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Article by Martin H. Orlick

ADA Compliance & Defense Lawyer Update: 99 ADA lawsuits dismissed as fraudulent and malicious

JMBM ·21 November 2017
On October 26, 2017, a judge dismissed 99 ADA lawsuits, ordered an in forma pauperis plaintiff (a person without funds to pursue the cost of a lawsuit) to pay filing fees of $38,300 and authorized the defendants to file fee and sanction motions.Surely, this plaintiff's lawyer rues the day she answered an ad on Craigslist looking for a civil rights lawyer to file ADA litigation in her jurisdiction.What's going on?A Strange Set of CircumstancesThe Arizona-based organization, Litigation Management and Financial Services, Inc. (LMFS), a descendant of the notorious ADA plaintiffs' group Advocates for Individuals with Disabilities, used Craigslist, indeed.com and other online media to find and engage disabled plaintiffs to file ADA lawsuits, and lawyers to represent them. The online advertisements resulted in hundreds of ADA lawsuits filed against businesses in New Mexico, Nevada, Colorado and Utah.It is also how a disabled plaintiff and her lawyer came to file 99 ADA lawsuits in New Mexico, alleging each defendant's business violated the ADA and related anti-discrimination laws. According to court documents, the deal LMFS made with this plaintiff and her counsel, worked like this:The plaintiff was paid $50.00 per lawsuit filed.The plaintiff's counsel received $100 per filing for serving as counsel of record for each lawsuit filed.LMFS drafted all pleadings and defended any motion practice in exchange for the lion's share of any settlements that resulted from the lawsuits.LMFS also arranged for a driver to take the plaintiff to some -- but apparently not all -- of the businesses that were sued, for a photo-op.What the Court LearnedWhen the Court discovered that the plaintiff and her lawyer had filed 99 cases without paying filing fees (requesting fee deferrals based on the plaintiff's in forma pauperis status), the Article III Judge instructed the Magistrate Judge to investigate the circumstances. The plaintiff's counsel appeared at the hearing held by the Magistrate, but the plaintiff missed her bus and failed to appear (despite allegedly appearing at the sites of the 99 businesses she sued). Although the Court continued the hearing to a later date, the plaintiff's counsel took the opportunity to disclose the financial arrangement, including the fee agreement, she had entered into with LMFS in which LMFS agreed to pay all costs of the lawsuits, including filing fees. The Court ordered the plaintiff's counsel to produce a copy of her funding contract with LMFS, and the plaintiff and her counsel were ordered to appear and testify at an Order to Show Cause hearing into the fee waivers and the merits of the case.The HearingAt the continued hearing, the Court examined the plaintiff and her lawyer about the merits of the lawsuit and their relationship with LMFS. The plaintiff conceded that she did not visit a number of the businesses she sued and testified that she believed the lawsuits were "frivolous". The plaintiff's counsel was examined intensely about her fee sharing agreement with LMFS and LMFS' agreement to pay all costs, including filing fees. The counsel conceded the fact that the plaintiff had the financial resources to pay her filing fees through the LMFS fee sharing agreement.The Magistrate's Report, Findings of Fact and RecommendationsThe Magistrate Judge issued a report of findings and recommendations, finding that the lawsuits were malicious and should be dismissed. The report recommended that the plaintiff pay filing fees of nearly $35,000. The report left open the issues of sanctions, defense fees and costs.The Trial Court's DismissalAdopting the Magistrate's Report, Findings of Fact and Recommendations, the trial court dismissed the lawsuits as frivolous and malicious and ordered the plaintiff to pay filing fees of $38,300. The Court authorized the defendants to file motions for fees and sanctions against the plaintiff and her counsel, as well as third-party complaints perhaps against LMFS.Who are the Victims?Some suggest that these lawyers and plaintiffs who answered ads on Craigslist are the unwitting victims of LMFS, and did not intend to file malicious litigation. But abusive ADA litigation cannot be condoned under any circumstances. For decades, certain ADA plaintiff groups (though, not all) have attacked countless business owners, large and small, over often-minor infractions that could be quickly resolved. They have clogged an overworked court system with unnecessary litigation. And, in their quest to make an easy buck, they have done a tremendous disservice to the disabled community, which deserves better representation.This article was first published on Hotel Law Blog.
Article by Bob Braun

