Hotel developers are always on the lookout for investment capital, and with higher interest rates and overall costs of goods, the frequency of hotel construction projects has slowed.
One way developers access capital is through a program that was established by Congress in 1990: The EB-5 Regional Center program. The program allows foreign investors to obtain a green card in exchange for making a significant investment in a new commercial enterprise that creates jobs in the U.S. Under the program, foreign nationals who invest a minimum of $800,000 in a U.S.-based project that creates or preserves at least 10 full-time jobs for U.S. workers are eligible to apply for permanent residency in the U.S. Certain areas, called Targeted Employment Areas (TEA), require investment on the lower end of the scale.
“The EB-5 program has been a good lending source for hotel developers over the years,” said Ali Jahangiri, CEO, EB5Investors.com. “Since hotels create more jobs than other types of real estate investments, hotels are preferred under this immigration program.”
According to Invest in the USA (IIUSA), a national membership-based 501(c)(6) not-for-profit industry trade association for the EB-5 Regional Center Program, between 2008 and 2015, the program helped generate $20.6 billion in foreign direct investment, and since Fiscal Year 2000, more than 115,000 qualified investors and their family members across the globe have obtained a legal permanent residency in the U.S. via the EB-5 Program.
Another study from IIUSA and EB-5 Investment Coalition done in 2019, found that from 2014 to 2015 alone, an estimated $1.05 billion was invested in hotels.
In 2022, Congress passed the EB-5 Reform and Integrity Act of 2022 (RIA) to reauthorize the program. “It revitalized the program by adding additional safeguards for investors and regional center licensing,” said Jahangiri.
For Kyle Walker, cofounder/CEO, Green Card Fund, the reauthorization of the program has greatly improved it. “EB-5 funding can seem mystical at times,” he said. “It’s here one minute and gone the next. With the passage of a new EB-5 law in 2022, dramatically shorter processing times for investor applications, and visa availability for all countries, demand is higher today than ever. Combine the excitement for EB-5 in the foreign markets, with the need for alternative capital sources in the US, and it seems we’re in a golden time for the EB-5 program. The hospitality asset class has always been disproportionally represented in EB-5 funding, and that trend continues as the program continues to grow on the foundation of the 2022 EB-5 Reform and Integrity Act.”
According to Bernie Wolfsdorf, managing partner with global law firm WR Immigration, the popularity of the program has surged—and will continue to. “The new Biden Immigrant Investor EB-5 program is reaching the level of popularity we have not seen since the huge Chinese surge from about 10 years ago when there were about 15,000 investors annually,” he said. “With double digit interest rates for developers, I expect to see more big players jumping in.”
Connor Irish, CEO of PRXY Co., an EB-5 fund administration software solution, has also seen that increase in the program’s popularity. “Since its inception, the EB-5 program has been a catalyst for economic vitality and an avenue for international investors to become part of the American narrative,” he said. “With the most recent regulatory currents created by the 2022 Reform and Integrity Act, we are seeing a clear resurgence to the peak periods of the program but now with an increased, but rational, heightened compliance threshold. This new statutory regime, together with the current interest rate environment, has provided a unique opportunity where the interests of investors and project sponsors are as aligned as ever and we’ve been in a wonderful position to see this bear out in real time.”
Of particular interest, according to Irish, is that hotel projects, particularly those in primary and secondary markets with qualifying TEA designations “have been leading the charge in terms of pace of raise this year.”
Jahangiri pointed out that there are a lot of intricacies of the program and investors should work with advisors to help navigate it. “EB-5 is a great way to complete a capital stack of a hotel project if used properly,” he said. “Over the last 12 years, we have advised many hotel developers on how to access EB-5. Eb5investors.com is the gateway for the professionals in the EB-5 visa industry. We facilitate hotel developers in meeting foreign intermediaries who serve as the broker-dealers of this unique industry. Many of the intermediaries who raise the money are licensed in their respective countries like Taiwan, China, South Korea, Vietnam and India. Part of our job is to take a hotel developer overseas to access these capital providers.”
Wolfsdorf said overseas investors need to act quickly to be a part of the program, adding, “This new program presently allows concurrent green card filing for Chinese and Indian investors, which is providing a once-in-a-lifetime opportunity for the few who file soon. I’m getting five-year work permits in 60-90 days and priority processing approvals in as little as four to five months, but the door will close soon and there will be frustrated Indians and Chinese who realize they missed the boat when stuck in other long employment and family waiting lines stretching for many years, even decades. Maybe a few genius EB-1As can skip long lines, but right now, EB-5 is the best option for thousands of high-net-worth investors, who choose carefully.”
Anyone interested in learning more about EB-5 should attend The EB-5 & Global Immigration Expo in Newport Beach, CA, on Jan. 15-16. For more info, click here.