A Rural Developer Takes On the Claim That TEA Projects Are Better Capitalized
In a previous episode, we said that rural EB-5 projects trade safety for speed; and that did not go down well with everyone. In this episode we invite Dr. Vish, a developer with 43 years of experience, to put some hard questions to someone who actually builds in rural America with active projects spanning from Chicago to Hawaii.
Yes, it’s true that rural projects are moving with processing times spanning six to eight months whilst urban TEA projects sit in queues stretching to eighteen months. But does faster necessarily mean riskier? Dr. Vish makes the compelling case that the urban / rural framing is the wrong lens entirely. The questions and factors that genuinely matter, he argues, surround capital stack depth, developer track record and market strength.
Whether it’s financing myths or developer misconceptions, this episode covers the most persistent assumptions in EB-5 due diligence. Merely stamping a project as “rural” or “urban” tells you little about whether your capital is properly protected. The simple fact we keep returning to is that processing speed is just one input you should consider when choosing a project, not a substitute for the full picture.
For investors, advisors, and anybody exploring EB-5 projects requiring sharper due diligence methods: This episode is one to bookmark.
“So I think instead of branding it as urban versus rural, we have to look at other aspects such as what’s the capital stack and how soon do the investors get their money back? What is the pro forma operating statements? What do they show? There are so many other variables.” – Dr. Vish
DR. GANESAN VISVABHARATHY
Dr. Ganesan Visvabharathy (“Dr. Vish”) is the founder and CEO of Hawthorne World, a commercial real estate developer. An Electrical Engineer, with an MBA from IIM Ahmadabad, India, and a Ph. D. from the University of Illinois, Champaign, Illinois. His vision of providing affordable housing for the masses has led him to do several projects in areas not previously known for the same.
In several of Chicago’s gleaming suburbs and neighborhoods, his firm was able to offer housing at a price well below the competition, thus providing an opportunity for thousands to own their homes, an unthinkable task previously for many of them.
Such housing has been made possible by the relentless efforts of Dr. Vish, and his team, with a razor-like focus on technology, costs, affordability, and elegant design.
Over the years, Dr. Vish has proven that ‘green’, and ‘affordability’ are not antonyms, but indeed can be synonymous.
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Transcript
This transcript was produced using AI and subsequently edited for style and clarity. The edits do not alter the substance of the speaker’s remarks
Mona Shah (0:59 – 2:04)
Welcome back listeners. And if you’re a regular to our show, you know that we do not do polite evasions. So let me say the quiet part out loud right now.
Money is pouring into rural EB-5 projects. And most of that money is chasing one thing, a faster adjudication period, as well as faster I-956F. Many investors have decided that the shorter queue is the smart bet.
But in a previous episode that you may have heard, Rebecca and I suggested something a little less comfortable that the projects with the deepest, most institutional capital still tend to sit in urban high employment areas, and that speed and safety are not the same thing. And that did not go down well with everyone, I can tell you. So today, we’re not hiding behind a microphone.
We have invited someone who builds in rural America, and he thinks we got it wrong. Dr. Vish, welcome. I’m going to put some hard questions to you.
Dr. Vish (2:05 – 2:07)
Thank you, Mona. It’s a great pleasure to be with you.
Mona Shah (2:08 – 2:30)
Okay. Dr. Vish, the processing time gap is real. It’s not in dispute.
Roughly eight months for a rural project versus 13 to 20 months for the urban high employment area projects. And that’s IIUSA’s data, not mine. But our claim is not about that.
Our claim is about something else. But have you seen these kind of numbers?
Dr. Vish (2:30 – 2:36)
Yeah, that is correct, Mona. Rural projects get faster approvals. That is true.
Mona Shah (2:37 – 2:39)
Wow. Are you seeing that?
Dr. Vish (2:39 – 2:56)
Yes. We have had approvals in one case, actually, in four months, which is pretty rare. But usually, you know, six to eight months for rural projects is what is happening.
