Sam Nazarian using Asian money to bankroll Sahara makeover

sahara.jpgThe L.A. nightclub and hotel operator bought the Vegas property in 2007, but he wasn't able to secure financing for a full-scale redevelopment. The answer came from the U.S. government's EB-5 program in which immigrants forking over $500,000 for American investments are able to get to the front of the line for green cards. As you might imagine, not everyone is thrilled with the arrangement. WSJ says that Nazarian has collected around $215 million from immigrants, most of them Chinese and Thais. That's more than half of what he needs. Construction was set to begin today (the hotel closed in 2011). The EB-5 program has become quite popular, both because traditional lending streams remain tight and because wealthy Asians are looking for ways of investing their money and living in the U.S.

Hotel developers and government officials trying to spur development say EB-5 helps create jobs. But others criticize the program because it gives rich foreigners advantages not available to poorer ones. Also, hotel competitors worry that the new projects created by the program will put downward pressure on room rates and occupancies. Jon Bortz, chairman, president and chief executive of Pebblebrook Hotel Trust, which owns 26 U.S. hotels, called the EB-5 program "a travesty" in that it allows some foreigners to buy their visas while less-affluent applicants can't. He added that hotels financed with EB-5 sometimes add rooms to markets when demand doesn't justify them. "The financing is cheap because it's from people who aren't looking for a return on their investment," he said.

As I noted in the December issue of Los Angeles magazine, the EB-5 program is becoming popular in L.A. as well. A 377-room Marriott Hotel under construction downtown is being funded by more than a hundred Chinese investors.

Although Congress first passed the program in 1990, participation was minimal because of a complicated application process and lengthy adjudication periods. Several years ago Congress loosened the mechanism by permitting the creation of privately owned "regional centers" (essentially investment firms) that allow money to be pooled, thus opening up larger business opportunities. Last year the United States issued 3,710 visas to Chinese investors--by far the most of any nation. The deal for the downtown Marriott, which is located in what's called a high-unemployment zone, was financed through the EB-5 system. A Seattle-based regional center called American Life brought the parties together. EB-5 hasn't been problem free. It was all but suspended between 1998 and 2003 because of various abuses, such as investors offering but never delivering the money and developers taking cash without building the project. Procedures have been tightened--EB-5 investors, for example, are now required to submit their money in advance of applying for a visa. Still, The New York Times reported last year that developers had used gerrymandering techniques--mostly by combining a high- and low-income census tract--to create the high-unemployment zones that require only a $500,000 investment.

Visit NBCNews.com for breaking news, world news, and news about the economy


More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent Travel stories:
Letter from Down Under: Welcome to the Homogenocene
American-US Air settlement with DOJ includes small tweak at LAX
A fallen soldier was aboard his flight to LAX
'Fasten your seatbelts' in song and dance (video)
14 California bookstores in nine days

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner


Advertisement
Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook