Archive for March 9, 2012

EB-5 Money – Commercial Real Estate Funding Solution

Garfield Traub Development is pleased to call your attention to a very informative article authored by Bob Voelker of the Dallas based law firm, Munsch Hardt Kopf & Harr, P.C.  Bob is one of the most respected real estate attorneys in the country, and well versed in development financing methodologies including EB-5 and New Markets Tax Credits among many others.  This article on EB-5 essentials is very timely.  Accessing cost efficient international funds as part of an overall capital structure for essential facilities for the public sector enables projects to not only proceed but to succeed.  Indeed, we at Garfield Traub are using these funds to complete funding on target developments across the nation, especially hotels and conference centers in key cities.  As accessing these funds in China and in other nations is becoming more and more active and a number of new developments are in the international marketplace simultaneously, we only consider using this funding for developments in first or second tier communities, where those communities are also investing in these P3 or Public/Private ventures, and where other “quality” elements exist to establish a strong story to enable strong acceptance.

Please enjoy this article.

Bob Voelker: Foreigner Investors Filling Real Estate Funding Gap

Several local real estate projects are securing gap financing by luring foreign investors to create American jobs in exchange for U.S. visas. Most of this money is coming from China under a U.S. Customs and Immigration Service (USCIS) program known as EB-5. As this is a financing tool relatively new to North Texas, I have laid out the basics of EB-5 below.

Q. What is an EB-5 Visa?

A. EB-5 is an immigrant investor visa category created for foreign nationals who invest in a U.S. business that creates at least 10 full-time jobs. 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 USCIS will issue a conditional visa within five-eight months of application by an EB-5 investor, as long as the investor and the project 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.

Q. What is the criteria  for an EB-5 Visa?

A. In order to qualify for an EB-5 Visa, an investor must invest at least $500,000 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 per $500,000 investment. Foreign investors usually purchase limited partnership interests in a limited partnership made up of multiple investors seeking EB-5 visas, with the partnership being controlled by the EB-5 Regional Center (which in essence acts as the “syndicator”). This limited partnership then invests in the entity that controls the project.

Q. What is a Regional Center?

A. A Regional Center is an entity created to sponsor projects for EB-5 investors and approved by the USCIS. There are currently more than 175 Regional Centers.

Q. How are EB-5 investors secured?

A. The EB-5 Regional Centers have well developed networks of foreign brokers and licensed emigration agents who raise financing for EB-5 projects, usually through seminars attended by foreign investors.

Q. What are EB-5 investors looking for in an EB-5 investment?

A. EB-5 investors are looking to obtain two primary objectives: 1) their visas, which are obtained through the project creating the number of jobs promised in the business plan, and 2) a reasonable likelihood of the return of their investment in five or six years. Secondarily, EB-5 investors and the Regional Centers are looking for a small rate of return on their investment—frequently from 1-5 percent plus, depending on the structure, a small back-end interest in the project (which can be subordinated to debt repayment and returns to other equity partners).

Q. What is a Targeted Employment Area?

A. A targeted employment area is any city, county, census tract or other geographical area or political subdivision accepted by the USCIS that has an unemployment rate that’s more than 150 percent of the national average rate, or a “rural area.” A rural area is an area outside a metropolitan statistical area or outer boundary of any city or town having a population of 20,000 or more. Although at first blush this would seem to allow the use of EB-5 financing only for rural projects and urban projects in impoverished areas, we have found after evaluating a large number of proposed project sites that a large percent of urban areas qualify.

Q. What is the process?

A. The process of qualifying a project for EB-5 investment is as follows. It typically takes about nine to 12 months to complete:

• Determine if the site qualifies as a targeted employment area.

• Provide project information including description and proformas to the Regional Center.

• Negotiate a term sheet with the Regional Center outlining the amount and terms of the investment. The Regional Center hires an economist who determines the number of jobs that will be directly or indirectly created by the project (and thus sizing the total EB-5 capital limit).

• Work with other debt and equity financing sources to make certain the EB-5 terms and conditions coordinate with other financing terms.

• The project sponsor and the Regional Center negotiate the investment documents.

• The Regional Center (working together with the project sponsor) prepares the investment partnership documentation and an offering memorandum and business plan outlining the investment and submits same to the USCIS for approval.