Homeland Security Warns Against Threats to US Infrastructure

JMBM ·30 October 2017
July was another notable month for hotel data breaches - on a single day, several well-known hotel brands and managers, including Four Seasons, Trump Hotels, Hard Rock Hotels & Casinos and Loews Hotels all announced that customer data may have been compromised as a result of a security failure. Each of the incidents is related to Sabre Hospitality Solutions' credit card data breach in its SynXis hotel-reservations system, which Sabre first announced in a quarterly filing with the Securities and Exchange Commission on May 17. Based on Sabre's investigation, Sabre announced that the breach was contained to "a limited subset of hotel reservations," but the incident did allow an unauthorized party to access cardholder names, payment card numbers, card expiration dates, card security codes for some, and, in some cases, guest name, email, phone number and address.Moreover, the duration of the breach was long quite long. Sabre's investigation determined that the unauthorized party first obtained access to payment card and other reservation information on August 10, 2016, and the last access to payment card information was on March 9, 2017. The hackers had potential access for seven months.Hotel owners and consumers are, unfortunately, common victims of security breaches - all of the major hotel brands and managers have been breached, often multiple times. In analyzing the breaches, there is something that is common to almost all incidents: the vulnerability was not with a hotel, its manager or brand, but with a vendor.Hotels are not alone, of course in relying on vendors. Companies in other high threat industries like finance, retail, and healthcare regularly work with third party vendors, and these third parties commonly have access to their clients' systems and may share or store clients' sensitive and highly-valued data. But this Sabre breach (and those of the past several years) shows us that no matter how well-protected a hotel is from a direct cyberattack, its networks and data may still be easily accessed through third parties with weaker cybersecurity protections. In one of the most famous (or infamous) breaches, the 2013 breach of Target, cybercriminals were able to steal the retailer's sensitive data by accessing its systems with credentials stolen from a vendor responsible for Target's HVAC systems. Similarly, in 2017, thieves stole Netflix's "Orange is the New Black" episodes from an audio post-production company, not from Netflix itself.The typical hotel management or franchise agreement requires the owner to abide by or adopt data security policies and procedures in conformance with the brand's or manager's standards and to comply with data security laws and regulations. As a result, even where an incident is the result of the manager's or brand's failure to adopt or maintain appropriate standards, the owner will likely be directly liable for a breach, and may be obligated to indemnify the brand or manager for any claims arising from a breach.Hotel owners are at a particular disadvantage compared to other companies, since hotel brands and mangers typically select vendors, like Sabre, for multiple properties and often for an entire brand. Hotel owners may have little, if any say, in the vendor, the terms of engagement, and the impact of a breach. However, under the typical hotel management or franchise agreement, the hotel owner is required to bear the cost of a breach, whether in terms of direct costs (including notifying potential victims and the increased cost of cyberliability insurance) and the indirect cost of diminished trust in the hotel.While managers and brands are reluctant to cede authority to owners, owners should take active steps to protect themselves and their properties:Review data security policies and procedures critically, and require changes where the policies don't reflect current laws and regulations and, most importantly, current cyber-threats. Training programs should include a strong cybersecurity and monitoring for implementation and effectiveness. Most incidents can be traced to human error or malicious intent, not solely to technical systems.Require brands and managers to impose security requirements on vendors and to ensure that vendors take responsibility for the cost of a breach.Analyze cybersecurity policies to confirm that they adequately cover direct and third party costs of breaches. Since insurance is often one area where a hotel owner has greater control, it can be used as a lever to create a more secure environment.Require that brands and managers develop and test effective backup systems; while theft of data is expensive and embarrassing, newer strains of ransomware, wiperware, and fileless malware have the ability to destroy business records, and only a functional backup system can protect the hotel and its business.
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Homeland Security Warns Against Threats to US Infrastructure

Hotel Law Blog | By Jim Butler·25 October 2017
Cybersecurity breaches and risk management continue to be a concern for businesses of all sizes and types. A recent warning distributed by the U.S. Department of Homeland Security and the FBI regarding targeted hacks in several critical industries is an illustration that anyone can be vulnerable such tactics, including the hospitality industry. My partner Bob Braun, senior member of JMBM’s Global Hospitality Group® and co-chair of JMBM’s Cybersecurity and Privacy Group, summarizes the recent report and its conclusions below.

It's Budget Season. What are you doing about it?

