Seattle-based American Life uses unique financing options, including EB-5, to build its hotel portfolio. President Greg Steinhauer hopes uncertainty surrounding the U.S. government’s immigration policy doesn’t change the availability of those options.
LOS ANGELES—EB-5 has been a boon for American Life.
The Seattle-based company has parlayed the U.S. government’s EB-5 Immigrant Investment Program into a half-billion-dollar hotel portfolio that includes high-profile assets it intends to hold, according to President Greg Steinhauer.
“We like to do urban infill complex projects close to city centers that are hard to duplicate and are protected,” said Steinhauer, who is a Seattle native and graduate of the Wharton School of the University of Pennsylvania. “When markets are good, you have pricing power, but when they’re bad, you suffer like everybody else. But it snaps back quicker.”
The company’s portfolio includes the Residence Inn/Courtyard by Marriott dual-branded LA Live complex in downtown Los Angeles; a TownePlace Suites in Lancaster, California; a Homewood Suites in Atlanta; and a Courtyard by Marriott hotel in Seattle. American Life is building an Embassy Suites near the football and baseball stadiums in Seattle, with opening expected this spring. The company is also in the entitlement process to build a 28-story, four-star hotel at the Long Beach (California) Convention Center.
“The biggest opportunity we have is a very small but high-quality portfolio that we can leverage in our growth,” Steinhauer said. He cited as a perfect example the Long Beach project, which came about as a result of the demonstrable success of the dual-branded LA Live project.
EB-5 from the beginning
American Life was founded by Henry Liebman in 1996. Steinhauer joined the company in 2007 when its portfolio value was $150 million, he said. AmLife, which also invests in office and retail projects, entered the hotel industry in 2010 when it purchased and redeveloped the historic Alaska Building as the Courtyard by Marriott Pioneer Square in Seattle.
“That was our first,” Steinhauer said. “We raised the money (through the EB-5 program) and said, ‘Oh, we think we like the hotel business.’”
Steinhauer said Liebman was one of the first businessmen to understand the EB-5 process, which gave AmLife an early lead to market.
“Hotels are great job creators; that’s why it’s been so popular,” Steinhauer said. “We’ve raised over a billion with over 2,000 investors.”
EB-5 is an immigration program that provides a method of obtaining a U.S. visa by investing in the U.S. and creating new jobs within specified regional centers defined by the government. An EB-5 project must be located in targeted employment areas which have unemployment rates more than 1.5 times the national average, Steinhauer said.
- For a full EB-5 definition and other industry terms to know, click here.
EB-5 projects must be built in a regional center. In 2007, American Life had projects in five of the 11 regional centers in the country, Steinhauer said.
“Nobody knew what EB-5 was,” he said.
Today there are over 800 centers—not all of which are active, he said.
“It has become very competitive,” Steinhauer said.
Steinhauer said he realizes the EB-5 program could be in for some changes as the immigration discussion in the U.S. heats up.
“Everything around immigration has become politicized,” he said. “The program has been up for renewal several times. There are new bills going back and forth. … Nobody can agree on anything, so it just keeps getting extended as is.”
If new legislation is approved, the cost of investment is likely to significantly increase from the current $500,000 price point, and requirements could also change, Steinhauer said.
“That will have a significant impact on the program,” he said. “As long as EB-5 is around, it gives us a competitive advantage over a lot of people.”
Therein lies the challenge for the company.
“We raise a lot of EB-5 (money), and that program is changing,” Steinhauer said. “We’re going to have to figure out alternative sources of capital if that program slows down.”
EB-5 investors are competing for 10,000 visas available each year. China is limited to approximately 3,500 of those visas each year, so the backlog and waiting list continues to grow, he said.
A centerpiece for the portfolio
The LA Live asset has arguably become the primary asset in AmLife’s portfolio. It’s a dual-branded asset located directly across Olympic Boulevard from the LA Live complex. Outside of the JW Marriott and Ritz-Carlton hotels that are part of the LA Live complex, AmLife’s Residence Inn/Courtyard property helped jump-start what is now a vibrant hotel community in downtown Los Angeles.
“When we started this project in (2011-12) we were the first crane up (in downtown Los Angeles) post-Recession,” Steinhauer said. “It was a great example of EB-5 at the time.
“To build this type of hotel after the Recession, people thought we were pushing it,” he added.
The property, which features Courtyard rooms in one wing and Residence Inn rooms in another wing, opened in June 2014.
“The Residence Inn runs a 20% to 25% premium to the Courtyard,” Steinhauer said.
American Life generated $172 million of equity through the EB-5 program.
“It gave us a safety cushion to endure down times if they were to occur and build a nice hotel at arguably one of the best locations in the country … across from LA Live,” Steinhauer said.
The executive said the dual-brand concept was seen as a way to mitigate risk.
“We figured we would have extended stay (business) and transient stay (business), and that mix will give us a nice blend,” Steinhauer said. “The reality is we have very few long-term stays in the Residence Inn. We spent a lot of money on kitchens we don’t use.
“The biggest thing everybody learned from this particular hotel (is) this is not a select-service hotel,” he added. “It’s got select-service brands, but it operates as a full-service hotel.”
It would be hard to duplicate the complex in today’s economic environment, according to Steinhauer.
“This hotel would cost us between 35% and 50% more to build today than it did when we built it,” he said, adding that land prices in downtown Los Angeles have nearly doubled from what American Life paid for the dual-brand site. “I looked for three years to find another project to do but couldn’t find one that worked.”
One of the biggest advantages of the location?
“We have great overflow hotels when we’re busy,” Steinhauer said with a laugh, referring to the adjacent JW Marriott and Ritz-Carlton properties.
Steinhauer said American Life is a long-term holder of its hotel assets—especially this dual-branded property.
“Nothing is irreplaceable, but I would be hard-pressed to say I’m going to sell this asset and find a similar sight with the same basis,” he said. “You just can’t do that with this type of asset.”
A view from the top
Steinhauer, who also oversees SODO Builders, the company’s in-house construction company, got the building bug from his father, who was a homebuilder for a time. The younger Steinhauer became a general contractor at 18.
“Even when I was a homebuilder, I always dreamt of building a big resort. I thought it would be really cool because of complexity and creativity it offers,” Steinhauer said. “Now I would never want to own a resort hotel because all I see is unused space. I like pavement.”
The challenges of a hotel developer and owner are many. But it does boil down to one thing, Steinhauer said.
“There are a lot of great operators, great developers … that’s what makes it fun,” he said. “You must constantly raise you’re your game and try to do things differently to stay ahead of the competition.”