• The documents are translated into the foreign language and the Regional Center markets the investment overseas through foreign brokers.

• The foreign investors make application to the USCIS for their visas and place deposits in escrow with the Regional Center.

• The USCIS processes the visa applications.

• The USCIS approves the visa applications.

• The approved foreign investors close their investment in the investment partnership, which in turn invests in the project partnership. These investments are sometimes made while the visa applications are being processed, but are returnable if visa approval is denied by the USCIS.

Securing these funds overseas is a complex and time-consuming process, but for real estate projects that will be in development for a lengthy period, and where the EB-5 raise will be in excess of $5 million, the process may be worthwhile given EB-5’s low cost of capital (versus traditional real estate mezzanine debt/equity).

To find out more about how EB-5 money can help you fund your commercial real estate developments, contact Garfield Traub, 972-716-3838.

The Omni Dallas Hotel Revenue Equals Savings for Taxpayers

The Omni Dallas Convention Center Hotel

The Omni Dallas Convention Center Hotel

What if your city could develop a hotel like the Omni Dallas Hotel at no cost to taxpayers and help transform your city into a place where investors, developers and new businesses come to create new jobs, new revenue and a variety of new and improved amenities that ultimately equate to financial security for the city and for those who live in it? It so happens that cities everywhere are doing this successfully with the construction of large developments such as Hotel and Conference Centers, Performing Arts Centers and other large mixed-use developments that attract tourists and visitors from other cities and promote growth and tourism.

As a very current example, the Omni Dallas Hotel, owned by the city of Dallas, reports that it is thriving to the degree that hotel officials project that it will bring in enough net revenue to meet its first-year debt obligations, not requiring Dallas taxpayers to contribute to the mortgage payment. Furthermore, financial projections also show that taxpayer support may continue to be unnecessary in years to come.

The Omni Dallas hotel was built with $477 million in city-backed bonds, and with the current performance, the Omni Dallas Hotel Manager Ed Netzhammer sates that he is confident that every penny of the city’s financing will be accounted for by the hotel’s revenue, indicating an excellent outlook for Dallas taxpayers.

According to the 2012 forecast displayed in The Dallas Morning News, the following was reported for the Omni Dallas Hotel.

The Omni Dallas Hotel 2012 Financial Forecast

  2011 2012
Occupancy Rate 58.5% 57%
Daily Room Rate $121.97 $169.34
Revenue Per Room $71.39 $96.52

The above numbers are steadily rising, and the Omni Dallas Hotel officials noted that in January, paid occupancy was a remarkable 65 percent, or 11 percentage points above projections. These 2012 numbers put the Omni Dallas Hotel on the same level as the Hilton Anatole. The combination of November – January numbers alone exceeded projections by 34%.

The most important information from the reports comes from the fact that in 2012, the Omni Dallas hotel expects to get 70 percent of sales from groups and conventions alone. “The inclusion of headquarters hotels is crucial for convention centers,” says Steve Moffett President of the Hospitality Division of Dallas-based development company Garfield Traub Development. “The numbers show that headquarters hotels enhance the performance of their convention centers, allowing them to meet and often exceed expectations.”

In the The Dallas Morning News article titled, “Omni’s 2012 sales expected to cover first-year debt payment,” the Omni Dallas Hotel manager Mr. Netzhammer expects his hotel to be the headquarters hotel or co-headquarters hotel in 16 citywide conventions. The 16 conventions are expected to fill up most downtown hotels, meaning not only great news for the Omni Dallas Hotel, but also for other hotels, restaurants, departments stores and other various businesses located in close proximity to the Dallas Convention Center.

Another great example of this type of success is not a hotel, but a Performing Arts Center. The Durham Performing Arts Center (DPAC) in downtown Durham, NC, had its skeptics before it was built, but now the development is very successful generating revenue to not only operate profitability, but enhance the numerous businesses surrounding it in downtown Durham. In addition, it now ranks among the top 10 in attendance of touring Broadway theaters nationally, and generated multiples of its originally-estimated net revenue. Since opening, the DPAC created new demand for restaurants, hotels and shops surrounding it.

To discuss how your city can achieve similar success like the Omni Dallas hotel and the Durham Performing Arts Center by building facilities which create new economic development for the community, contact Garfield Traub Development.

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