JMBM ·16 October 2017
Importance of budgetsIt's hard to overstate the importance of a budget in the relationship between a hotel manager and owner. The budget is the way that a manager describes, in black and white, how it plans to operate the owner's property; it is the document that translates operating standards into action, and how the owner can expect to profit from the manager's efforts. It is also an important opportunity to be sure that the operator is giving due consideration to the owner's financial expectations and/or exit strategies.Many of the larger independent management companies present a budget with little opportunity for dialog. In significant part, they diminish the direct impact of asset and property management teams. This means people sitting in an office 3,000 miles away make key budget decisions for properties that they have not seen or on markets they have not visited, based on STR reports and raw data. Generally, one would think that the property-level asset management team would be the best to guide the budget process because of their hands-on knowledge - not the corporate budgeting team.Budget challenges owners faceUnless owners have a wealth of operating experience or hire experienced asset managers, they will likely be at a severe disadvantage when they review budgets. Consider typical challenges of the budget timing and process:Managers typically deliver budgets to owners in early- to mid-November, which leaves only 45 to 60 days before the beginning of the new fiscal year. While an owner may be able to analyze and comment on the budget and propose changes, the process itself is lengthy and makes it difficult to complete in a timely manner. Operators have scheduling conflicts during that busy period, and typically take two to three weeks, or more, to prepare a response for the owner's review. Managers work on budgets almost year-round, and larger management companies have staffs that are dedicated solely to creating budgets. They have developed expertise in creating a budget that owners can only match by expending the necessary time and expertise, which takes a commitment that many owners don't understand; after all, didn't they already engage a manager for its expertise?No matter the level of owner approval rights - which range from what might be complete control to very limited influence - managers run the budget process and establish the assumptions underlying the budget, making it difficult to make changes. Leveling the playing field requires owners to engage asset managers to conduct a "shadow" budgeting process.The budget for any single year will impact budgets for years to come. While budgets are generally "zero-based," a budget for any given year is more realistically derived from the budget for the prior year, and budgets ultimately contain a variety of "legacy" items. While the old budget should, reasonably, provide a setting for the new budget, a variety of factors should (but often don't) get adequate consideration, including new labor agreements or laws, renovations and their implications, new supply, addition of new product internally (such as restaurants or bars), and outside influences, such as changes in the convention market and other drivers for the hotel market.Operators rarely provide great detail on the most significant cost to owners - labor expenses - and therefore do not give owners the opportunity to identify potential savings. Similarly, operators often give greater weight to occupancy than rate, which may actually reduce the profitability of a hotel.Owners should be proactive in the budget processBecause budgets are provided so late in the year, and with so little time to review, owners should do more than simply wait for them to be delivered. Owners should take steps not only to be ready for to review and comment on the budget promptly, but to become more involved in the entire budget process.So what should the owner do? First, treat the budget process like the manager does - as a continuing, proactive process, not a reactive exercise. Start considering how the budget should be shaped long before the manager delivers its proposal. Owners should consider providing objectives to the operator at the start of budget process as a way of expediting the process. In others words, provide the operator with a standard that ownership will accept in advance.Some good questions for owners to askOwners should look at the hotel and its results for the current year , and consider some key issues:What worked at the hotel? Where did the hotel stand out, whether it be in occupancy, achieving a high room rate, managing expenses, food and beverage or meeting revenue, and so on? New operator policies on staffing, new brand standards that can add hundreds of thousands of dollars to hotel operating costs.Just as importantly - perhaps more importantly - what didn't work? Was occupancy unreasonably high? Was the hotel unable to compete with its peers on rate? Did the hotel derive meaningful revenue from its restaurants, spa or other facilities? Are there new marketable products that need to be added to the hotel, such as F&B outlets or conferences centers? Should some facilities be leased or operated by third parties, like parking and restaurant operations?Remember that revenue per available room, the most common yardstick for a hotel's profitability, only tells part of the story. Is the hotel catering to the right mix of clients in order to meet and exceed budgets and owners' financial expectations?Does the current budget actually reflect current operations - how closely did the budget's forecast expenditures and revenues match results? This simple question may lead an owner to give greater, or lesser, weight to a manager's assumptions. Asset managers often meet with owners and operators monthly to cover payroll, costs and revenue assumptions. Analyzing those trends currently gives owners an advantage over waiting until budget time to evaluate operator performance.Did the manager propose revisions to the current budget? Did the manager revise the budget without approval? Has the manager (or brand, if the hotel is under a franchise) proposed or implemented changes to its programs? Managers and brands regularly revise centralized services, shared services, marketing programs, personnel, compensation and benefit programs and so on. All of these changes will need to be incorporated into a budget, and an owner should consider their impact early. Owners should also question whether there are changes planned for the coming year to make sure the manager incorporates those into the budget.Are there changes that the owner wants to implement in the coming year? Should there be changes to staffing, revenue management, programming or operations?Having addressed these issues early, an owner is in a position to approach the manager early in the budget process to make the manager aware of the issues that need to be addressed in the budget or, at a minimum, to respond promptly and effectively to the manager's proposal.Finally, the owner should require the manager to meet with the owner and its representatives to discuss the budget. Simply submitting comments is unlikely to be enough to effect real change; there needs to be interaction between the owner and manager.ConclusionWhile some owners have the resources to take these steps, most owners do not, and should consider engaging advisors, including experienced asset managers, to assist in the process. In addition, while a manager's failure to meet budget projections is rarely a breach of a management agreement, the budget process is a key element to the manager's performance; where issues exist with a manager's performance, legal counsel should be consulted to ensure that all of the owner's alternatives are considered.At the same time, waiting until receiving the budget is a practice doomed to failure. Using a golf analogy, the reason that golfers keep score on every hole is so they can clearly understand their performance long before the game is finished and can make adjustments after every hole. Likewise and owner needs to evaluate his operator's performance weekly and monthly. They should not wait until budget time to see whether the operator has passed or failed.The JMBM Global Hospitality Group works hand in hand with owners and their asset managers and other advisors during the budget process. We work to craft management agreements that ensure that the budgets are meaningful in content and delivered in time to allow for true analysis. After the management agreement is completed, we assist in analyzing the performance and responsiveness of managers to protect owners on an ongoing basis.
Article by Jim Butler

