Hotel Law Blog

EB-5 Financing: Use of stabilized hotel revenues for determining job creation from new hotel development.

Tue, 18 Jun 2013 08:00:00 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
18 June 2013

Hotel Lawyers on EB-5 issues.One of the most critical elements in structuring an EB-5 offering to finance a hotel development is making sure the project will generate enough direct and indirect jobs. Because more than 90% of the EB-5 visas are at the $500,000 investment level, that means a developer needs 10 jobs for every $500,000 of EB-5 investment. And most EB-5 investors would like to see a safety margin in case the project does not perform quite as well as hoped, so maybe you need 12 jobs for every $500,000. At that rate you need 240 jobs to support a $10 million EB-5 investment. [If this is not familiar territory for you, see the list of articles below.]

In calculating the number of jobs created, one important question is: When do you measure the hotel's economic performance levels for job creation? The USCIS has approved economic models for calculating indirect job creation that use the revenues of hotel operation as one of the indicators of indirect job creation. And it makes a big difference if you run your calculations as the hotel is just beginning to ramp up operations or whether you can use the stabilized operating results.

That's the issue Catherine Holmes and Victor Shum take on today. Catherine and Victor are two of our EB-5 experts who:

Advise foreign investors on how to make sound investments in the US
Help developers structure their projects and investment opportunities to fit EB-5 and foreign investment profiles
Advise investors on how to form EB-5 regional centers and structure deals with developers and compliance matters

EB-5 financing for hotel development:

Use of stabilized hotel revenues for determining
job creation from new hotel development

by
Catherine DeBono Holmes and Victor T. Shum

USCIS has challenged EB-5 financing for hotel projects that rely on stabilized revenues as the basis for determining job creation.

Since 2012, the U.S. Citizenship and Immigration Services (USCIS) has issued multiple Requests for Evidence (RFE) challenging the validity and reasonableness of economic job creation models for hotel projects that rely on the revenues anticipated to be generated after the second or third year of hotel operation, instead of the revenues generated in the first or second years of hotel operation. In the hotel industry, a new hotel's future value is based on its anticipated "stabilized revenues," meaning revenues anticipated after the first two or three years of hotel operation.

EB-5 Financing for hotel development: Using guest expenditures to calculate job creation for hotels

Sun, 16 Jun 2013 15:50:09 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
16 June 2013

Hotel Lawyers on EB-5 issues.Because financing for new hotel development is still difficult to obtain, many hotel developers clients have found EB-5 financing to be a valuable source of alternative financing. One of the first things a hotel developer wants to know when considering EB-5 financing for the first time is: What percentage of the total cost of the project can be provided with EB-5 investments? The answer to that question depends entirely on the number of direct and indirect new jobs the project can be expected to create, and that is calculated based on economic models that calculate not just the jobs created directly by the hotel, but those created in the area surrounding the hotel.

One of the most important ways that hotels create new jobs is by increasing the economic activity in the local area where a hotel is located. That is one of the reasons why many cities want new hotels built in and around their downtown areas, and why retail shopping malls are also making hotels part of their projects.

For EB-5 financing, it is important that a hotel be credited with the indirect jobs created in the local area surrounding the hotel, because that will dramatically increase the percentage of financing that can be provided through EB-5 financing. In this article, my partners Catherine Holmes and Victor Shum explain the methods used by hotel developers, hotel brands and cities to determine the demand for a new hotel in a local area, and how those same methods should be used to evaluate the number of jobs created by a new hotel development for EB-5 financing.

Catherine and Victor are two of our EB-5 experts who:

Advise foreign investors on how to make sound investments in the US
Help developers structure their projects and investment opportunities to fit EB-5 and foreign investment profiles
Advise investors on how to form EB-5 regional centers and structure deals with developers and compliance matters

EB-5 Financing for hotel development:
Use of hotel industry standards for determining
job creation from new guest expenditures

by
Catherine DeBono Holmes and Victor T. Shum

USCIS has challenged EB-5 financing for hotel projects that rely on guest expenditures.

