Regional Centers and Projects Impact & Insight on COVID-19 – Episode 111
SPECIAL EDITION: In this special edition of EB-5 Investment Voice, Mona Shah and Rebecca Singh invite developers and Regional Centers from across the country to discuss how EB-5 projects are coping with the sudden downturn in the economy as a result of the pandemic. Listen in to discover the seasoned advice of projects from a range of industries as they provide insight into how they are thriving in the midst of COVID-19.
As some states begin to ease or even eliminate the restrictions placed on businesses in the hopes that their economies will soon recover, investors are left anxiously wondering how projects are faring. Valid concerns are being voiced about the ability of these projects to create the requisite number of jobs, repay the investors in a timely fashion or continue construction at the rate previously expected. The stages of the public’s response to a disaster, such as this pandemic, seem to begin with denial, followed quickly by acceptance and panic, a period of adjustment and finally, what Mona refers to as the “new normal.” As we approach this last phase, unsure of what it may look like, it is imperative that we turn to the developers and Regional Centers of EB-5 projects to ascertain how they are dealing with these concerns themselves and what they anticipate the “New Normal” will look like.
Mona Shah, Rebecca Singh and Mark Deal are joined by the following developers and Regional Center representatives in this unique episode providing insights on how EB-5 projects are coping, and even thriving, in these unprecedented times—
Noreen Hogan of CMB Regional Center
Glenn La Mattina of National Realty Investment Advisors (NRIA)
Steve Strinisa of Cleveland International Fund Regional Center
Joan Williams of Watercrest Senior Living
Umesh Harigopal of PropMix
Doug Anderson of Pacific Group
Devin Williams of EB5 Global
Sebastian Stubbe of Pine State Regional Center
Sushanth Reddy Charabuddi of Eagle I Property Group
Rich Marquard of Live in America/ LCP Group
Henry Lieberman of American Life
George Xu of Century Development Group
Dan Healy of Civitas Capital Group
Consider Recession-Proof Projects
It is likely we will see investors begin to move away from the hospitality industry to more countercyclical, or defensive, industries in the hopes of securing their returns. These industries exhibit positive financial performance in direct contradiction to general economic trends and can include the food and beverage industry, information technology industry, health and senior services industry and the transportation industry. However, even recreational industries have been known to thrive in times of financial strain. We have recently seen projects in these industries join forces, such as the healthcare and for-hire vehicle industries, enabling each other to grow more resilient in the midst of economic downturn.
Be Proactive
Projects must be proactive by contacting senior lenders and borrowers alike, keeping everyone abreast of their current situation. It is vital to manage the current portfolio with a calm and collected temperament, preserving assets and offering flexibility to each project as needed. Some developers have even taken this opportunity to expand and improve current projects, particularly hotels, which may boost their generation of revenues once the pandemic restrictions are lifted. As one developer noted, the Care Act allowed borrowing against 401K accounts, and some individuals are using these liquid funds to invest into projects that they believe will rebound quickly, providing much-needed relief to projects waiting out this pandemic.
Navigating Job Creation Requirements
If a Regional Center project is still under construction and these construction jobs are not considered “essential” by the state, there may be heightened concern from investors relying on the job creation that those workers provide. While many states are categorically deeming construction workers “essential” in the midst of the pandemic, and the job creation is expected to continue as anticipated, projects in states where construction has ceased are preparing for work to begin as soon as it is permitted.
Other industries, such as those in the healthcare field, continues to prosper as all healthcare employees are considered essential and have been working throughout the pandemic. However, it is crucial that these projects provide the necessary protective equipment for these workers as they place themselves in danger of being infected on a daily basis.
Importance of Developer Experience
As one developer explained, retaining appropriate reserves and keeping debt relatively low allows projects to weather the storm when they are not in a countercyclical industry. These developers are also acting quickly to negotiate deferment terms on these loans in order to stay lean until the economy can bounce back. Protecting the capital stack is essential to the survival of the project and the repayment of investors post-COVID 19, and developers with the requisite experience are well prepared for unlikely circumstances.
Patience is Crucial
While interest rates are low, many projects are unable to refinance and pay back investors at this time, as furloughed or released employees can negatively impact an application. Some projects may have to wait months to acquire new debt, but it is important for both developers and investors to stay patient. Projects may need additional time to enact the exit strategy provided in the offering documents, but concerned investors awaiting repayment should be patient as the projects continue to monitor and provide updates. It is interesting to note that as refinancing volumes have increased, interest rates have fallen, which may immensely benefit projects waiting for the perfect moment to refinance. Hopefully, the moment will come very soon.