Cashing in on Private Equity Experience in EB-5 with Nicholas Salzano of NRIA – Episode 71
When we finance a real estate project with both private equity and EB-5 money, immigrant investors have the potential to earn a much higher return than the typical ½%. In this episode, Mona and Mark sit down with Nick Salzano to explain how National Realty Investment Advisors was introduced to EB-5 and share the standard structure of an NRIA project. Listen in to understand the benefits of investing with Nick’s firm and learn how NRIA maximizes returns for private equity and EB-5 investors alike.
The typical rate of return for an EB-5 investor sits right at ½%. However, if you mix private equity with EB-5, there is potential for a much higher RoR. In fact, an experienced real estate development firm like National Realty Investment Advisors (NRIA) leverages a blend of private equity money and EB-5 capital to offer its immigrant investors an expected return of 3% to start!
Nicholas Salzano is the Senior Independent VP of Portfolio Management at NRIA, an elite real estate investment, management and development firm with a current portfolio of $800M in rental projects. He has 20-plus years of experience in the realm of development, property management, construction and finance, managing more than 40 ground-up development projects ranging from $5M to $50M per site. In his 12 years with NRIA, Nick has supervised and brought to market over 900 investment property units valued in excess of $700M, and he has raised over $100M in private equity.
Today, Mona, Mark, and Nick discuss the benefits of blending private equity and EB-5. Nicholas explains how NRIA’s client-investors encouraged the firm to add EB-5 to its offerings and walks us through the structure of a typical NRIA real estate project, describing how EB-5 money fits into the capital stack. Listen in to understand why NRIA is highly motivated to maximize the rate of return for its investors and learn how you can earn returns of at least 3% (and as much as 6%!) on your EB-5 investment.
How NRIA Got into the EB-5 Market
- Since 2006, NRIA has been developing real estate jointly with its stable of 600 accredited investors from around the world. The firm has a portfolio of $800M in rental projects in Philadelphia, northern New Jersey and Palm Beach County.
- More than 50% of NRIA’s client-investors are based in South Asia, with large numbers from India in particular. These investors approached the firm to ask about incorporating EB-5, and NRIA has since added the program to its core curriculum.
The Structure of an NRIA EB-5 Project
- There are three layers to the capital stack for every NRIA project: 1) 20-25% comes from private equity, 2) 65-70% comes from the bank, and 3) 5-10% comes from the firm itself. The flexibility of private equity money allows NRIA to close quickly and begin new projects in an agile manner.
- Private equity money is the most expensive, with investors anticipating 15-21% returns. Once a project is owned and underway, NRIA refinances out the high-RoR private equity investments and brings in EB-5 money to replace it. (From there, the private equity capital can be deployed into a new project.)
- EB-5 investors can take comfort in the fact that they are merely refinancing out a project that is already fully financed and approved. Their investment still fulfills the requirements of EB-5 because the money, while relatively safe, is considered at-risk and their capital is brought in early enough (before the shovels hit the ground!) to satisfy the job creation requirements.
The Benefits of Investing in NRIA Projects
- A typical NRIA project costs between $30M and $80M. This means that the firm can rent out the apartments or townhomes quickly once the building is complete. In addition, many EB-5 investors prefer these somewhat smaller projects.
- NRIA has worked hard to develop a methodology that cuts out many layers of extra cost. This translates to higher returns for EB-5 investors, who can expect an initial return of 3% and a 6% return once they have obtained a permanent green card. This is especially attractive for EB-5 investors from countries in backlog, as their investments can be tied up for years.
- Though it may be cheaper to do projects in rural areas, NRIA chooses prime urban real estate because the investment is much safer. There is high demand for housing in these areas, and the firm knows how to negotiate for a fair price and execute a value-engineered build.
How NRIA Makes Money
- The firm collects a development fee of between $500K and a few million on every real estate development in exchange for its work taking a property from raw land to rented status. Keep in mind, however, that 100% of the capital raised from investors goes into the project itself.
- Private equity investment returns are capped at 21%. Any upside beyond that goes to NRIA, keeping the firm motivated to maximize returns.