When it comes to alternative financing for real estate projects, EB-5 capital has been an important source of funding for the United States, for my own firm included. The EB-5 Immigrant Investor Visa is a federal program that grants green cards — and a path to citizenship — to foreign investors who invest at least $500,000 toward job-creating real estate projects. But the program, which gained popularity when banks were reluctant to make construction loans during the last recession, has evolved significantly over the last decade. Here are five tips to help EB-5 investors and EB-5 developers take advantage of this federal program to fund real estate developments and create win-win results.
1. Act sooner rather than later.
Proposed regulations to modernize the EB-5 program are one step closer to becoming reality. If the changes are adopted, it could become a lot more difficult for developers to raise EB-5 capital because the pool of eligible investors will shrink. The Office of Management and Budget (OMB) is reviewing proposed regulatory changes that may increase the minimum investment amount to qualify for the visa to at least $1.35 million, up from the current $500,000 in areas of high unemployment. The capital contribution may increase to $1.8 million, up from the current $1 million contribution, in areas of high employment.
These changes were first proposed in early 2017, and at this point it is impossible to predict the legislative outcome. That’s why prospective EB-5 investors should act now in making the investment and commencing the visa application process. Until new rules are implemented, investors can continue to invest at least $500,000 to obtain permanent residency for themselves and family members younger than 21.
2. Tap into the regional center bonanza.
The EB-5 Immigrant Investor Regional Center Program is set to expire on September 30, 2019. An EB-5 Regional Center is an entity designated by United States Citizenship and Immigration Services (USCIS) that sponsors real estate projects for EB-5 investment by foreign investors. Many in the industry predict Congress will temporarily renew the Regional Center program as it has done many times in the past, but nothing is certain in Washington, D.C.
I advise investing in a Regional Center to realize significant benefits. The EB-5 visa application requires the investment to create 10 jobs; regional centers allow foreign investors to fulfill that requirement not only through direct jobs, but also through projections of jobs created indirectly.
3. Do your due diligence.
Foreign investors are becoming savvy in their search for EB-5 projects and are seeking developers with solid track records. EB-5 developers need to be ready to prove they have successfully completed other EB-5 projects. Increasingly, we are receiving inquiries from investors who want to tour completed projects so they can see and touch our EB-5 results. Even though there has been some negative press on EB-5 developers failing to deliver their projects, most EB-5 projects come to fruition.
It is important to bring future EB-5 investors to properties to help them feel comfortable investing in your project and reassured that their investment will be allocated correctly. As well, continuously update investors on the possible changes to program and status of their EB-5 funded projects. Investors not only have their capital at risk, but also the future of their families as they seek to settle in the U.S. Developers must never forget that real estate is always about people.
4. Find new frontiers.
According to Bloomberg, Latin Americans’ appetite for EB-5 visas is growing just as the demand for EB-5 visas from China decreases. For many years, China was the main EB-5 consumer, and as a result, EB-5 developers would put most of their efforts in marketing their projects in Asia. But things have changed. EB-5 visas were issued to Latin Americans in 2018 in at more than double the rate of 2016, with the increase being mainly driven by Brazilian and Venezuelan investors.
The Latin American demand for EB-5 visas has been fueled by political and economic turmoil in the region, as well as developers increasingly focused on promoting EB-5 developments there. Each time we travel to Colombia, Venezuela, Mexico, etc., we notice more interest in the EB-5 visa program, which until recently was relatively unknown in the region.
Understanding where EB-5 investors are coming from or where there is room for growth is key to allocating marketing resources successfully. In the past when China was a great market to raise EB-5 capital, most developers would travel to China to attend trade events and create strategic partnerships. But that market’s appetite for EB-5 visas has changed significantly, and developers must find new markets. EB-5 developers must constantly monitor economic policies in their targeted markets to identify trends that will affect their business negatively and force them to find new frontiers.
5. With rules changing, business model must adapt.
When I began raising EB-5 capital to fund construction of my first office buildings, 100% of the funding was derived from EB-5 investment. At that time, the U.S. was emerging from the worst recession in over half a century, and banks were not making construction loans, creating a void in the market. We followed the same business plan for our second building, and as the economy improved, banks began lending again, and private equity became more accessible.
Today, the industry norm is to provide 25-35% in EB-5 funding for new construction, with the remainder derived from traditional bank loans and private equity. EB-5 investors now feel more comfortable investing in projects where funding is more diverse and less risky.
The EB-5 Immigrant Investor Visa is a great asset for developers looking for alternative financing to complement their capital stack. This visa program also provides a solution for foreign investors hoping to relocate their families to the U.S. in a relatively short period of time or in need of a green card to run their business in the States. But to be successful using this program, either as a developer or as an investor, it is important to stay up to date with changes the industry is undergoing. Because there are multiple variables that need to be considered, I strongly recommend surrounding yourself with the best EB-5 lawyers and consultants to make the right decisions.