Holmes Shum EB and US Securities Laws Revised 2-27-2015
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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 →

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Developers, banks and real estate brokers involved in condo hotel sales have been the targets of numerous class action lawsuits brought by condo hotel buyers in the years following the financial meltdown of 2008.

As we and other condo hotel experts predicted, the big guns being wielded by the plaintiffs are claims that the sale of condo hotels violated federal and state securities laws.

In the latest skirmish fought in the condo hotel wars, Salameh et al. v. Tarsadia Hotels, et al., involving the Hard Rock Hotel San Diego (HRHSD), a federal district court in California ruled on March 29, 2011, against the condo hotel buyers, finding that they did not allege facts that would cause the condo hotel units in the HRHSD to constitute securities.

For condo hotel developers, bankers and brokers, the case affirms some of the guidelines we have recommended to establish defenses against claims by condo hotel unit buyers based on securities law violations.

Background. The HRHSD is a 420 unit hotel condominium sold in 2006 through 2008. In December 2009, the plaintiffs filed their original complaint seeking class action status against seven bank defendants who provided financing either to the project or to the unit buyers, Playground Destination Properties, as the broker of the units, and Tarsadia Hotels and its affiliates, as the developer of the project. A few months later, the plaintiffs filed a first amended complaint, which was dismissed by the court in July 2010. The plaintiffs filed a second amended complaint in September 2010. Continue reading →

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This article was originally published in Hotel Business magazine, November 7, 2010

Mixed-use hotel projects offer benefits to hotel owners around the world. Steven Pan, chairman of Regent Global Holdings—the owner of the Regent hotel brand, was recently interviewed in the Wall Street Journal—and talked about the value added to the Grand Formosa Regent Hotel in Taipei by its luxury retail shopping mall and branded residential apartments.

Confirming his experience, some studies have shown that hotels adjacent to retail shopping achieve a RevPAR premium of 30% to 40%. The newest resorts in Hawaii, including the Trump International Hotel & Tower, Waikiki Beach Walk, feature condominium suites and residences. The benefits of offering hotel branded residences are borne out by some studies showing that they can achieve a 25% to 35% premium on sale price per square foot over unbranded residences. The synergies of hotels with retail and residential uses are likely to result in more mixed-use hotel projects in the future in Asia, the Caribbean and the Americas.

All of the areas of a mixed-use hotel project reflect on the quality of the hotel and the brand. As the saying goes, “You’re only as good as the company you keep.” A luxury hotel surrounded with discount stores will inevitably tarnish the image of the hotel and its brand name. Or, imagine a resort hotel with a dozen or more housekeeping vendors arriving in cut-off shorts and T-shirts at any hour of the day or night at the hotel to clean the units—this is exactly what did happen in some of the early condominium hotels in Florida.

How can the hotel owner or brand maintain quality control if units in a mixed-use project are sold or leased to multiple owners and lessees? As long as there is a single owner of a mixed-use hotel project, the owner and the operator can decide between themselves what the hotel quality standards will require for the entire project. Complications arise when, as is typical, the hotel owner sells individual hotel, residential or commercial units to multiple purchasers. The hotel owner and operator will need to build in controls on unit owners that will last throughout the life of the project, and will be binding not only on the original purchasers, but on subsequent purchasers as well. Continue reading →

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Published in Hotel Business, September 7, 2010.

Joint ventures are popping up everywhere in the hotel industry. Nearly two years after the collapse of the old economic order of easy money, the biggest players in the hotel industry are using the joint venture structure to seize opportunities for acquisitions and expansion. In recent months, Starwood Capital and Hersha Hospitality Management announced their joint venture to expand Hersha’s hotel management platform, and Thayer Lodging Group and Jin Jiang Hotels formed a joint venture to acquire Interstate Hotels & Resorts. Though the number of hotel acquisitions is still small, several of those transactions that have successfully closed have used the joint venture model, including the just completed acquisition of the 279-room/suite Renaissance Syracuse Hotel in a joint venture between Richfield Hospitality and Shelbourne Falcon Investors.

Joint Ventures Offer an Alternative to Traditional Financing – and Have Different Risks and Rewards. Using a joint venture model for hotel acquisitions offers the benefits of increased access to capital, sharing of risks and rewards with a partner, access to greater resources, such as specialized staff, technology and expanded relationships. Particularly in the current economic environment where traditional lenders are reluctant to invest new capital in the hotel business, a joint venture with partners already active and committed to the hotel business offers an alternative means of financing potential future business expansion. Hotel investors hoping to seize buying opportunities for prime assets may find that the only way they can finance the cost of acquisition is by bringing in joint venture partners. However, a joint venture also creates its own risks, and these risks are best be addressed by the parties at the time the joint venture is formed, rather than waiting until problems develop later. Continue reading →

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We are just now beginning to see how cities will want to use the new federal stimulus bill to create jobs and build new infrastructure. In the past few weeks, we at JMBM have received several calls from cities seeking to build convention center hotels. Convention center hotels can revitalize downtown areas and generate more revenues for both local businesses and local government services by attracting visitors to the community and providing a place for local events. However, financing for convention center hotels has been difficult to obtain. Will the new Build America Bonds provide the source of financing that will allow cities around the country to build their own convention center hotels? We think it will.

For at least the last twelve years, most convention center hotels have required public incentives and funding support. Several cities have used tax-exempt bond financing to attract investors to their projects, with good results.

We think the American Recovery and Reinvestment Act of 2009 signed by President Obama on February 17, 2009 will provide a new and welcome addition to the sources of financing that may be available to cities seeking to develop their own convention center hotels. Among other things, this Act has created a new type of bond called Build America Bonds that will allow cities to finance hotels at a lower cost than they could achieve with traditional tax-exempt bonds. Continue reading →

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As a sign of its sweeping popularity, one of the best attended sessions at the recent Lodging Conference in Phoenix was: “Going Green: Environmentally Profitable Hotels.” Some of the pioneers of the green hotel movement, including panel moderator, Howard Wolff, Senior Vice President of the architectural firm Wimberly Allison Tong & Goo, and Wen-I Chang, President of Atman Hospitality Group of South San Francisco, were there to share their challenges and triumphs in working toward a carbon constrained future.

What Is The Cost Premium For LEED-Certified?

Naturally, the biggest question on everyone’s mind was: How much more does it cost to develop a new hotel that meets the silver, gold or platinum standards of LEED (Leadership in Energy and Environmental Design) green building rating system?

According to Chang, developer of the only LEED gold-certified hotel in the world (the Gaia Napa Valley Hotel & Spa), his first LEED gold hotel cost about 15% more than a hotel built using conventional standards — but that was largely because of a late decision to go green, and starting off with advisors who had never built a LEED project. His next hotels built to the same standard were close to a cost premium of only 5%. Continue reading →

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Every developer who hopes to sell condominium hotel units as part of a development project needs to consider at a very early stage how they are going to sell the units. By now, many if not most developers are aware of the limitations that securities laws place on their ability to market a rental program as part of the sale of hotel condominium units.

However, developers are only beginning to understand the other federal and state laws that apply to their sales programs. This article focuses on the federal and state laws — other than securities laws — that developers need to think about when designing sales and marketing programs for hotel condominium units.

As a developer of a project that includes hotel condominium units, start by asking yourself these questions:

  • Where will my buyers come from?
  • How will I contact my buyers?
  • What kind of marketing campaign do I need to run to sell my units?
  • Do I want or need to gather reservations for units before I start accepting final purchase contracts for units?
  • How long will it take me to complete construction of my units once I enter binding purchase contracts with the buyers of the units?

Continue reading →