Since 2012, the U.S. Citizenship and Immigration Services (USCIS) has issued multiple Requests for Evidence (RFE) challenging the validity and reasonableness of economic job creation models for hotel projects that include jobs created from increased visitor arrivals or guest expenditures (also referred to as visitor spending), meaning expenditures of hotel guests for goods and services outside the hotel, such as at restaurants, retail and entertainment. This has resulted in high levels of uncertainty for regional centers and developers seeking to build hotel projects that include jobs from increased guest expenditures.

The current stated position of the USCIS is to accept job credit based on guest expenditures so long as the applicant demonstrates by a preponderance of the evidence with a data-based analysis that the new hotel project will result in an increase in new visitor arrivals and new guest expenditures. In this article, we explain what standards we believe the USCIS should use to determine that a new hotel will create new jobs as a result of filling demand for additional hotel rooms in a local market. Readers should note that the USCIS has been hostile to the use of guest expenditure jobs since approximately 2012, and this article is intended to suggest that it should more readily credit jobs from guest expenditures in the future where appropriate based on market data.

JMBM's Meet the Money® in the Wall Street Journal. Conference panelists discuss financing new hotel construction.

Mon, 13 May 2013 13:44:04 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
13 May 2013

Meet the Money® made the news again this year, with an article on the Wall Street Journal "Developments" blog. Written by Kris Hudson, the article discusses the return of hotel construction, what types of financing are available, and which markets will be able to support new hotels.

Meet the Money® speakers Marty Collins of Gatehouse Capital, Anne Hampton of Wells Fargo Bank Hospitality Finance, Alison Cumberland and Abid Gilani of Marriott International, Kevin Mahoney of Stonebridge Companies and Paul Novak at Whitman Peterson Capital Partners were quoted in the story.

Conference speakers highlighted the CMBS market, gateway city locations, and upper-midscale hotels developments as factors that might help push construction financing in 2013, although some noted that lending standards are still strict and that many markets may not have a demand for more rooms.

If you haven't read the article yet, you can find it here: Lenders Checking In? Hoteliers Say Construction Lending Is Reviving.

You can more great information from Meet the Money® 2013 at www.HotelLawyer.com on our RESOURCE CENTER, under "Hotel Industry Presentations."

Meet the Money® 2013 -- Mood of the hotel industry and Conference Presentations

Sat, 11 May 2013 14:00:23 -0800

www.MeetTheMoney.comBy Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
11 May 2013

Meet the Money® is one of the best places in the country for meeting the Who's Who of the hotel world, getting financing and transactions done and catching up on the latest strategies and approaches. This year's conference was held at the Sheraton LAX, May 6-8, 2013 and was attended by approximately 350 hotel industry leaders. Here's a quick take on the mood of the conference and some information about

Mood of the hotel industry: optimism and sustainability of recovery

JMBM wrapped up its 23rd annual hotel conference this week amidst the strongest optimism for the hotel industry that hotel experts have seen for six years. The consensus was there is a lot of blue sky ahead. Some think the good times will only last for a couple of years, but many see a good run for at least 5 years!

Everyone at Meet the Money® seemed to be fairly comfortable that the recovery has significant sustainability, because the debt and equity markets have not gotten too frothy, and new supply has been very restrained.

Mark Woodworth of PKF summarized it well after presenting industry fundamentals by saying: "It is a great time to be in the hotel business!"

And Vail Brown gave the STR forecast that the outlook of continuing improvements is "Steady as she goes."

Greg Hartmann of JLL sounded a slightly more cautious note. He agrees that everything looks pretty good for the next couple of years, but questions how long it can last, and suggests that investors might consider selling in the next year and a half to two years.

What inning are we in? Almost every panel gave its views, with the biggest consensus being that we are in the 4th or 5th inning -- still early in the ballgame. John Alderson of Westfield thinks that the shopping center owners now getting active in adding hotels to their malls are way behind the rest of the industry (2nd inning?) and are likely to have their games continue as they implement strategic plans.

