Developers have historically benefited from using EB-5 investment funds for hotel projects in the United States. With its opportunity to offer significant savings over conventional loan arrangements, EB-5 financing can prove an excellent alternative for developers in the hospitality industry. This article reviews the key documents to be submitted with an EB-5 petition and discusses several factors affecting hotel projects and the adjudication of hotel EB-5 cases.

The Business Plan

United States Citizenship and Immigration Services (USCIS) has laid out clear guidelines for EB-5 business plans in the Matter of Ho ruling. Firstly, any hotel business plan must specify the location of the hotel and discuss the details of the business, including the number of rooms and any amenities the hotel will offer. Additionally, the business plan must include a marketing plan as well as an analysis of competing hotels in the region.

A budget should also be included with the business plan. This must break down when each portion of financing will enter the project. A financial statement discussing the calculations and any assumptions used to determine the revenue per available room (RevPAR), the average daily rate (ADR), and the occupancy rate should also be provided, as well. This section of the plan should also include the construction budget used to calculate any construction jobs to be counted toward the EB-5 job creation requirement.

Lastly, the business plan should include an examination of the hotel brand and any relevant material agreements. Both franchise and management agreements should generally be executed before an investor files his or her EB-5 petition, but, if not, the business plan should specify a timeline for finalizing these agreements and include letters of intent from franchisors and managers.

The above guidelines are general, and EB-5 investors and developers are, of course, encouraged to review the Matter of Ho ruling to determine the best course of action for their unique projects.

The Economic Impact Report

The EB-5 Program is meant to facilitate job creation, so the economic impact report is considered the most important document in an EB-5 application, as it calculates the number of jobs to be created by a hotel development project through construction and operations.

Calculation of construction jobs is fairly straightforward based on eligible hard and soft costs, whereas operations jobs are generally calculated using projected hotel revenue as specified in the financial statements included with the business plan. Revenue is generally calculated by multiplying the ADR by the occupancy rate, resulting in the RevPAR. All these figures should be included with the business plan, as well.

The following three issues concerning job creation may affect hotel projects:

• Tenant jobs. USCIS is strict on which jobs may count toward the job creation total. Jobs created by tenants of a development, such as restaurants or bars within the hotel but not owned by it, might not count toward this total and might therefore need to be excluded from the job creation projections.
• Operations jobs. If hotel construction lasts longer than expected, operations jobs may not count toward the job creation total, as USCIS has specified that jobs must be created within two and a half years of the approval of an investor’s I-526 petition. Developers must therefore time the EB-5 investment so as to ensure that the requisite ten fulltime jobs are created within that timeframe. For example, if construction is slated to begin when the EB-5 funds enter the project and is projected to take three years, only construction jobs from the first 30 months of the project can be used to fill the quota.
• Visitor spending. If the hotel will be operational within the timeframe specified above, visitor spending revenues can be used to calculate additional job creation in the region caused by the presence of the hotel. However, because USCIS requires the hotel to demonstrate that it will attract visitors to the region rather than simply capitalizing on an existing market of visitors, visitor spending is very difficult to prove in an EB-5 context. Each project should consider this facet of the economic impact model carefully based on its individual circumstances.

The Feasibility Study

The EB-5 petition should include a study using independent data to validate the financial projections from the business plan and economic impact report. This means the RevPAR, ADR, and occupancy rates used to calculate job creation as specified in those documents should be backed up by historical and industry data on the performance of comparable businesses within two and a half years of the stage at which the EB-5 investment would enter the project. The business plan, economic impact report, and feasibility study must be interconnected in that the calculations used in the first two documents should be based on figures from the feasibility study.

By following USCIS guidelines regarding these three documents, developers can take advantage of the opportunities offered by the EB-5 Program.