How to avoid litigation on Resort Fees and other mandatory hotel charges

JMBM ·13 October 2017
In evaluating what you should do about the new furor over mandatory hotel charges, it would be helpful to have a clearer understanding of what the FTC seems to be saying on the issue. The chart below is our translation into "street English" of the FTC pronouncements discussed earlier. (See How Resort Fees became an explosive $2.7 billion issue which contains links to the original FTC press release of November 29, 2012 and the most recent FTC Economic Analysis of Hotel Resort Fees of January 2017.)We believe we understand what the FTC is saying. We may not agree with it. We do not know whether the Trump administration will rein in the FTC on its perceived mission regarding resort fees, and we do not know whether the current FTC position will be upheld as a valid interpretation of the law. However, courts normally accord great deference to the interpretation of agencies charged with administering their laws, and it is imprudent to ignore the FTC's recent actions.In weighing options, even if they ultimately win on legal issues, hoteliers should also consider the negative effects of litigation -- including direct costs in terms of legal fees, senior management time, and good will. And there are a number of worrisome plaintiffs who may pursue the issue, including the FTC, State Attorneys General, other governmental and consumer groups, and class action plaintiffs' lawyers. Any victories by the hotel industry may be largely offset by the costs to obtain them.So what are your options on mandatory Resort Fees?The basic thrust of the actions by the FTC, the investigation by the State Attorneys General and most consumer class action suits is that it is a deceptive and misleading business practice for hotels to advertise their room rate online unless the first and most prominent price given includes all mandatory Resort Fees and other charges. They say that it is not sufficient to give the room rate and then have a less prominent disclosure of additional charges.The issue here is really about what disclosure must be made and how it should be made if you charge mandatory fees that are not included in the room rate you quote in advertising and online.For the sake of argument, let's say that the FTC position expressed in the January 2017 analysis was "the law" or that for business reasons you want to develop policies and procedures for Resort Fees that should avoid these Resort Fees issues. The following matrix provides a general guideline as what to options or approaches you might take and the corresponding disclosures.Key terms used in the matrixIn the matrix below, "Fees" is used as a shorthand expression for all mandatory fees and charges, i.e. resort fees, service fees, amenity fees, surcharges or other non-optional charges to the guest which are not included in the quoted room rate."Total Price" means the total of room rate plus any mandatory fees or charges as a single sum. For these purposes, Total Price does not include applicable taxes because we are not aware of any claim that taxes are a necessary part of price disclosure, although one can imagine such a claim being made. Taxes are distinguishable from other Fees or charges for services in that they are a direct pass through of governmental impositions which must be paid over to third parties, they are not at the discretion of the hotel, and they do not benefit the hotel.Resort Fee Litigation Exposure Matrix(mandatory fee options and necessary disclosures) Policy on Fees What is disclosed and how Legal issue? No Fees Total Price (i.e. in this case, it is the room rate) No issue No Fees Charge only for services used (i.e. optional with guest usage) Total Price (i.e. in this case, it is the room rate)No disclosure on optional services required in online ads No issue Charge FeesTotal PriceTotal Price must be the first and most prominent price No issue Charge FeesList Fees separately breaking out Total Price to show room rate and Fees Total PriceTotal Price must be the first and most prominent priceAfter Total Price (or right next to it), disclose portion of cost that is mandatory fee No issue as long as Total Price is first and most prominent price Charge Fees Room rate is first price mentioned and Total Price and/or Fees are disclosed later or in smaller or less prominent font YESThis is drip pricing; the current hot issue with the FTC and 47 State Attorneys GeneralWe also expect this will likely trigger a new wave of class action claims Remember: Resort Fees are not illegal. This is all about disclosure.For the last two decades -- as long as this issue has been rankling consumers and government agencies -- no one has ever suggested that mandatory fees are illegal or improper! The only issue is about the disclosure that must be given on pricing.So even if a hotel decides to take the most conservative approach on disclosure, the hotel can still charge the Resort Fee and display this charge separately. The Uniform Standards of Accounting for the Lodging Industry, 11th edition, provides that these mandatory charges are not accounted for as rooms revenues (but rather as "Miscellaneous Income"). Therefore, the significant mandatory fees should still be exempt from various charges on "rooms revenues" such as transient occupancy taxes, franchise fees, frequent traveler program charges and the like. And hotels can still provide their guests with a big bundle of amenities and value at a discounted price.The biggest problem for a hotelier in moving to position advocated by the FTC and consumer groups is the competitive disadvantage when consumers compare pricing online. The first hotels listing Total Price as the first and most prominent price may lose business to those that list only room rate with mandatory fees in the fine print. But that is part of a different discussion for another day.For more information about Resort Fee issues, including the latest updates, go to www.HotelLawBlog.com, scroll down the right-hand side under LEARN MORE ABOUT and click on "Resort Fee Litigation" where you will find all the articles on the subject.
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Hotel Lawyer: Tips on negotiating your annual hotel budget

Hotel Law Blog | By Jim Butler· 9 October 2017
It is budget season again — that time when operators and owners sit down to agree on the financial blueprint for the next year. My partner Bob Braun has worked on many hundreds of hotel management agreements and issues arising under them. Today, he shares some insights about the how to maximize the budget opportunity for constructive dialog between owners and operators.

Resort Fee Litigation Advisory Group: How Resort Fees became an explosive $2.7 billion issue

Hotel Law Blog | By Jim Butler· 6 October 2017
Resort Fees are a $2.7 billion issue — a juicy target for Federal and State governments as well as plaintiffs’ lawyers. It is very likely that the Resort Fee issue will present challenges in the near future to all stakeholders in the hospitality industry. The prior articles in this series talked about what Resort Fees are, and key developments that warn of an eruption of government and private claims over Resort Fees.

