Tag Archive for eb-5

Public Private Partnerships in the Travel Industry

What makes a city great? What sets a city apart from others in attracting new industry, new growth, civic pride, and robust economic development? We have found over and over that the magnet that draws business and tourism is most often found in the heart of the city, its convention center. Although the travel industry, like so many other facets of an economy, is vulnerable to the economic cycles that periodically impact the nation, it is vital for a city to be able to constantly attract conventions, association meetings, exhibitions, leaders of industry, and tourism in general.

Top Factors in Choosing an Event Location

Source: 2006 Meetings Market Report, Meetings and Conventions Magazine

Certainly, being located in an inviting climate and an accessible part of a region and the nation is important to a city’s success. So, too, is having modern infrastructure and attractions, such as museums, performing arts centers, sports, and entertainment activities to enhance the allure for business associations, as well as the casual traveler. Keep in mind also that the first introduction to a city for prospective business leaders who might decide to relocate headquarters or establish regional offices in your city may be their experience when they attend a conference or convention at your convention center.

When reviewing the top reasons for choosing a particular event location, group planning experts determined some years ago that second only to a city having a modern convention center with the available meeting space needed by its group,
is the number of quality hotel rooms attached or adjacent to the convention center. If your city has no modern and attached or adjacent headquarters hotel with “room blocks” available for a majority of convention delegates, planners are likely to select another city that offers that critical combination. This is supported by numerous exit interviews of groups that cite the lack of a dedicated onsite hotel as the reason they selected one convention destination over another.

Approximately 50 cities have successfully built, expanded, or modernized their convention centers and developed connected headquarters hotels over the past decade, and about half of them have used public private partnerships to accomplish those developments. Surprisingly, about another 50 cities have tried
and failed to develop the headquarters hotels so essential to ensuring the success of their convention centers. Those cities that succeeded in completing their developments have several characteristics in common, just as those that have failed have very similar stories about why they are still on the outside looking in. What separates success from failure in funding this vital economic engine for a city?

First, this undertaking can be highly politicized and controversial. The public must be informed as to the benefits to the city of the development, and all-too-common disinformation campaigns by narrow interests opposing such a development should be addressed head-on. There is room for debate about the right approach for a city to take in funding, developing, operating, and maintaining the facilities given political, legal, and economic factors, but there is no denying the benefits of having competitive, modern public assembly facilities and related headquarters hotels. Those cities that have recognized this and value their ability to “sell” their city as a convention destination, know they must build and maintain their public assembly facilities, which must include a headquarters hotel, to be successful.

Tangible benefits of such a development include tens of thousands of new annual visitors, who stay two or three days in the city and spend money on hotels, transportation, dining, entertainment, and shopping. Millions of dollars in annual visitor spending creates jobs, generates substantial tax revenue, and stimulates development of related, private mixed-use development. The incremental travel-related tax revenue is more “profitable” than property taxes, due to the limited burden of visitors on city infrastructure—like police and fire departments, schools, and hospitals—when compared to community residents. Increased tourism-related tax revenue bolsters other revenue to operate the entire city and reduces reliance on resident property taxes.

Returns to the public from a development of this nature are real and substantial—but public investment is required to realize the benefits. Too many cities, however, have failed to recognize or have tried to deny the obvious—the substantial cost of designing and constructing a full-service, first-class headquarters hotel including all the extra meeting space required, versus the limitations on adequate revenue to pay the mortgage and provide an appropriate return to the owner. Those cities too often succumb to the “best sounding” solution—the promise of little to no public financial support asked by developers,
who hope to be selected and to amend their low-budget targets by asking the
city for more money once plans and pricing show the real costs. The loss of time associated with a failed procurement alone hurts the city immeasurably when conventions are lost for three, five, or ten years. But the loss of confidence in civic leadership can be even more devastating through dashed community hopes and aspirations and broken promises to develop those facilities.

Overton Hotel and Conference Center

Overton Hotel and Conference Center, Lubbock, TX

Two recent examples of public private partnerships that have been boons to their cities are the Overton Hotel and Conference Center in Lubbock, Texas, and the Durham Performing Arts Center in downtown Durham, North Carolina. The Overton in Lubbock is that city’s first full-service, first-class conference hotel, situated across University Boulevard from Texas Tech University. It not only serves as Lubbock’s modern conference center, but is also the teaching facility for one of Texas Tech’s restaurant hotel investment management classes. The project financing included grants funded by foundations supporting Texas Tech, a Lubbock city bond issue, plus equity and debt raised by the private development team.

Since the Overton Hotel and Conference Center opened in August 2009, Lubbock has been able to attract associations that have either never hosted an event in Lubbock, or have not done so in many years. Examples of these groups are the Texas Apartment Association, the Texas Payroll Conference, and the Texas Hospital Association. In Fiscal Year 2010-2011, 17 of the top 20 room night-producing events hosted in Lubbock used the Overton Hotel and Conference Center as their headquarters facility. The Overton Hotel and Conference Center has allowed the Visit Lubbock staff to provide decision-makers with more options in facility space and facility features. Lubbock is also seeing an increase in repeat business from groups that experienced the first-class service provided
by the Overton staff.

