Brevet Capital, a New York-based credit investment and specialty finance firm, completed a $42 million mezzanine loan that is part of a larger $167.2 million construction loan for the development of The Joseph, a luxury hotel in downtown Nashville, Tennessee.
The firm arranged the loan under the EB-5 Immigrant Investor Program, a federal program aimed at stimulating economic growth and creating job opportunities through capital investment by foreign investors. Brevet Capital has arranged five loans under the program. Three of these were in the hotel sector, with The Joseph creating more than 3,100 jobs.
“There are many opportunities that bigger banks don’t want to get involved in when a project becomes too complex,” said Abteen Vaziri, managing director of Brevet Capital.
One of the complexities of the EB-5 immigrant investor program is the long waiting time for the administrative approval of the investors. Typically, it would take the government five or six months to get the EB-5 investors approved, during which the investors wouldn’t put the funds into the project until they know they’ve secured the approval.
“There is all this capital sitting in escrow that cannot be used without bridge financing,” said Vaziri.
Brevet Capital originated the loan via a $500 million fund and negotiated intercreditor agreements with the senior lender to complete the initial capital stack. After the capital stack is fully built, the company will then syndicate the loan to EB-5 investors, completing the necessary documentation to ensure the project will be executed, and their immigration requests will be fulfilled.
“The certainty of execution for the EB-5 investors that we provide is what makes this unique,” Vaziri said. “Historically, the majority of EB-5 [loans] has been in the mezzanine part of the capital stack, but there’s no requirement.”
Markets for the hotel sector
Geographically, Vaziri said Brevet Capital has invested in projects in markets where the economy has strengthened coming out of the pandemic. In addition to locations like Texas and Florida, which have strong hotel markets, Philadelphia and Las Vegas properties are also performing well.
“We have new frontiers today that we look at and closely monitor migration patterns, low tax jurisdictions, [or] the states that have a lot of jobs,” he said.
Nashville is notable because its growth comes from more than just its status as a favorable tax jurisdiction and the impact of migration from the US Northeast “It’s a great hub with the music scene, Vanderbilt University and sport events,” Vaziri said. “The supply of luxurious hotels is still not satisfied.”
As interest rates continue to rise and funding costs increase expenses associated with commercial real estate projects, Vaziri said some projects don’t pencil out the way they used to. The hospitality sector in particular is challenged, as bank lending to hotels almost dried up.
“There were only four or five banks that even did hospitality lending,” Vaziri said, but noted that this relative inactivity from other lenders is an opportunity for the firm.
Vaziri also noted a cycle in the hotel sector: four to five years of construction accompanied by a market that catches up with the supply, and it then goes back to the development cycle again. “We’re probably three or four years away from the development phase happening again on the lending market for hotels specifically,” he said.