Resort Fee Litigation Advisory Group: National task force of 47 Attorneys General goes after Resort Fees

Hotel Law Blog | By Jim Butler· 3 October 2017
esort Fees: It is not just the FTC. Now there are 47 Attorneys General focused going after perceived abuses of Resort Fees Consumer complaints have been protesting Resort Fees for almost two decades. In 2012, the FTC took its first major action. The hotel industry took some action, but many consumer groups and regulators apparently don’t think it is enough. In May 2016, a national investigation was initiated by the Attorneys General of 46 states and the District of Columbia as to whether DC’s consumer Protection Procedures Act (the “CPPA”) and similar acts of other states have been violated by deceptive price advertising techniques related to drip pricing regarding Resort Fees.
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Resort Fee Litigation Advisory Group: An eruption of government and private claims over Resort Fees? Part 1 - The FTC 2017 Report

Hotel Law Blog | By Jim Butler·29 September 2017
Two significant developments may signal an eruption of government and private claims over Resort Fees — (1) publication of the FTC 2017 Report and (2) commencement of proceedings regarding Resort Fees by a national task force of Attorneys General for 46 states plus the District of Columbia. This article focuses on the FTC Report. The next article will discuss the national task force.
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Resort Fee Litigation Advisory Group: Impending eruption of litigation over Resort Fees?

Hotel Law Blog | By Jim Butler·25 September 2017
Impending eruption of government and private litigation over Resort Fees (mandatory service fees) There were earthquakes and tremblors for at least 17 years before Pompeii was destroyed in the catastrophic eruption of Mount Vesuvius in 79 AD. The past is prelude. What are Resort Fees?

Hotel Lawyer: Tax Alert for Partnerships and LLCs

Hotel Law Blog | By Jim Butler·18 September 2017
As of January 1, 2018 owners of General Partnerships, Limited Partnerships or multi-member Limited Liability Companies may soon find themselves economically liable for the unpaid tax of former partners/members of those entities. JMBM Tax Attorney Jamie Ogden briefly describes the new audit regime, who it affects, and what you need to do to protect yourself from uncertainties.
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Hotel Lawyers at The Lodging Conference 2017: EB-5, Mixed-Use Development and Deal Making

Hotel Law Blog | By Jim Butler·18 September 2017
The Lodging Conference is taking place at the Arizona Biltmore in Phoenix, October 30-November 2, 2017, and hotel lawyers from JMBM’s Global Hospitality Group® will be there to visit our friends in the hospitality industry, share our knowledge, learn from the experts (and do some deals!). At the conference, I will moderate the panel, Navigating the EB-5 Landscape taking place at 4:00 pm on October 31st. Funding obtained through the EB-5 Immigrant Investor Visa program continues to play a vital role in the capital stack for new hotel development and we will provide up-to-the-minute information on the status of the program, as well as share some great success stories. To get up to speed on what’s happening with EB-5, check out my recent blogs.

EB-5 Finance Lawyer: President's Trump's budget deal includes extension of EB-5 through 12-8-17

Hotel Law Blog | By Jim Butler· 7 September 2017
President Trump’s budget deal with Congress includes extension of EB-5 through December 8, 2017 In a message to members of the Public Policy Committee today, the IIUSA confirmed the extension of the EB-5 regional center program as part of the budget deal struck yesterday by President Trump and Congressional leaders.

JMBM's Global Hospitality Group Announces the Publication of an EB-5 Handbook for Developers

JMBM ·17 August 2017
LOS ANGELES -- JMBM's Global Hospitality Group(r) and EB-5 Finance Grouptm are pleased to announce the publication of The Developer's EB-5 Handbook for EB-5 Construction Financing, a "must-read" resource for developers who are considering using EB-5 financing to complete or enhance their capital stack for construction projects. This is the much talked-about and often (inappropriately) maligned EB-5 program, also known as the immigrant investment visa program.While there are many pending developments that could affect the EB-5 program, this is still a good time to learn how the program works and why so many developers have used EB-5 financing as part of the capital stack for their new projects. The Global Hospitality Group has developed an approach to guide clients through the EB-5 process with a minimal amount of financial risk to find and evaluate the reliable players and execute financing with a high degree of confidence.The Developer's EB-5 Handbook is written to help developers assess the potential opportunities for EB-5 financing while avoiding potential traps for the unwary. Written by legal and business advisors to top developers with great projects in the United States, the Handbook includes articles addressing the following topics:What is EB-5 all about? What are its essentials?Is EB-5 still viable for developers with everything going on today?How can you evaluate an EB-5 construction financing opportunity for your project?What is the optimum EB-5 construction financing structure for development projects?What drives the size and terms of EB-5 financing in the capital stack?How much? How cheap? How certain? How long?How can you spot key "show stoppers" before you get too involved?What are the most common mistakes developers make with EB-5 financing?Who do I need on my EB-5 financing team?To download a free copy of The Developer's EB-5 Handbook, go to the Resource Center on HotelLawyer.com.If you would like to discuss any of the issues presented in the Handbook, please contact us:
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EB-5 Finance Lawyer: The Developer's EB-5 Handbook is now published

