Eb-5 – the investment visa; is it a viable source of alternative financing for developers?

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Eb-5 – the investment visa; is it a viable source of alternative financing for developers?

By Mona Shah, Esq.

EB-5 is an immigration visa and essentially a job creation program. However, with the overwhelming prevalence of EB-5 real estate projects, it could easily be mistaken as a real estate program. In New York in particular, the entry of the “big boys” including Bruce Ratner, Larry Silverstein, Related’s Stephen Ross, has changed the symmetry and more importantly, announced the program’s acceptance as a viable alternative to traditional bank loans and venture capitalists for a faster and cheaper financing alternative.

The EB-5 Visa Investment program was created by Congress in 1990 to stimulate U.S. economic growth by job creation through capital investment by foreign investors. An investment made by an immigrant must create at least 10 new American jobs over a period of at least two years. If successful, the investor receives their permanent green card. The introduction of the Regional Center Pilot Program in 1993 allowed for pooled projects to use indirect and induced jobs (as opposed to the traditional direct employee). Thus a project now has a mechanism to increase investor capital.

Why Use EB-5 in Real Estate Financing?

Few would dispute that 2008 and 2009 were historically catastrophic years for real estate development, particularly for the hotel and construction industries. It became extremely difficult to obtain conventional financing, and construction loans were the first victims. At the same time, EB-5 rules regarding real estate construction jobs changed to facilitate the infusion of EB-5 funding into the real estate industry, leaving EB-5 investors well poised to fill the financing void.

Developers who turned to EB-5 financing have shown that the EB-5 program serves as a plausible (and increasingly credible) alternative financing mechanism for real estate developers. It can be structured as a short-term, low-interest, non-secured loan— non-dilutive to the property owner’s equity.

Additionally, recent EB-5 policy guidelines have increased flexibility, allowing a project to receive credit for job creation after construction has commenced and EB-5 capital has been received to replace the interim or bridge financing. EB-5 financing can be used even if it is not contemplated prior to acquiring the temporary bridge financing. The recovery of the market did not slow down EB-5, as real estate developers learned that millions of dollars can be saved, using EB-5 funds as opposed to conventional financing.

Another key reason to consider EB-5 financing for a real estate project is that real estate remains the most popular choice for an EB-5 investor. EB-5 investors have shown a preference for real estate projects, mainly because of the collateral value and the ease of the return on investment.

Real estate investments traditionally have been a good inflation hedge to protect against a loss in the purchasing power of the dollar. From the investors’ point of view, real estate EB-5 projects have tangible collaterals—the land and the property. Flexible regulations and affordable financing have combined with investor interest to make real estate a great vehicle for EB-5.

Recent Trends in EB-5 Real Estate Projects

The emergence of large scale projects has summoned the SEC to the foray. SEC investigations and prosecutions serve as a valuable safety net for the foreign investor.

Although real estate projects span the entire country, certain areas, such as New York City, have taken the lead in successful real estate projects. New York’s vibrant economy and ability to bounce back, even after major disasters such as Sandy or 9-11, have ensured that New York remains the most attractive place for investors.

Some notable New York real estate projects that have used / are using EB-5 financing include: –

  • the Barclays Center- Atlantic Yards; Atlantic Yards 2; the Tapan Zee Bridge; the Times Square Hotel; Tribecca 101: Lam Hotels; the Brooklyn Navy Yard Redevelopment Project, International Gem Tower, Oheka Castle, Westin Element Hotel, Harlem Victoria Theater, Virgin Hotel Complex, Battery Maritime Building East River Waterfront Project; Bronx Hutchinson Metro Center Project; Chrystie Street Mixed-Use Development Project; Brookhaven Nursing Home; Broadway 4D; LaGuardia Hotel, Steelpointe Landing;1 Hotel Central Park; Knickerbocker Hotel; SLS Hotel Park Avenue South; Ironstate Navy Pier; Gates Vascular Institute;BNMC Multi Modal Transportation Structure; Health Sciences Charter School, Steiner Studios Expansion Project, GWB Bus Station Redevelopment Project, Pier A Redevelopment Project, Brooklyn City Point Redevelopment Project, Washington Heights Mixed-Use Development Project to name but a few!
Number of EB-5 Investors Approved Estimated EB-5 capital raised  
Year 2014 (up to June): 4,015 To June 2014:$1.92 billion
Year 2013: 3,699 Year 2013: $1.85 billion
Year 2012: 3,677 Year 2012: $1.84 billion
Year 2011: 1,571 Year 2011: $786 million
Year 2010: 1,369 Year 2010: $685 million
Year 2009: 1,265 Year 2009: $633 million
Year 2008: 642 Year 2008: $320 million

 

About the Author:

Mona Shah, Esq. is the principal of Mona Shah & Associates in New York City. The firm has assisted many Regional Centers and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Mona has more than 18 years of legal experience in immigration law and extensive knowledge in EB-5 law. Mona’s substantial litigation background includes her representation of clients in both state and federal courts. She has handled complex immigration law appeals before the US Circuit Courts of Appeal nationwide. Before coming to the US, Mona was a crown prosecutor in the UK. Mona has authored and published numerous articles and has spoken extensively both in the US and overseas.

Mona Shah & Associates reserve and hold for their own use, all rights provided by the copyright law, including but not limited to distribution, producing copies or reproducing, sales of this document. This article is a general summary of complex legal issues. No legal advice is provided in this article. Please consult the securities attorney for advice applicable to your particular circumstances.

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