Hotel Industry Presentations from Meet the Money® 2013

Meet the Money® 2013 was buzzing with action and great information. We have decided to release some of the presentations for free download. Select presentations from Meet the Money® 2013 (described below) and are now available at www.HotelLawyer.com. Click on "RESOURCE CENTER" and then "Hotel Industry Presentations."

EB-5 Alert: California moves to make EB-5 financing more competitive in the state -- changes rules on TEA designation

Thu, 09 May 2013 18:31:11 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
9 May 2013

Hotel Lawyers on EB-5 issues.The California governor's office has just taken action that will make California much more competitive with New York and other states in seeking foreign investment capital to create jobs and facilitate construction financing for hotels and other projects.

Here is the latest from Catherine Holmes and Victor Shum, two of our EB-5 experts who:

Advise foreign investors on how to make sound investments in the US
Help developers structure their projects and investment opportunities to fit EB-5 and foreign investment profiles
Advise investors on how to form EB-5 regional centers and structure deals with developers and compliance matters

The LIIC Top 10: Annual Survey of Lodging Investment Trends and Challenges

Mon, 06 May 2013 22:26:30 -0800

Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
08 May 2013

Lodging Industry Investment Council
Annual Top Ten Survey
Trends And Challenges

Strong hotel property value growth predicted, fueled by increasingly favorable hotel debt -- despite overall sluggish economic growth, sequestration, unionization and Obamacare. According to the LIIC 2013 Survey, this is what the hotel industry has in store in 2013.

The Lodging Industry Investment Council (LIIC) is the hotel industry "think tank" whose membership includes the hospitality industry's most influential investors, lenders, corporate real estate executives, REITs, public hotel companies, brokers and significant lodging equity sources. More than 80% of surveyed LIIC members have purchased a hotel in the last 12 months. Together, the members of LIIC represent ownership, control or disposition of well over $20 billion of lodging real estate.

Meet the Money® 2013 online registration ends Friday. Don't miss this year's exciting edition of the hotel industry's finance conference.

Wed, 01 May 2013 11:49:16 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
01 May 2013

Meet the Money® 2013 is next week! Online registration ends this Friday, May 3, 2013 at 5 pm.

It is hard to believe but our 23rd annual Meet the Money® conference is less than a week away -- May 6 to 8, 2013 at the Sheraton LAX.

We have an exciting program with the top providers and consumers of debt, equity and other pieces of the capital stack. We also have top industry leaders speaking and attending, plenty of opportunities for networking and deal making, and the best conference food and snacks in the industry.

Hot topics include all the latest on WHO is providing hotel financing and HOW the deals are being done -- from small deals to big deals. Presenters are all active in providing capital or finding the best sources of it.

In addition to all the latest on hotel debt and equity, there will be some great panels on:

State of the Hotel Industry -- industry fundamentals, capital markets,
financing and market values, cap rates, transaction data and trends,
state of the economy
STR
PKF Consulting
HVS
Jones Lang LaSalle
Atlas Hospitality
Richard Green, USC Lusk Center
Development: What's Hot -- What's Not
Where's the money going for development?

EB-5 Update: Financing for New Construction
Why do the EB-5 apps double each year?

Why the ADA matters to you.
Comply now or pay later

CEO Panel: New Strategies for a New Economy
Are you at the table or on it?

Hotel Retail-Mixed-use
Why are people adding hotels to shopping centers?

State of the CMBS Markets

Workouts/Receiverships/Takeovers
Strategies for distressed hotels

Maximizing Return & Value
Branded vs. Independent Operators

And much more!

Cyber Security Alert: How to protect your proprietary information from employees

Thu, 11 Apr 2013 17:16:39 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
11 April 2013

Hotel Lawyer on technology challenges to your proprietary and sensitive corporate information. The continuing advances of technology continue to present a double edged sword. On the one edge are tremendous cost savings, efficiencies and power to manage information. On the other edge are daunting issues of information security and privacy.