Hotel Law Blog | By Jim Butler·15 August 2017
JMBM’s Global Hospitality Group® and EB-5 Finance Group™ are pleased to announce the publication of The Developer’s EB-5 Handbook for EB-5 Construction Financing, a “must-read” resource for developers who are considering using EB-5 financing to complete or enhance their capital stack for construction projects . This is the much talked-about and often (inappropriately) maligned EB-5 program, also known as the immigrant investment visa program.
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EB-5 Financing Lawyer: What JMBM does to help developers with EB-5 financing

Hotel Law Blog | By Jim Butler· 6 August 2017
Client confidentiality precludes us from listing clients and projects we have assisted with this program, but suffice it to say that some of the best known names in the business are tapping into this funding source to fill out their capital stack at a favorable cost. And we have helped some of the biggest and highest profile players. JMBM has closed more than $1.5 billion of EB-5 financing and has sourced more than half of that for our development clients.
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EB-5 Financing Lawyer: Why you do NOT want to form your own regional center

Hotel Law Blog | By Jim Butler· 4 August 2017
Although the EB-5 immigrant visa program has been around since 1990, the current trend of using it as a source of financing for hotel and other real estate started 20 years later – around 2010. We worked on one of the first hotel EB-5 financings for the W Hotel & Residences in Hollywood, and we have since worked on more than 100 EB-5 projects all over the country. Now, the use of EB-5 financing for construction has gone mainstream. High profile EB-5 financing closings include $450 million for the Century Plaza Los Angeles, $100 million for the Ritz Carlton & JW Marriott in downtown Los Angeles, $150 million for the Waldorf Astoria in Beverly Hills, and $1 billion for the Silverstein project at the World Trade Center in New York City (with a Four Seasons Hotel).
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EB-5 Financing Lawyer: The 5 questions every developer is asking about EB-5 financing

Hotel Law Blog | By Jim Butler· 2 August 2017
The use of EB-5 financing has exploded over the past 8 years as an important funding source for new development – particularly for hotel developments. It is clearly now part of the “mainstream.” It is used by many institutional players, including government entities such as port authorities, major hotel brands like Marriott and Hilton, and some of America’s most successful and respected companies, such as Great Wolf Resorts, the Related Companies, and Silverstein Properties.
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EB-5 Financing Lawyer: EB-5 construction financing term sheet for top developers

Hotel Law Blog | By Jim Butler· 1 August 2017
JMBM believes that for most developers, EB-5 financing is best structured as mezzanine debt or preferred equity, to optimize the total amount of financing and reduce the cost of the capital stack. Normally, senior construction debt (secured by a first priority lien) will be significantly cheaper than EB-5 money, but senior lenders (particularly if the subject project is a hotel) rarely lend more than 50% to 55% of the total cost of construction. Most of our clients like to use this cheap senior debt and then add some low-cost EB-5 mezzanine debt on top of it to get total loan-to-cost ratios up to 80% or more.
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EB-5 Financing Lawyer: FAQs: Essentials of EB-5 construction financing for developers

Hotel Law Blog | By Jim Butler· 1 August 2017
EB-5 is a provision in the United States immigration laws. It is the fifth “Employment Based” immigration provision providing expedited visa processing (hence “EB-5”). The program is a win-win-win arrangement, giving wealthy immigrants the opportunity to earn a “fast-track” to US citizenship if they make a minimum investment of $500,000, and create a minimum of at least 10 new jobs in the United States. In return, communities get the benefit of economic stimulation created by this investment and the new jobs. And developers get a valuable source of financing for new projects that is otherwise more difficult to obtain and more expensive from other sources.
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EB-5 Financing Lawyer: How JMBM has helped developers close more than $1.5 billion of EB-5 construction financing for development

Hotel Law Blog | By Jim Butler·29 July 2017
EB-5 financing is an important and viable source of construction financing for hotels, hotel enhanced mixed-use, and other development projects. Eight years ago, when JMBM started helping hotel developers with EB-5 financing, many worried about whether this is a legitimate and reliable financing source. Now, after billions of dollars of development have been funded with EB-5, this type of financing is regarded as mainstream. It is used by many institutional players, including government entities such as port authorities, major hotel brands like Marriott and Hilton, and some of America’s most successful and respected companies, such as Great Wolf Resorts, the Related Companies and Silverstein Properties.

EB-5 Finance Lawyer: Are hotels still the darling of EB-5 financing?