And urban projects take anywhere from, you know, 12 to 18 months.
Mona Shah (2:57 – 3:08)
You’re right, actually. Yeah, yeah, you’re right. In fact, you have developed, Dr. Vish, projects in both rural and in urban high unemployment areas, correct?
Dr. Vish (3:09 – 3:09)
Yes.
Mona Shah (3:10 – 3:12)
And the rural is still winning?
Dr. Vish (3:14 – 3:26)
Well, in terms of if you’re having the metric of approval time as the governing criterion, then yes, rural is winning. Yes.
Mona Shah (3:27 – 3:50)
So here’s our point. Rebecca and I claimed it’s not just about the queue. It’s that urban institutional scale deals tend to be more sophisticated.
They have better capital stacks, better senior lenders, established exits, deeper real estate liquidity, and that a fast approval alone is nothing when it comes to having your money back too.
Dr. Vish (3:51 – 4:22)
Yeah, the urban projects do have a way of kind of creating the image that they always attract sophisticated investors and your money being given back, you have a greater chance with urban projects, etc. But I’m not sure that is validated by our experience. We have had, I would say, we look at this a little bit differently.
Mona Shah (4:23 – 4:40)
Okay. So please enlighten our listener. Why do you think that this is a little different?
And I do again, repeat the fact that you have both high unemployment and you have rural projects. Are your rural projects as strong for the return of capital as your high unemployment?
Dr. Vish (4:41 – 5:42)
Yes, they are. They absolutely are. Because if you are looking at, say, a resort, for instance, just as an example, and you have strong clientele, customer base, which are very much, very popular resort, then obviously the numbers there are, you will be surprised, they are mind boggling.
The revenue stream and the way in which the resorts get filled out, occupied, especially if you’re in an area where there is a shortage of new projects coming up. In other words, real estate always wins when there is a shortage of competition. That’s interesting.
And when there is a rural project in an area where they are not allowing new ones to come up, then you win because…
Mona Shah (5:43 – 6:12)
I’ve heard that argument before when we’ve discussed it in a hotel in Times Square that post COVID, there weren’t any new hotels allowed. So certain hotels were capitalising on this fact. But there is this accusation that when investors hear rural, a lot of them really do think about a thin deal, one sponsor, just a little equity and a big prayer.
You don’t think that’s fair? Or is it a lazy stereotype?
Dr. Vish (6:14 – 6:55)
That is a stereotype. Definitely, rural projects can be highly capitalised and it can also attract institutional capital. It all depends upon the particular project, particular location and the economics of the project itself.
So I think instead of branding it as urban versus rural, we have to look at other aspects such as what’s the capital stack and how soon do the investors get their money back? What is the pro forma operating statements? What do they show?
So there are so many other variables.
Mona Shah (6:57 – 7:20)
One of the arguments that we’ve heard quite a few times from investors, and I would say this is one that really probably keeps the investor up at night, is that if you forget the green card for a second, if a rural project goes sideways, is there anyone other than the EB-5 investor actually losing money? Or really are the foreign investors the cushion that really protects everybody else?
Dr. Vish (7:21 – 8:09)
That’s not true because in rural projects also, for instance, we have very substantial equity of our own money. And so it is a popular misconception that somehow rural projects do not attract equity capital of the developer himself. We have very, very substantial equity in our projects.
And so we protect the investor’s money better than our own money, because obviously we want to get a good name. And so we care about that. And they are not thinly capitalised.
There is outside capital plus a heavy dose of equity. That’s what makes the project work.
Mona Shah (8:10 – 8:41)
Yeah. So basically, I should say, we should really keep it honest for the listener. Modest preferred return and non-guaranteed repayments are not something which is just in a rural project.
It’s a standard EB-5 term for both rural and urban deals. But that’s not really where the distinction lives, is it? The sponsor equity, which is ahead of EB-5, is usually the answer that really is, will the money go to them first or to the EB-5 investor?
