A key piece of convention hotel funding is up in the air
KENT DARR Nov 4, 2015 | 9:38 pm
3 min read time
808 wordsBusiness Record Insider, Government Policy and Law, Real Estate and DevelopmentThe bank account of an immigrant investor program that could pump $20 million into a Des Moines convention center hotel stands at $0 and is likely to stay at that level pending action in Congress.
Uncertainty about the program’s fate is keeping investors at bay, said Patrick Hogan, president and CEO of CMB Regional Centers in Rock Island, Ill. That entity, as the program exists today, would line up 40 foreign nationals willing to invest $500,000 each in the hotel in exchange for permanent visas for themselves, their spouses and their children.
“There are no investors for the Des Moines project,” Hogan said. “The problem is how do you do a loan agreement or partnership agreement when you don’t know what the law will be. We know we can go out there and raise the money. We’re a company that has no problem raising money overseas because we have not had a project failure.”
But for now, investment funds have been “shut off like a spigot,” he said.
The $20 million from what is called the EB-5 program was considered a long-sought solution to filling a gap in the complicated financing of the $101 million Iowa Events Center Hotel. That financing package got the approval Tuesday of the city of Des Moines Urban Design Review Board and should be presented Monday for City Council approval.
The package includes an array of tax increment financing, reimbursements of sales taxes and state hotel/motel taxes that would be generated in a 25-acre state-approved development district in downtown Des Moines, bond sales, a special user’s fee at the 330-room hotel and a bank loan that in and of itself could be a complicated affair. Hilton Worldwide Inc. will pay $3 million for the privilege of hanging its name on the structure. Greater Des Moines businesses have pledged $4 million.
As for the EB-5 funds, well that’s up in the air. If that money is not delivered, Polk County will lend $20 million to the project and pay for its generosity by stretching out the principal and interest payments on the Iowa Events Center for an extra year, said Polk County Administrator Mark Wandro.
“We’re hoping that doesn’t happen,” Wandro said. A loan is not the “first preference” of the Polk County Board of Supervisors, he said.
Hogan has been involved with the EB-5 program for more than two decades, and he says it is ripe for reform.
Sen. Charles Grassley is among those calling for changes. He wants improved vetting of investors and their funds. He wants the minimum investments increased, and he wants to stop the gerrymandering of what are called targeted employment areas. At the top of his list is that the program should benefit rural areas and areas of high unemployment.
Hogan’s on board on all fronts. He said that in some areas of the country, New York City and Texas come immediately to his mind, developers have used rivers and other “zero population” census tracts to create areas with high unemployment levels that qualify for a minimum investment of $500,000 per individual, with the promise that 10 jobs will be created.
In Des Moines, Hogan has compiled a targeted employment area that consists of multiple census tracts that are contiguous to the convention center hotel at Fifth Avenue and Park Street. He did so because the unemployment rate in the census tract where the hotel will be located is too low to qualify for the $500,000 investment.
But that kind of mapmaking is OK, Hogan said, because the census tracts he compiled for Des Moines are contiguous.
In fact, everything about the Des Moines proposal, from the financing to construction costs, should make the hotel a sure bet for EB-5 financing, providing the program survives, Hogan said.
Grassley has been calling for changes for nearly two years. The program was due to expire or be reauthorized Sept. 30. With competing congressional proposals on the table, the program was extended to Dec. 11 as part of a resolution to fund the federal government through that date.
Grassley said in early October that he would not support an extension of the program beyond that date unless a reform measure has been adopted.
Meanwhile, the city of Des Moines, Polk County and the IEC Hotel Corp., the nonprofit group that will own the property on behalf of the county, are putting the finishing touches on an application for EB-5 funding that they plan to submit by Dec. 11, Wandro said.
Hogan hopes it all falls into place.
After a previous failed attempt at funding an Iowa project — that was the developer’s fault, according to Hogan — the Des Moines project has all the right pieces for a successful development, one that will show Grassley that the program can put people to work in his state, Hogan said.
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