Hotel Law Blog | By Jim Butler·25 July 2017
The EB-5 immigrant investor visa program has provided billions of dollars of affordable construction financing for a wide variety of projects ranging from high tech and alternate energy to traditional types of commercial real estate. Over the last decade, EB-5 investors have overwhelmingly chosen real estate projects, particularly those with hotel, multifamily, senior living, and mixed-use components. While the enabling legislation for the program does not limit the type of project financed, it does require that at least 10 new jobs be created in the United States for each investor seeking a visa. This article discusses why hotels are consistently among the investments most favored for EB-5 financing, and why they are likely to remain so for some time to come.
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Tips to avoid the 6 most common mistakes developers make with EB-5

Hotel Law Blog | By Jim Butler·20 July 2017
EB-5 generates billions of dollars of affordable construction financing for developments located in the United States that create new jobs for US citizens. JMBM’s EB-5 financing group has closed more than $1.5 billion of EB-5 financing for our clients’ development projects, and we sourced more than half of that amount. Although there are many exciting success stories, we see developers frequently blundering into a small number of easily avoided mistakes, which can be very costly. So here is our short list of the mistakes and tips to avoid them.
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Hotel Cybersecurity: Protecting your guests and your property from vendor data breaches

Hotel Law Blog | By Jim Butler·19 July 2017
Hotels rely on third-party vendors to help run their properties efficiently, and often must give them access to sensitive guest data. This leaves hotels vulnerable to cyber attacks; they’re only as secure as their vendors are, and may find themselves directly liable for a data breach. My partner Bob Braun, senior member of JMBM’s Global Hospitality Group® and co-chair of JMBM’s Cybersecurity and Privacy Group, discusses recent hotel cybersecurity breaches and how hotel owners can protect themselves.
Article by Jim Butler

The Lodging Industry Investment Council's Top Ten: investment trends and challenges

JMBM · 1 June 2017
For well over a decade, the members of the hotel industry's preeminent think tank, "LIIC - The Lodging Industry Investment Council," are annually surveyed to develop a list of the major hotel investment opportunities and challenges for the coming year. This exhaustive survey results in the LIIC Top Ten; a highly regarded profile of investment sentiment and attitudes for the lodging industry for the forthcoming 12 months. Altogether, the members of LIIC represent direct acquisition and disposition control of well over $40 billion of lodging real estate.Members are highly active and have the pulse of the market, with 45% of LIIC hotel investors having successfully purchased a hotel in the last 12 months and an additional 16% having made offers but not been the winner. Moreover, 76% plan to sell a hotel over the next 24 months.The hospitality industry's most influential investors, lenders, corporate real estate executives, REIT's, public hotel companies, brokers and significant lodging equity sources are represented on the Council. LIIC serves as the leading industry think tank for the lodging business (www.liic.org).Mike Cahill, LIIC co-chairman, produced this year's survey (www.mikecahill.com). Mr. Cahill is CEO and Founder of HREC - Hospitality Real Estate Counselors, a leading international hotel and casino brokerage and advisory firm (16 offices nationwide) specializing in lodging property sales, debt financing, consulting, appraisals and litigation support (www.hrec.com). Nate Shartar and Alexander Cammarata, Associates in HREC's Denver office, assisted throughout the process.2017 Top Ten LIIC Survey ResultsHotel Real Estate: Forecasting Clear Skies with Some Clouds and Slightly Cooling Temperatures: Overall, the 2017 LIIC Survey is more positive than 2016 and starkly different than the peak year survey in 2015. Responses reveal a calmness, compared with wide spread nervousness in April 2016. Chinese investment is expected (36%) to slow slightly and Brexit's impact on US hotels is considered slight. Private Equity followed by Listed REITs are predicted to dominate the purchase of Upscale to Luxury hotels; while, Regional Owner/Operators are projected to dominate the purchase of Economy to Upper Midscale hotels.Movement in the Hotel Real Estate Cycle?: Most investors (68%) believe we are still in the extra innings of the current cycle which began in 2009; however, an astute, highly intelligent minority (32%) believe we have begun a new cycle. Projections for the US economy are positive, with 60% forecasting GDP growth averaging greater than 2% over the next 24 months.Asset Pricing Bid/Ask Settles, Values Flat to Maybe Increasing: Over the next 12 months, 54% project that lodging real estate values will be flat in comparison to 2016. However, a sizable group (36%) forecast a slight increase in values (up to 5%). Favorite investment target, Upper Upscale lodging properties.2017's Greatest Threats to Hotel Investment?: The top three threats on the horizon:New Lodging Supply: 90% of LIIC members cited new hotel supply as the current and dominant top investment concern. Hypocritically, 81% are building new lodging assets.Increasing Interest Rates: With interest rates increasing gradually up to 100bps over the next 24 months, sellers need to understand the impact on asset pricing for hotels they are looking to sell.Government Mandated Minimum Wage Increases: Investors (28%; down from last year) are threatened by government mandated minimum wage increases and the corresponding impact on hotel operating costs (74% anticipate a gradual negative impact over the next five years).Hotel Transaction Market Continues Slight Cooling: 52% of responders forecast the total dollar volume of U.S. hotel transactions in calendar 2017 will be down relative to year-end 2016 and 22% believe volume will be flat. Similarly, 46% believe the number of assets sold to be down; while, 32% anticipate the number of assets sold to be flat.Hotel Debt Available, Yet Less Favorable: Hotel investors are "debt leery" causing 56% to seek refinancing of existing debt over the coming year even though 52% believe the optimum refinance window closed in the last six months. Owners have more concern with interest rate increases on senior debt than lender's available leverage percentages.Lodging Development Marches Along: Investor attitude stays positive on the concept of building new lodging properties. As to developing hotels, 66% of LIIC responds "yes, if you are selective about product and markets". Respondents are putting their money behind their votes, with 81% of relevant LIIC members having new hotels actively under development.Want to Buy a Hotel? Quantity and Quality: Quantity: 42% of investors believe that a "below average quantity" of hotels are available for purchase closely followed by 44% at "average quantity." Quality (desirability to purchase): 52% believe the quality is average and 28% suggest negatively "slightly worse than 2016".Markets NOT to Invest in?: LIIC members were asked which of the top 25 markets they "would not consider buying a hotel" in: Houston, TX (64%), Nashville, TN (32%), Detroit, MI (28%), New York, NY (28%), St. Louis, MO-IL (28%)Sleeper - where to buy? New Orleans! Not one vote against recorded.Marriott and Starwood Merger? If you own a Starwood branded hotel, 36% surprisingly believe the value of Starwood lodging investments have increased specifically due to the merger. On the other hand, the primary concern (22%) stressing hotel owners is decreasing negotiating leverage with Mega Marriott going forward.LIIC Bonus Questions:Looking forward, the "hotel investment illuminati" predict:Buyers paying package (5 or more hotels) premium? Maybe not anymore, 53% say no and 47% yes.Congrats to the 13% of LIIC members that last year predicted the Trump Presidential victory; interestingly, 44% now say the Trump Administration is positively affecting hotel ownership.When staying at a hotel on a multiple day business trip, LIIC's greatest "Pet Peeves" are (1) painfully slow internet, (2) uncomfortable bedding, and (3) noise (hallways, PTACs, and outside traffic). Other "Peeves" include paparazzi, breakfast not starting early enough, and the cost of items in the snack shop being too expensive.For additional information, please contact:LIIC - The Lodging Industry Investment Council www.liic.org Co-ChairmenMike Cahill, CEO & Founder, HREC: mcahill@hrec.comSean Hennessey, CEO, Lodging Investment Advisors: shennessey@lodgingadvisors.comJim Butler, Partner, JMBM - Jeffer Mangels Butler & Mitchell, LLP: jbutler@jmbm.com

