Judging Risks in Real Estate Projects with Adam Greene – Episode 36
Mona, Mark and Adam Greene talk about what is to be expected as the Regional Center Program’s deadline nears. They also explore the risks of EB-5 Real Estate projects as well as what to look out for when it comes to looking for developers.
Listen to “Judging Risks in Real Estate Projects with Adam Greene” on Spreaker.
Everyone in the EB-5 community is getting anxious as we approach April 28, the official deadline when the Regional Center Program under EB-5 draws to a close. Everyone is very much confident that nobody is going to let this program die.
Everyone in the EB-5 community is getting anxious as we approach April 28, the official deadline when the Regional Center Program under EB-5 draws to a close. Everyone is very much confident that nobody is going to let this program die.
For today’s podcast, Mark and Mona are joined by Adam Greene, President of Live in America, an EB-5 platform owned by the LCP Group. Live in America has successfully sponsored EB-5 projects with foreign investment capital exceeding half a billion dollars. He will be talking about the risks and EB-5 real estate projects and what to look for.
Regional Center Program
- On April 28, the Regional Center Program within the EB-5 legislation will sunset. It has been extended five times over the last 3 years. The EB-5 community is optimistic and is expecting an extension or possibly new legislation due to the fact that there have been draft regulations issued by USCIS on January 13th, and the comment period has expired last April 11th. There are now draft regulations which may become the new rules for EB-5 Program sometime over the summer.
- Issues coming up from the draft legislation have to do with the dollar amount that will be required for EB-5 investment. 98% of the visas issued last year were on the $500,000 level. People seem to be prepared for an increase of up to $800,000.
Live in America
- Regardless of what the increase in the investment amount will be, the changes moving forward is in the direction of having well-structured EB-5 deals and percentages. This is what Live in America is offering. As a subsidiary of LCP Group, Live in America operates 23 Regional Centers, covering all or part of 38 states and territories. The company got into the EB-5 industry 6 years ago, based on a real estate background. LCP has been in the real estate industry for 40 years. As for Adam, he started as a lender for construction and project financing, doing infrastructure financing. A large majority of eb5 projects have basis in real estate
Risk elements of EB-5 real estate deals
- As Lenders for the construction of real estate; investment risk is viewed as a credit risk, which is the risk that can get repaid. Most people would be concerned foremost, whether to get the green card and to get repaid. The risks that Live is America is concerned about is if the sponsor can get the project built, if the operations can support the debt service that the project has to bear, wherein the capital stack does the EB-5 fit, and whether or not the EB-5 investment satisfies the criteria to get the investors their green card.
Is it important to have a famous/large developer?
- An experienced developer is more important – someone who can execute in the market where they are. That does not always mean a large developer. Development projects take a very long time. It is cheap money, but it is slow money. And since EB-5 takes a while to get in, the developer might have to find alternative sources of financing while waiting for EB-5 to come in.
- When looking for risks that investors might want to analyze, they will want to see that a developer can execute – this could mean financial capabilities, but a lot of it is experience.
What to look for in developers:
- It is difficult to bank a new developer. Look for developers who have had success in projects that are similar to the one they are trying to finance, and have successfully been able to coordinate the many different trades, companies, and people involved.
- Get a developer who knows the local contractors and is able to coordinate a bunch of different trades who have done a project of this size and scope, and still feel good about the costs.
Do investors feel confident investing in NYC?
- A project is not necessarily appealing just because it is in New York City, the real estate capital of the world. Projects have gone wrong in NYC but it is still a face that real estate prices in New York is resilient.
- Some investors aren’t always looking for the big projects. Some prefer smaller projects and smaller markets. With the upcoming changes underway, investors will not be so satisfied with their ROI. Deals will have to be structured at a minimum of 2%. Sadly, someone will have to be paid less or developer will end up paying more.
- Although there is mezzanine financing. A hefty 10-12% for construction loan is heavy. It is best to push the EB-5 cost to the developer before it becomes unattractive.
Can a developer service a debt after completion?
- Check if the economics of the project supports the debt load that the developer is taking on. This involves basic credit analysis and independent due diligence. Get an independent study to make sure you understand the dynamics of the market, in that way you can project the cash flow.
- For developers with their own Regional Centers, some might not get a third party independent analysis. Although some are doing great jobs, some end up taking the money. Live in America takes its fiduciary responsibility seriously by providing a good check on what’s happening and making sure the money is where it’s supposed to go.
Where in the capital stack is the EB-5 investment?
- Some developers may want to use the EB-5 money as a slice of equity. They may call it mezzanine debt, but if EB-5 money fills in the capital stack that the developer needs from 90-98%, this has risks of equity. If a project loses its 5% of its value – they start losing the money. Many EB-5 investors prefer EB-5 money to be a smaller chunk of the capital stack. It’s not finance, but it is EB-5.