Special Report Who’s Who In Real Estate: Joseph C. McCarthy

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As a principal at American Dream Fund, Joseph McCarthy has helped raise more than $200 million for various hotel projects through the EB-5 immigration investment program that grants visas to overseas investors who facilitate the creation of at least 10 full-time and permanent jobs. American Dream Fund recently raised $20 million for development of the W Hollywood hotel and is now working with L.A. hospitality company SBE Entertainment Group to finance new locations for its SLS Hotel brand, including a project to renovate the Sahara Hotel & Casino in Las Vegas.


When and how did you get started in the hotel business?

My familiarity with the hotel industry grew through my involvement with the EB-5 immigration investment program. Our company explored numerous industries and investment opportunities to learn what best fit the requirements of EB-5 as well as the interests and appetite of overseas investors.


Why are hotels particularly attractive for EB-5 investors/financing?

Hotels are familiar to investors both overseas and domestically. It is an industry that is easy for foreign investors – largely based on their own personal and professional experience – to understand and appreciate. Hotels also fit the legal requirements of the EB-5 program well. The EB-5 investment visa is predicated on high-net-worth individuals making investment in new American enterprises, and their investment must be shown to create 10 new jobs. Most overseas investors are interested in making investments into real estate-based projects, and hotels are one of the more job-intensive real estate investments available in the EB-5 market.

How do you decide which hotels to finance?

At a minimum, the project must fit into the legal requirements of the EB-5 visa; job creation is the most important, but there are other secondary requirements that must also be met. After that, investors look for projects where jobs created will last two or three years and can offer reasonable expectation of recouping their capital investment after five years. For this reason, we look for projects that are stable, have well-established developer and operator backing, are located in strong markets such as Los Angeles, offer a conservative development model, involve capital and equity from multiple sources and are willing to commit to the EB-5 process. Anecdotally, a good marketing hook to distinguish a project from other hotel projects in the market never hurts either.

Do you prefer to finance ground-up construction or renovations? Why?

In general, ground-up development fits the mold of EB-5 investment better, because purchasing an existing hotel doesn’t typically generate new jobs over and above the existing number of employees. However, our company has experience in renovating older hotels that have been closed for some time, where the jobs of the previous hotel no longer exist, and this has been an acceptable and productive model for the EB-5 program.

What makes hotels a good investment now? How long do you see the construction boom lasting? Why?

I’m not sure I’m qualified to speculate on how long the construction boom will last, but I will say that the fundamentals that make for a good hotel investment now as a traditional market investment are likely the same for what would draw interest from EB-5 investors, save for the additional immigration requirements. Our experience has shown that overseas investors remain aware of market conditions, particularly for real estate, in the United States.

What’s the most challenging part of putting together a package for a hotel project?

The most challenging part of putting together a successful hotel project is marrying the different timelines of the project and the immigration process. We have seen great strides recently from Citizenship and Immigration Services to be more responsive to the exploding number of EB-5 visa applications, but, ultimately, they are limited by available resources and a superseding interest in ensuring the program is administered in accordance with national security and immigration policies. For less experienced EB-5 operators, this time line can drag on for considerable lengths and we are frequently told by development partners, “Time kills deals.”


What is the most rewarding?

The most rewarding aspect of an EB-5 project is meeting with families that successfully immigrate to the United States as a result of a project. The traditional EB-5 investor has a spouse and children, and the reason we hear most clients are interested in relocating to the United States is because of educational and other opportunities for their children. EB-5 immigrants often develop solid roots in their communities, purchasing houses, enrolling children in schools and even starting new businesses here in Los Angeles.


What is your favorite hotel that you have not been part of?

Watching the success of the W Hollywood and what that project has done for the surrounding area has been remarkable. The conversion of the iconic Sahara Hotel in Las Vegas into the SLS, which is currently under construction, is something we’re equally excited to watch.

– Bethany Firnhaber

Financier

Joseph C. McCarthy

Title: Principal

Company: American Dream Fund LLC

Location: El Segundo | Age: 38

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