Meet the Money 2017 Presentations Now Available for Download! - By Jim Butler

JMBM ·22 May 2017
The conference will return May 7-9, 2018-Watch www.MeetTheMoney.com for program and registration information.In the meantime, you can download all the presentations the conference completed last week from the RESOURCE CENTER at www.Hotel.Lawyer.com, or individual presentations as listed below:2017 LIIC Top Ten. Mike Cahill, CEO and Founder of Hospitality Real Estate Counselors (HREC) rounds up LIIC's annual member survey results. What markets should you avoid? Where are we in the hotel real estate cycle? Challenges and trends are identified in the LIIC Top Ten for the current year.Hotels Values & Cap Rates. Suzanne Mellen, Senior Managing Director of HVS, provides valuable data on historical hotel sales from 2006-2017 (total dollar volume and price per key), hotel transaction volume (year-over-year and by quarter), most active markets for the past 3 years, hottest urban markets, most notable sales, and what is happening to hotel cap rates.Hotels Trends: Public Market Perspective. Michael J. Bellisario is a Senior Research Analyst at Baird. His presentation includes an overview of the US hotel capital markets including stock performance, industry fundamentals, valuations, capital allocation strategies, and insights on current transactions, trends and forecasts.California Hotel Market Overview. Alan X. Reay, President of Atlas Hospitality provides an overview of the California hotel markets -- current and historic analysis of sales volume, median price and performance by local market. There is data for every year from 2001 through the present. Alan also sees some interesting similarities and differences between the 2016 California hotel market with that of 2007. Could history be repeating itself?The Boutique Hotel Report 2017. Kim Bardoul, Consultant at Highland Group provides The Highland Group's 2017 data-filled report on the boutique hotel industry, including lifestyle hotels, soft brand collections and independent boutiques.U.S. Lodging Industry 2017 - Good For Some; Cautious Optimism For Others. In this presentation, Daniel Lesser, President & CEO of LW Hospitality Advisors(r), points out the strengths, weaknesses, opportunities and threats in his U.S. Hotel Industry SWOT Analysis.Bright Horizons....Dusty Dawns. Mark Woodworth, Senior Managing Director of CBRE Hotels, discusses the state of the economy, the impact new supply has, buyer and seller markets, and forecasts for the rest of this year and 2018.Three Issues for Real Estate. Keynote speaker, Dr. Richard K. Green, Chair, Lusk Center for Real Estate, University of Southern California, breaks looks in detail at 3 key issues affecting real estate and the economy: tax reform, the Fed and mortgages, and trade. But there is a bigger issue. Dr. Green goes in depth to answer these questions and discuss the principal source of U.S. manufacturing job loss (hint: it's not trade).Fine Tuning Management and Operations for Greater Profit and Value. Michelle Russo, CEO & Founder of HotelAVE, and her panel present a very timely issue. As the hotel industry enters its 7th year of recovery, we may have gotten laxe in driving revenues and controlling costs. What tools and components are necessary or unnecessary?

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