Dr. Vish (8:42 – 9:25)
That is correct. If the project tanks, Mona, the first ones to lose are the owners, because developer capital, if it is a substantial amount, that’s wiped out. And the EB-5 capital is in a debt situation.
So obviously, as a debt player, they get priority over owner’s own capital. So, excuse me, so it’s not true that the investors alone will be losing. The owner who has put, the developer who has put substantial capital, he loses first.
And then comes the, you know, others like EB-5 capital, et cetera.
Mona Shah (9:25 – 9:55)
Hmm. Okay. Well, here’s another question for you, Dr. Vish. And do please bring in your other examples as well from your high unemployment area projects. Rural deals really do love to wave around government-backed money, like PACE, like tax credits, grants. And critics of the programme have said that’s not a strength.
They’ve said that’s basically a project leaning on subsidies, which it cannot survive without it. So which is it?
Dr. Vish (9:56 – 10:18)
That is also a very popular misconception. Let me give you an example. The PACE is really not a subsidy.
It is available all over the country, at least in most of the states, if not all. And it is an assessment that is recorded against the property.
Dr. Vish (10:19 – 11:30)
Clean energy kind of improvements to the property. And that’s available everywhere. And it’s not a subsidy.
It is a market rate. So investors who have bought the bonds, the state, you know, issues the bonds and the investors who have bought the bonds, they obviously buy the bonds at market rate. So that’s not a subsidy.
Now let’s go to some other things like tax credits. We use tax credits in urban projects as well. We have TEA Urban Project, where we are using geothermal as an important part of the development.
Geothermal, you know, geothermal energy exchange and not geothermal energy itself. We are not drilling for geothermal energy, but we are using it as an exchange medium. And we get tax credits.
We get tax credits. That is an urban area. So, I mean, it’s not really rural or urban.
It’s what is it available for? Historic tax credits. It’s available for rural and urban.
And I have done many urban projects in Chicago, and we have used historic tax credits, urban projects.
Mona Shah (11:31 – 11:48)
Right. Well, that is really interesting because I do think that is a misconception out there. So what you’re saying is that tax credits depend on meeting rehabilitation or programme standards, and that listeners really should read these as structured capital with strings, not just a magic gap filler.
Dr. Vish (11:49 – 12:07)
Absolutely. Yes. Yes.
So you build the capital stack several different ways. And obviously, tax credit is one of the components of the capital stack. And it’s rural or urban does not make a difference.
It’s available everywhere.
Mona Shah (12:07 – 12:27)
Okay. So then I’d like your opinion on this. Let me just put it to you bluntly.
If rural projects can be as strong as urban TEA, then why is the whole market behaving as though investors are trading safety for speed when they go rural? Are we wrong or is it the market?
Dr. Vish (12:28 – 14:16)
Well, I don’t think they are trading safety for speed. Again, like I said, the strength of a project depends upon several factors such as where in the capital stack the EB-5 capital sits and what percentage is EB-5 capital, what percentage is the developer’s skin in the game, and what is the developer’s track record? One thing that is frequently overlooked is that, and this has happened, and you know that Mona, is how many years has the developer got experience?
For instance, we are a 43-year-old company. We have been through all the major real estate crisis and came out, you know, more successful as a result of the crisis because we changed the business model. So you go with a company that’s just five years old versus a company that has, you know, 20, 30, 40 years of experience, that makes a difference.
People are rushing to, just because they look at the glitz and glamour of what appears, but without going into, hey, what is the organisational strength of the company? How long have they been in business? What are the successful projects they have delivered, EB-5 or non-EB-5?
And, you know, EB-5 is just one of the methods of financing, you know, otherwise there is no magic to EB-5, but has it done other projects as well? So there are so many factors you take into consideration and you look at it instead of just, you know, and latching on to just to, you know, one aspect that is, oh, it’s a speed. And, you know, when I choose speed, I lose safety, which is very incorrect way of looking at things.