In the article below, two of our Global Hospitality Group® lawyers talk about a recent court decision from the respected second circuit in New York that has important implications for every employer in the hospitality industry. It serves as a reminder that good employee handbooks and company policies are important to protecting your valuable business information and electronic data.

Here is what it is all about.

ADA defense lawyer: A blast against frivolous, serial ADA lawsuits in striking the right balance

Sun, 07 Apr 2013 11:57:33 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
8 April 2013

ADA defense lawyer: Striking the right balance

The ADA defense and compliance team at JMBM has long advocated compliance with the Americans with Disabilities Act, commonly known as the ADA. ADA compliance is good business and it is the law. (See articles at www.HotelLawyer.com under HotelLawBlog/ADA Defense & Compliance.)

But we have all seen some terrible abuses of this law in the hands of certain plaintiffs and attorneys who literally file dozens of cases. I have a service that follows the filing of ADA complaints, and recently, one lawyer filed 18 cases in one day against various small businesses for purported ADA violations.

It seems as if both courts and legislatures are getting fed up with abusive practices by some greedy or overzealous advocates. We recently reported on action by the California legislature in "Finally! Relief from abusive ADA litigation in California?")

Today, we want to recognize a recent federal court decision that reflected outrage at abusive plaintiffs and their lawyers which detract from the spirit and noble purpose of the ADA. We think this kind of insight and approach will help to strike a better balance that we believe was the intent of the ADA.

Today, my partner Marty Orlick provides us with a trenchant summary of the case, including some insightful quotes from the court's opinion.

Hotel owner-operator disputes: Marriott v Eden Roc -- what it all means for terminating hotel management agreements

Mon, 01 Apr 2013 10:02:53 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
1 April 2013

Hotel owners: How the appellate decision in Marriott International v Eden Roc can affect your hotel investment (and why you should understand the law behind the court's decision)

As we reported in our 27 March 2013 blog, a New York Appellate Division court made it possible for the owners of the Eden Roc Renaissance hotel in Miami Beach to oust Marriott as its operator -- despite the long-term hotel management contract between the two, which would have lasted another 43 years. (See "Marriott loses appeal in Eden Roc case: Why all long-term hotel management agreements are now terminable.")

Setting the stage: owner-operator disputes over hotel management agreements

The relationship between a hotel owner and hotel operator is complex. While the owner bears the financial risk of the hotel's success or failure and its gain or loss in value, the operator has the exclusive right to manage the owner's business and is paid "off the top" whether the hotel is profitable or not. The contract between the owner and operator -- the hotel management agreement -- typically transfers control of the hotel's assets to the operator.

Hotel owners nationwide are keenly aware of both the benefits and impediments of long term hotel management agreements with branded operators (and nearly all such contracts are long term, often running 40 or 50 years). On the upside, the brand can provide stability, consistent standards, a reservation system, marketing expertise and professional staffing. But the downside can be hard for owners to live with -- brands can rigidly incur needless expenses, be unresponsive to market conditions and impervious to the owner's need to run a profitable business and protect its asset.

While the majority of hotel owners and operators work hard to achieve a balance that is a win-win for both parties, it is easy to understand how things can go badly, fast.

When should you choose a brand for your hotel? And when should the brand manage your hotel?

Fri, 29 Mar 2013 07:27:52 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
29 March 2013

Hotel Lawyer on branding your hotel or running it as an independent. When should you brand your hotel and when should you leave it unbranded? How do you know when the benefits justify the costs? And if you decide to brand, should you go with brand management or an independent operator? What are the considerations?

Few decisions are more important. Here is hotel lawyer, Robert Braun to share some insights garnered by our Global Hospitality Group®'s experience in helping clients with more than 1,000 hotel management agreements and franchise agreements.

