EB-5 Financing for Commercial Real Estate Developments
EB-5 financing can be an effective way for commercial real estate developers to finance multifamily and commercial properties througout the U.S. However, there are pending changes that could challenge the effectiveness of this program.
At its core, this method of commercial real estate financing involves an EB-5 visa issued to a non-US citizen in exchange for investment funds. It’s also known as the Immigrant Investor Program, created by Congress in 1980 to stimulate the economy by providing funds to commercial properties and by creating more construction, trade, and admin jobs.
Currently, for an investor to qualify, they must fund at least $900,000 of a construction project that will employ ten-plus workers directly in the U.S. The former minimum was $500,000. In 2013, Chinese investors accounted for more than 80% of all EB-5 visas issued. This foreign-investor program has benefited such projects as the Andaz Hotel in Palm Springs and Hudson Yards in Manhattan. These projects may never have gotten into the planning stages without foreign investments. Because of its initial success, there was great demand for this program, causing a two-month suspension of the EB-5 program in 2014.
While there aren’t millions of investors lining up, the program is certainly beneficial to a Chinese citizen who wishes a green card to live in the US. In fact, only 9940 investor visas per year are issued— but the program isn’t without its issues— and many of the program’s policies are regularly changing. The process is lengthly, and although it can take some time to firm up a deal, and terms of repayment can be up to four years, there doesn’t seem to be hesitation for either the EB-5 investor or project owner. Interest in the program continues to rise and the waiting list continues to grow.
There are some speed bumps. China’s crackdown on investment corruption could potentially decrease the number of qualifying EB-5 investors. There has also been the question of whether funds over $500,000 may also be required, disqualifying yet more investors. States-side, developers are becoming frustrated with the delays in the program, and many have withdrawn their applications. Loan terms are also becoming riskier for the foreign investor.
For now, traditional banks still can’t get high enough in the capital stack for development loans for commercial projects. Thus, EB-5 money still remains an attractive investment source, so long as Chinese investors are not put off by escalating investment terms and higher risk.