”) approved regional center in order to be able to count indirect job creation that will result from your project. You also know that you will need to generate at least 10 new jobs per immigrant investor, and that almost all EB-5 investments are offered at the $500,000 investment level, which requires that your project be located in a Targeted Employment Area (“TEA”). You know too that you have two choices if you want to have your hotel financing sponsored through a regional center: you can establish your own regional center, or you can find and negotiate with an existing regional center to sponsor your financing. Continue reading →

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An immigrant investor has two primary objectives when shopping for an EB-5 project — to minimize the immigration risk and to minimize the investment risk.

No immigrant wants to move to the U.S. under a conditional green card (that requires them to generate jobs in the U.S.), buy a house, enroll children in school, and then be put in the untenable position of losing their entire investment and their green card two years later if the project fails both as an investment and as a jobs generator. Immigrant investors are understandably choosy about the investments they make under the EB-5 immigrant investor visa program.

There are 150 existing regional centers in the U.S. and 83 new regional center applications pending approval, all with projects trying to receive EB-5 funding. How do developers make their projects stand out from the rest?

How can you differentiate your project and make it more attractive than other EB-5 projects vying for the same money? A strong project will always trump a weaker one, but what does that mean for EB-5 projects?

Here are ten ways you can make your project stand out to immigrant investors in the competitive EB-5 marketplace:

1. Make sure your project is in a Targeted Employment Area (TEA)

To be competitive in the marketplace, a project must be located in a Targeted Employment Area (TEA). A TEA is a high unemployment area (150% of national average) or a rural area. Having a TEA designation permits the minimum qualifying investment to be reduced from $1 million to $500,000. There are too many $500,000/investor projects in the marketplace for a $1 million/investor project to be competitive. Work with your State agency to determine if your project location qualifies for TEA designation. Continue reading →

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EB-5 is an immigrant investor visa category created in 1990 for foreign nationals who invest in a new commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs. The name comes from the fact that this visa is the 5th category of employment based (EB) visas. Ten thousand visas are set aside annually for investors and their immediate family members under the EB-5 visa program. An EB-5 applicant will receive a visa for himself or herself, his or her spouse, and all of their children under the age of 21.

The U.S. Citizenship and Immigration Services (“USCIS”) will issue a conditional visa within about five months of application by an EB-5 investor, as long as the investor and the project they invest in are qualified. If the investment project fulfills the job creation criteria after two years, the investor can obtain permanent resident status, and can apply for U.S. citizenship in five years. This makes the EB-5 program a very attractive means of obtaining a U.S. visa for foreign investors.

What are the basic criteria required for an EB-5 Visa?

In order to qualify for an EB-5 Visa, an investor must invest at least $1,000,000, or $500,000 for a project in a “targeted employment area” (as discussed below), in an enterprise that will create at least 10 new full-time jobs for U.S. citizens and legal residents. The entire amount invested by the EB-5 investor must be invested in the business within two years, and all fees must be paid from other funds of the investor. Continue reading →

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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 →