Mona Shah (14:16 – 14:42)
You know, you’re absolutely right. Actually, this is a very important way of dealing. And I often explain this to a client who says to me, how many EB-5 projects have they done?
It doesn’t matter how many EB-5 projects they have done or whether this is their first EB-5 project. It matters whether, as a developer, they have experience and as a developer, they can produce and complete the project and give you your money back.
Dr. Vish (14:43 – 15:36)
Yeah, that is the key determinant. If a developer has completed several projects and given the money back to investors and has got a reputation and name, that’s what you should go by because people somehow, there is a misperception in the market that how many EB-5 projects you have done as if EB-5 is just a financing mechanism, nothing more than that. You go for a bank loan instead of you go for an EB-5 loan.
That’s it. It’s not a magic. It’s not something new, a new tool.
It’s just one aspect of financing. You can have financing in tax credits or bank loans or stock market or your funds, Wall Street debt funds. It’s just one other mechanism.
That’s it.
Mona Shah (15:36 – 15:46)
I agree. I do agree with you there. By the way, we keep talking about your rural project.
Your one you mentioned was in Chicago. Where is your rural project based?
Dr. Vish (15:47 – 16:02)
Our rural project is based in the island of Kauai, which is known as the garden island, which is in Hawaii, state of Hawaii, which is the, Kauai is supposed to be the most beautiful of the eight islands of Hawaii. That’s where our project is.
Mona Shah (16:03 – 16:11)
Okay. And the main mechanism for finance for that would be institutional financing or is it private equity?
Dr. Vish (16:11 – 17:27)
Yes. We have considerable amount of our own equity. We are putting $80 million of our own money.
And then we have a certain amount of EB-5 and there is institutional capital. So there is, you know, we build the capital stack. We have been successful in attracting investor capital because of the project’s economics.
It’s rural, but does it make sense? Yes. Because in, in the island of Kauai, there has not been a single new resort that has been approved in the past 20 years.
That creates a shortage. So, and shortage is what you want in real estate. And if you have shortage, then you will be successful because there is no, you know, there is price competition is less.
And, and so you select the area, you select the location, you select the project. And if, if these are done carefully, then rural project can be as successful or even much better. In fact, in fact, for non EB-5 investors, we are giving better returns in our rural project than the urban project.
Mona Shah (17:30 – 18:19)
That’s interesting. I have to say, you know, when Rebecca and I had said TEA projects tend to be better capitalised, we really were describing a central tendency, not really handing out a rule. Dr. Vish, you’re right. This, this, this particular rural deal with real sponsor equity, deep programme financing and branding is a good, is a good project, but not all projects are like that. So one should still advise that you do, do your due diligence on each project. But I think the honest takeaway really for investors is that, and one we keep returning to, is that processing speed is just one input.
It’s not the verdict. So look at the capital stack, look at the sponsor, look at the exit, read the 956F timeline correctly. Don’t you agree?
Dr. Vish (18:20 – 19:02)
Excuse me. Yeah, yeah, absolutely. Absolutely.
There are so many other factors to, to go by. So not just one aspect of whether it is speed or, or just where, where in the capital stack is EB-5. I mean EB-5 can be right.
And you know of cases Mona where EB-5 has been, yes, number one, and still the project didn’t do well. Well, that is the inexperience of the developer. Things have happened.
I don’t want to name names, but Mona, you know, so people, you know, they are, I’m, I’m first in the capital stack. Well, that didn’t assure you of return on money.
Mona Shah (19:03 – 19:22)
Yeah, yeah, exactly. Well, we can really continue this conversation. I’m sure Dr. Vish, we’re going to have other topics that we will love your insight and your years of experience on. And our listener really would appreciate some of the advice that you would be giving. Thank you so much for coming on Global Investment Voice.
Dr. Vish (19:23 – 19:31)
Thank you, Mona. Appreciate the opportunity to express my views. And I’ll be happy to work with you for further topics.