Premium content from The Business Journal – by Sean Ryan
Milwaukee, October 28, 2010
Gorman & Co. Inc. officials are attracting Chinese investors through a federal immigration program to finance a 90-room hotel project at The Brewery, the former Pabst Brewing Co. site on the west side of downtown Milwaukee.
The Oregon, Wis.-based developer is planning to renovate and restore two buildings to set up an extendedstay hotel with first-floor entertainment venues, such as a beer hall or museum, said chief executive officer Gary Gorman. He said he has commitments from investors in China to finance $15 million of the estimated $18.8 million project.
Gorman is working through a federal program that offers foreign citizens a green card to live in the United States in exchange for investing in a project that creates at least 10 U.S. jobs. The green cards, which are offered to investors and their families, allow them to live and work in the United States and attend public schools and universities. After five years of living in the United States, they are eligible to become U.S. citizens.
The quest for money for the hotel project has sent Gorman to China four times in the past six months as the current economic downturn has prompted many banks to stop lending for real estate projects, he said. “I wouldn’t do it if there was money available in U.S. banks,” said Gorman. Gorman said the program offers low-interest loans for projects, but also demands extra work courting foreign investors and navigating federal regulations and oversight.
Officials at the U.S. Citizenship and Immigration Services agency oversee the program. Federal officials must review the foreign investors’ history to look for past illegal activity and ensure the investors’ money was not involved in past criminal ventures.
The Chinese investors who agreed to finance Gorman’s hotel project still must go through the federal review process, Gorman said. His plans are to start the renovation project for the hotel in March 2011 if federal officials approve the investors.
The buildings Gorman plans to buy from Brewery Project LLC and renovate are on the northwest corner of North 10th Street and West Juneau Avenue. Joe Zilber, the Milwaukee developer and philanthropist who passed away last March, had a vision of converting the 20-plus acre site into a combined office, retail and residential redevelopment. Zilber Ltd. owns the site.
Gorman’s hotel would be the second in the downtown area offering extended stay services. The Residence Inn at 648 N. Plankinton Ave. offers extended stay services in its 131 suites. Occupancy has picked up between 3 percent and 5 percent this year compared with 2009, whereas the entire market saw a 10 percent to 12 percent increase, said Bryan Lucas, Residence Inn’s general manager. Downtown occupancy in Milwaukee area hotels was 52.2 percent in 2009, according to Smith Travel Research.
The extended-stay market tends to have fewer ups and downs than other hotels, Lucas said. He said he is not familiar with the planned Gorman project and cannot comment on it.
“We definitely have a higher occupancy rate than the market does, but again, we are much smaller than most hotels,” Lucas said.
If successful, Gorman would become the second Milwaukee-area hotel developer to take advantage of the federal immigration program, which has been available in the seven-county southeast Wisconsin region since 2007.
Anvan Cos. raised $7.5 million from investors in China, Taiwan and South Korea to renovate the Lodge at Geneva Ridge Hotel in Lake Geneva. The hotel was closed in 2007, but reopened the following year after Anvan Cos., Lake Geneva, raised $10 million for renovations and to build new condominiums, said Vance Antoniou, Anvan Cos. president and CEO.
“The hotel would still be closed if it wasn’t for this deal,” he said of the foreign investment.
Antoniou said three new Asian investors have committed $1.5 million to build a 12,000-square-foot water park at the hotel. The expansion project will break ground in early December, he said.
“There is no financing out there for something like this at a bank,” Antoniou said.
The Metropolitan Milwaukee Association of Commerce in 2007 got federal approval to use the immigration program in southeast Wisconsin. Pete Beitzel, MMAC vice president, said the association backs the program only to stimulate growth in the region, and added that he does not agree with the perception that the program amounts to selling green cards for cash.
“You are bringing a lot of money into the community that can be invested,” he said. “If you are creating the jobs, which is the whole idea, why not?”
Investors must lend at least $1 million to projects to qualify for the federal program. They need to invest only $500,000 if projects will create jobs in economically depressed or under-populated areas. In southeast Wisconsin, those areas include the city of Racine, Walworth County and most of the Park East corridor in Milwaukee, where Gorman is planning the hotel project, Beitzel said.
“So much of that land is just sitting there,” he said of the Park East. “We need to generate a little more activity.”
Developers such as Gorman and Antoniou use the foreign investments to encourage local lenders to support projects. With $15 million from the foreign investors, Gorman said, he can get $3.8 million more to fill out his hotel project budget.
“It offers the opportunity of getting low-interest debt so we can make it happen,” he said.
Gorman said he will seek $3.8 million in federal historic tax credits for the restoration project. Developers sell the tax credits to investors to raise money for developments.
The foreign investment program has gained popularity locally and nationally as developers have had difficulties getting loans from domestic banks, said Z. Julie Lee, a partner with Milwaukee-based Foley & Lardner LLP, Milwaukee, who is MMAC’s attorney in matters regarding the foreign investment program. As people in Milwaukee have supported the program, the interest in investing in Milwaukee has grown, she said. There are organizers trying to pull together foreign money for new funds that would lend to projects in southeast Wisconsin, she said.
“What they feel is people here are open-minded and they are looking at different ways to get financing,” Lee said.
Gorman complimented officials at the MMAC and city of Milwaukee for supporting efforts to secure foreign investments for projects such as his hotel development. “The general Milwaukee political structure has been very helpful,” he said.