Durham Performing Arts Center (DPAC)

Durham Performing Arts Center - Durham, NC

Similarly, the Durham Performing Arts Center, or DPAC, is a public private partnership in which the capital necessary to finance the facility included Durham city bonds amortized by revenue from a portion of citywide hotel occupancy taxes, a grant from Duke University, and naming rights Theater operations and promotion of events and talent are handled by a private sector theater operator. Profits are shared between the operator and the city, with the operator guaranteeing a minimum number of annual events and no operating loss risk for the city. This award-winning touring Broadway Theater was ranked number 9 in attendance among U.S. theaters by Pollstar in 2010, and number 4 in 2011, and generates $28 million in annual economic impact to the City of Durham.

Financing public assembly facilities and related hotels is an activity that mayors and city councils, even city managers, may undertake only once in their public lives. The costs of designing and building these facilities are significant, and the economics of operating and paying for these facilities is complex to grasp. Hence the need for public private partnerships and the selection of well-qualified developers, consultants, and other specialists to help lead the city in understanding these facilities and their financial structures and to help ensure their successful completion. We are aware of a number of Texas cities that are wisely taking these steps in considering or planning public assembly facilities and headquarters hotels, following the example of cities like Lubbock and Durham.
Ray Garfield is a principal of Garfield Traub, a development services firm focused exclusively on essential public facilities. For more information, please visit www.garfieldtraub.com or e-mail rgarfield@garfieldtraub.com.

Click here for the original print out as seen in the April Edition of Texas Town and City Magazine: Private-Public Partnerships in the Travel Industry

EB-5 Program – Creating Foreign Investment With Visas

In the interest of fair and balanced reporting, we thought this April 15, 2012 New York Times article by Ann Lee of Demos on “Visas-for-Dollars” is deserving of everyone’s attention.  As our firm intends to be in the market later this year and into next year raising EB-5 funds for a portion of the financing of a new hotel and conference center for a California city, we want to do what we can to draw attention to the need for transparency in all transactions.

Making Visas-for-Dollars Work

By ANN LEE as posted in The New York Times
Published: April 15, 2012

EB-5 Program Creating VisasAMONG the most popular tools for attracting foreign investment to the United States is the EB-5 program. It seems like the perfect win-win: any foreigner who invests between $500,000 and $1 million here, and creates at least 10 domestic jobs from that investment within two years, gets a green card.

Given how many high-worth investors are clamoring to enter the United States, the EB-5 program could have a significant effect on American unemployment. Indeed, it has brought in some $1 billion over the last fiscal year, and the President’s Council on Jobs and Competitiveness has called for the EB-5 program to be “radically” expanded over the next few years.

Unfortunately, the program is so rife with fraud and corruption that it could actually have the opposite impact and deter investment. To regain its credibility, the program must make a number of changes to enable more transparency and demand more competence from its operators.

The most egregious problems with the EB-5 program can be found in its 218 regional centers, which work with private-sector brokers to identify local investments and direct foreign participants to them. Examples abound of centers and brokers playing down risky investments and misrepresenting how the program works, including a promise that EB-5 investments are guaranteed by the federal government — when the government in fact does nothing of the sort. Many investments have failed to create the required 10 jobs and even gone bankrupt, leaving the investor without his money or his green card.

While many EB-5 regional centers have solid records, a disturbing number have directed investor money to risky projects and companies that pay little to no return, overseen by brokers who get a commission regardless of how the investment plays out.

Aside from accusations of outright fraud, there is also a clear lack of understanding among government administrators about how to manage an investment program. As a result, they often approve businesses that are simple to understand, like a condo development or a grocery store, but whose business models don’t generate enough profit to hire workers, while rejecting more sophisticated businesses that stand a greater potential of generating profits and jobs.

For the time being, these problems haven’t turned the tide of interest in the EB-5 program. But that could change: recent high-profile investigations by Reuters and Businessweek, as well as a warning against fraudulent brokers by the Chinese Supreme People’s Court, could start having a significant deterrent effect, especially since other countries, like Canada, are following America’s lead with their own versions of the program.

Fortunately, the solutions are straightforward. The federal government needs to rein in freewheeling brokers with heavier penalties for misrepresenting investments, hire more business-savvy administrators and make the entire process more transparent, so that applicants know why their money was accepted or rejected.

The EB-5 program has a lot of promise to reduce unemployment, and the White House is right to call for its expansion. Rather than end it, let’s fix it.

Ann Lee is a senior fellow at Demos and the author of “What the U.S. Can Learn From China.”

If you would like to see how Garfield Traub Development can help you get your essential developments financed with the EB-5 program, please contact us.

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.

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