FINANCING |
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WITH PRIME RATES BEING AT THE HEIGHT THEY ARE RIGHT NOW , AND CONSTRUCTION LOANS BEING TURNED DOWN BY MANY CONVENTIONAL BANKS , EB-5 IS MORE FLEXIBLE AND MORE BENEFICIAL |
– YOAV GUERON ,
COO OF SOUS LA ROSE
eminent sense for developers in the post-pandemic environment , especially if one acquiesces to the notion of how we live and work has permanently changed . “ We ’ ve seen quite a few hotels in these rural locations . These hotels are kind of trophy assets ,” said Nima Korpivaara , a partner at KLD LLP , whose focus is on EB-5 financing for institutional grade development projects . He cited , for example , One & Only ’ s first U . S . property currently being developed in Big Sky , Montana , near Yellowstone National Park . One & Only Moonlight Basin , Korpivaara
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said , is being partially funded by EB-5 capital . “ The idea of building a Hyatt in Manhattan — I don ’ t think those days are here anymore ,” he said . “ A lot of these projects have struggled with COVID and seen other failures or massive delays . The market for urban development has moved into what makes sense in a highinterest-rate environment .”
It ’ s also moved there because of the expedited processing time of EB-5 investment in rural spaces provided by U . S . Citizenship and Immigration Services or USCIS . One of the historical drawbacks of EB-5 is the wait time , where processing times have been known to take more than two years . It ’ s nettlesome for an impatient investor . However , under the RIA , 20 % of visas were reserved for rural investors and 10 % for those investing in high unemployment areas , creating a quasi E-ZPass lane for those investing in rural projects , where processing times have been drastically reduced to as low as under a year .
“ Hospitality , post-COVID , has actually jumped as one of the most attractive asset classes that we ’ re seeing in EB-5 ,” said Kapuria . “ There used to be a point in time where office was more attractive , but we ’ re back to the old days where investors are looking for luxury ; they want brands and rural , to the extent it ’ s available , is flying off the shelves .”
TAKING ADVANTAGE With sticky , high interest rates that don ’ t appear to be abating
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soon , sourcing alternative financing for a hotel project is a counter-cyclical measure that has never been more apparent or necessary than now . Hotels are expensive to build , but in the current lowsupply environment , a timely investment .
In Portland , Ore ., Yoav Gueron , COO of Sous la Rose , is developing a 72-room boutique hotel connected to what will be a 48,000-square-foot private social club , converted from an existing building , one of the city ’ s oldest Christian churches . EB-5 financing is the senior loan on the $ 100-milliondollar project , the rest filled in with equity and a PACE loan , or a Property Assessed Clean Energy loan , which is a type of financing available
WE ’ VE SEEN QUITE A FEW HOTELS IN THESE RURAL LOCATIONS . THESE HOTELS ARE KIND OF TROPHY ASSETS
– NIMA KORPIVAARA ,
PARTNER , KLD LLP
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to make energy efficiency upgrades and renewable energy improvements at a commercial property . The project is slated to break ground in Q2 2024 , with an expected opening date in 2026 .
Gueron said that EB-5 capital is particularly attractive right now to developers due to the state of current market dynamics that have made traditional lending routes less appealing . In many cases , traditional lenders have backed out altogether , Gueron said . “ With prime rates being at the height they are right now , and construction loans being turned down by many conventional banks , EB-5 is more flexible and more beneficial ,” he said .
EB-5 capital need not be the entirety of a project ’ s financing to reap the rewards . It makes up a portion of the capital stack and can be used as the senior debt , which now makes sense due to higher rates in the market , or the mezzanine piece . In a typical hotel project , around 60 % is financed with the remaining in equity , establishing a 60 / 40 LTV ratio .
Though EB-5 is an investment vehicle , investors are likely more motivated by the immigration benefits that come with it , not , explicitly , the returns . Clearly , realizing the “ American dream ” is one of the main motivators , along with profiting from the project itself . In an environment shorter on options for ground-up hotel development , for the sponsor and the investor , few options are as dually beneficial as EB-5 financing .
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54 hotelsmag . com Jan / Feb 2024 |