Scotsman Guide - December 2011 Commercial Edition

Opening Doors to Foreign Funding

The EB- 5 immigrant investor program can provide brokers access to a wealth of new clients

the eb- 5 iMMigrant-investor pro- gram, overseen by the U.S. Citizenship and Immigration Services (USCIS), attracts foreign investment funds into the United States with the offer of fast-track permanent residency. Most of the funds that have entered the country via this program in the past 20 years have been invested in real estate. In the years ahead, however, recent improvements could make the EB- 5 program an increasingly important source of capital for a range of development, acquisition and renovation projects.

For commercial mortgage brokers, EB- 5 can bring a surge in new referrals for investors in mixed-use high-rise projects containing restaurants or retail opportunities. These investors can include immigration attorneys, foreign retirees in the U.S. and foreign students. The same is true for potential clients looking to invest in office and light-industrial parks, which can qualify for EB- 5 status from the number of construction jobs created and employees working for companies renting space.

EB- 5 centers on two forces: attracting wealthy foreign investors and creating new jobs. Fearing regime change or economic dislocation, many foreign individuals who have the means to invest significant funds in the U.S. are seeking ways to emigrate from their home countries. Other individuals want their children to grow up in the U.S. By combining these efforts with the U.S. government’s focus on job creation, EB- 5 should create tremendous synergies within the commercial market.

The program, now entering its 21st year, has brought in more than $2 billion worth of investment capital to date and has created more than 50,000 jobs, according to the Chicago-based Association to Invest in the USA. Program beneficiaries extend beyond the immediate jobs created. A growing number of real estate developers, real estate brokers, and attorneys with real estate and immigration practices are becoming actively involved.

A Residential Option

Foreign nationals wishing to obtain green cards in the United States via real estate investment may soon have another avenue to pursue in the residential market. This past October, Sens. Charles Schumer (D-N. Y.) and Mike Lee ( R-Utah) introduced the Visa Improvements to Stimulate International Tourism to the United States of America (VISIT-USA) Act, a bipartisan bill that would grant three-year visas to foreign investors who spend a minimum of $500,000 on residential real estate.

If passed, the VISIT-USA Act would cover purchases of single-family homes, condominiums or townhouses. Applicants would have the choice of spending $500,000 on one property or spending $250,000 on a single home and investing the rest in other residential properties, including rentals, provided the taxes are paid and the applicant occupies the properties for at least 180 days each year. For more information, go to sctsm.in/visitusa.

“EB- 5 centers
on two forces:
attracting
wealthy foreign
investors
and creating

that building a regional center from scratch is more trouble than it’s worth.

EB- 5 capital brings additional benefits, which can offset the administrative costs and hassles. First, EB- 5 and international funds are available — something that traditional debt and equity sources can’t always claim. Fundraising companies in China and elsewhere amalgamate investor candidates interested in American projects — EB-5-re- lated or not. Second, EB- 5 funds have few covenants compared to other struc-tured-financing vehicles, such as bonds. The program also allows for flexibility: Funding can come in the form of debt or equity, without senior-lien priorities or minimum interest rates.

new jobs.”

jobs can double or triple actual job-creation head counts.

Within two years after receiving their conditional green cards, EB- 5 applicants must prove that the funds have been invested and that 10 jobs have been created for each $1 million invested. Investors working through a regional center do this by showing that the material terms of their business plan have been met: The project has been built and is operating, and the funds have been invested.

Investors not working through regional centers must pass through a narrower gate. In such cases, income projections from a business plan would not suffice. To have green-card restrictions removed, investors would have to produce W-2 forms for each employee of the business to show that 10 actual jobs were created for each $1 million invested.

EB- 5 basics

Initiated in 1992, the EB- 5 program
(short for “employment-based im-
migration, fifth preference”) offers
permanent residency in the U.S. for
those who invest in job-creating or
job-saving businesses in the country.
Applicants who invest at least $1 mil-
lion in enterprises that are projected
to create 10 or more new jobs within
two years can receive conditional
green cards for themselves and their
families. Once it has been determined
that the funds have been invested
and the minimum number of jobs has
been created, the conditional status
can be removed.

Developers benefit

For developers, the advantage of EB- 5 regional centers extends beyond boosting job count, lowering investor risk and easing investment. Centers oversee the ongoing administrative chores and coordinate the visa documentation and processing requirements for each project. They also frequently provide fundraising and marketing functions on developers’ behalf and act as a liaison with local and state governments. The assistance comes at a price, in the form of management fees and equity participation, but developers often benefit by leaving these elements to specialists.

Developers have been known to go it alone, forming their own regional centers for projects, but there is currently a significant delay in processing time for new regional applications. Most find

Checking in

A wide range of commercial real estate development projects have qualified for the EB- 5 program, including senior-housing properties, retail and mixed-use properties, master-planned communities, restaurants, and real estate companies.

Hotels seem particularly well-suited for the program. Some key reasons hotels are attractive to EB- 5 investment include:

• hotels are a familiar concept for domestic and foreign investors. Operational metrics and accounting are well-established, so investors often can monitor a hotel’s health from a distance. Flagged properties come with an additional layer of oversight from the brand itself.