To Brand or Not To Brand
(your hotel)
by
Robert E. Braun | Hotel Lawyer

Why the hotel branding and management decisions are so important

One of the first decisions in the hotel development or acquisition process can have a lasting impact on the success of the project: whether the property should be branded, and whether that brand should manage the property. The hotel's brand will be a defining part of the profitability, image and value of the hotel, and there may be no other decision which has a greater effect on the future of the property. Similarly, the management of a hotel can enhance the value of the brand, protect the owner, or detract from the value of the hotel -- by as much as a 50% swing.

Marriott loses appeal in Eden Roc case: Why all long-term hotel management agreements are now terminable.

Wed, 27 Mar 2013 08:43:33 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
27 March 2013

Hotel Lawyer with a major legal development on terminating hotel management agreements -- Marriott v Eden Roc.

Under a New York Appellate Division court decision issued March 26, 2013, virtually all hotel management agreements are now terminable at will by owners. And this result will prevail even against the Marriott-style management agreements that seek to avoid an "agency" characterization of the owner-operator relationship.

The decision was rendered in the case of Marriott International v. Eden Roc reversing the November 7, 2012 decision of Judge Melvin L. Schweitzer, who had granted Marriott's motion for a preliminary injunction, halting the owner's ouster of Marriott for poor performance.

In reversing the lower court decision, the Appellate Division succinctly stated that hotel management agreements giving full control to operators are personal services contacts and cannot be enforced by injunction. The court said:

The 10 biggest mistakes shopping centers make when adding a hotel

Fri, 15 Mar 2013 08:15:00 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
15 March 2013

Great opportunity . . . and danger . . . await shopping center owners who seek to add hotels to their shopping centers, malls and retail centers.

An interesting confluence of factors has ignited a wave of hotel development -- adding hotels to shopping centers, malls and retail centers. This trend is already underway and will be headline news for the next couple of years.

There are compelling synergies for both the shopping center and the hotel. These have been thoroughly documented by major players. One major shopping center owner performed a multi-year study on its 200+ properties and found that the right hotel can boost gross sales at shopping centers 20% to 40%. And the associated hotels also get a boost in Revenue Per Available Room (RevPAR) of 30% to 40% over hotels in their competitive set.

If you need more information on the basics -- why people are adding hotels to shopping centers and malls -- look at the articles posted on www.HotelLawyer.com. From the home page, scroll down and look on the right-hand side for under "Hotel Development" or go to www.hotellaw.jmbm.com/hotel_development.

Protecting the integrity of the EB-5 investment market

Tue, 12 Mar 2013 12:05:03 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
12 March 2013

Hotel Lawyers on EB-5 issues.

Last month, the EB-5 investment community was shocked by the SEC enforcement action against the Intercontinental Regional Center Trust of Chicago, alleging that the sale of $145 million of EB-5 investments intended to be used to fund a huge convention center and hotel complex near Chicago O'Hare Airport, was a complete fraud.

This is an event that that has the potential to threaten the integrity of the EB-5 investment market, which over the past two years has gained acceptance among main stream hotel developers as an important source of alternative financing.

My partners, Catherine Holmes and Victor Shum, together with Angelique Brunner, a well-known EB-5 regional center operator, have offered their views on how the EB-5 investment market can be protected through prudent efforts on the part of regional center owners and developers.

How to Buy a Hotel Handbook -- Hotel Lawyers Announce New Book Release

Thu, 07 Mar 2013 17:06:08 -0800

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
8 March 2013

JMBM's Global Hospitality Group® announces publication of the How to Buy a Hotel Handbook.

The Global Hospitality Group® of Jeffer Mangels Butler & Mitchell LLP (JMBM) today announced the release of the How to Buy a Hotel Handbook, third in the "We Wrote the Book™" series of handbooks published by the Group's hotel lawyers.

Jim Butler is the Chairman of JMBM's Global Hospitality Group®. The How to Buy a Hotel Handbook is based on the experience Jim's team has gained from more than $60 billion of hotel transactions involving more than 1,300 hotels all over the world. The Handbook provides a detailed overview of the hotel acquisition process, a thorough due diligence checklist, and informative articles that address some of the most important questions that arise when buying or selling a hotel.