Nashville Virgin Hotel's foreign investors to earn green cards under controversial program

Sandy Mazza | The Tennessean

Show Caption Hide Caption Richard Branson breaks ground on Nashville hotel site British billionaire and adventurer talks about his Nashville past, and breaks ground on the new Virgin hotel being built on Music Row

British billionaire Sir Richard Branson's tech-enhanced Virgin Hotel in Nashville scored a $40 million jolt from a controversial U.S. visa program.

The 14-story Music Row hotel under construction is backed by 80 foreign investors shouldering roughly a third of the total project cost. It will open next summer.

The lenders and their families will earn a U.S. green card from their $500,000 contributions through the federal EB-5 immigrant investor program. They must first pass a rigorous vetting process that could take years.

"This is merit-based immigration," said Angelique Brunner, founder of EB5 Capital, a private firm based in Washington, D.C. that connected global investors to the project. "It's taking talented people from around the world and creating American jobs. They go through the highest level of scrutiny."

The U.S. accepted more than $16.5 billion worth of capital investment through EB-5 from 2010 to 2015, according to the program's trade association, Invest In the USA.

Tennessee claimed only $54.3 million of that. The majority – $46 million – helped pay for another project near Music Row: Aertson Midtown, a $139 million complex with 350 luxury apartments and the Kimpton boutique hotel.

Brian Ostar, vice president of global operations for EB5 Capital, said the center worked to promote Nashville and other cities that have not typically been heavily involved with the program in pitches to investors around the world.

"Nashville is mostly unknown to foreign investors," Ostar said. "It does not have the brand equity (of) Washington D.C., New York City, etc. The investors in this project saw the value of the location, the Virgin brand, and the statistics of the local business and market climate."

Ordinarily, investors have to pony up $1 million to participate. But the Virgin Hotel's adjacent census tracts had high unemployment rates at the time of the deal, allowing for an exemption under federal rules.

Under the exemption, investors in the Virgin project were required to spend $500,000, and create at least 10 new jobs.

Brunner and other supporters want the U.S. to relax those regulations even further — and to increase the number of EB-5 visas beyond the 10,000 allowed nationwide each year.

The vast majority of EB-5 participants come from China, and it takes an average of six years for visas to be processed, according to the trade association. Brunner didn't disclose home countries of the Virgin Hotel investors.

"We compete with 40 countries for immigrant investors, and the U.S. is the only one that requires job creation," Brunner said. "Some people believe that everyone wants to come to the U.S. and we should require $2 million (per investor). But we're competing internationally for extremely successful people. We're not always the clear winner."

EB-5 investor visa program has its critics

Critics, including the Brookings Institution, say the cash-for-visa program needs more government oversight, particularly because most of the deals are coordinated by private regional centers.

A string of phony investment scams and other EB-5 fraud and abuses prompted some to argue it should be canceled altogether.

Sens. Dianne Feinstein, D-Calif, and Chuck Grassley, R-Iowa, are working to end the immigration pathway, citing what they describe as inherent unfairness of selling citizenship.

EB-5 visa popularity ballooned in recent years, with 2015 being the busiest year to date for the program. Developers are drawn to it because of the tight credit market.

"We are a lower cost source of capital," Brunner said. "From a hotel perspective, Virgin is a new brand. From a financing perspective, banks see risk in that profile."

The Nashville market is also saturated with new hotel development. More than 100 hotels are either being planned or built.

Virgin Hotels and the developer, The Buccini/Pollin Group, declined to comment for this article.

Above-ground construction is underway on the hotel's 240 "chambers." The Virgin brand eschews the term "rooms," and provides sliding doors in the chambers to divide the space in two for privacy.

A mobile app can control temperature and the television, as well as request room service, among other things.

Other conveniences include a mini fridge stocked with market-priced treats.

"The Chicago hotel – our first hotel – was rated by Condé Nast Traveler the best hotel in America," Virgin Group founder Richard Branson told The Tennessean last year. "I think the reason was because (Virgin Hotels CEO Raul Leal) got the best people working there. That's what we did in Chicago and that's what we'll do in Nashville."