In today’s real estate investment market, it is becoming increasingly difficult to get deals to the finish line — or even to the table for initial discussions. From the genesis of large-scale real estate investment, one of the most attractive and effective solutions of the investment locomotive was to apply debt, and use another parties’ dollars to multiply your own; all while developing or operating a tool to positively impact GDP and communities. Nowadays, with debt rates rising and making it increasingly difficult for traditional real estate fundamentalists to participate in the capital stack, alternative and non-traditional capital sources should be in the discussion until the storm passes. One unexplored creative alternative that may circumvent the current macroeconomic landscape currently keeping dry powder on the sidelines is EB-5 Investment.

EB-5 Investments

According to the U.S. Citizen and Immigration Services (USCIS), the Employment-Based Fifth Preference Visa Program (EB-5) was put into place to encourage capital investment by foreign investors and create new jobs for the local and foreign economy. If an investor can propose that at least 10 new jobs are created or saved as a direct result of the investment, which is a minimum of $1.05M or $800k if the funds are deployed in a predetermined high unemployment or rural targeted employment area, an immigrant visa will be granted by the USCIS.

This was largely popular in the 2015-2016 commercial real estate investment product market, however when on the up-swing of a cyclically down market, there will always reside green shoots of opportunity to ride to the top.

In theory, dealmakers will specialize on the ground floor with creative and intricate deal structures to directly provide value to communities, trend seeking retail consumers, state of the art developments and city structures, as well as live-work-play mixed-use environments. These are the pillars that can create a successful deal, where alternative and non-traditional capital can drive the capital stack in areas that traditional capital may take a more prudent approach.

EB-5 fits in perfectly in the same ways traditional capital drives sophisticated and astute investors to intricate fund structures and creative capital stack consolidations for real estate investment. EB-5 capital has no limitations in the sense that it can be applied to deals inclusive of Preferred Return structures, Multi-leveled Hurdle Rates, Target Risk-Adjusted Returns in EB-5 Centric Funds (as applicable), Investment Thesis guidelines (locality/diversification), as well as all other strategic levers that are generally enacted within our industry. Now let’s take a brief dive into what an EB-5 investment would look like in-play.

What Benefits Does EB-5 Investment Provide in this Example?

• Reduces LP Commitment by from $40.5MM to $28.4MM (90/10 Split)
  • Reducing the LP commitment allows for more flexibility to diversify funds in other product types in select geographic locations; thus increasing the equity multiple and IRR potential.
• Reduces GP Commitment from $4.5M to $3.2MM (90/10 Split)
  • Reducing the GP commitment allows for less money to be required from friends and family and/or inner company capital raising
• 1,000 jobs created
• Allows for foreign investors to gain permanent resident status in the United States

The economy has seen many down cycles in recent years, including the 2008 financial crisis, COVID-19 crisis, and the geopolitical landscape that has caused the U.S. to portray many recessionary traits and indications as of late. Due to this, real estate development and investment has felt strain on a broad scale, as well as municipal budgets failing to keep up with past trends and growth. EB-5 has been a solution to filling many of these funding gaps for notable projects in many regions as well as promoting local economic development projects that revitalize communities, create jobs, promote infrastructure, and provide a clear path to eligible immigrants seeking permanent resident status that work in the industry and understand the mission.

The big symbiotic relationship comes into play when capital is scarce due to cyclical downturns, EB-5 offers alternative investment sources for projects that stimulate economic growth and revitalize communities, all while providing a clear path to permanent resident status in the United Status to eligible and interested foreign investors who understand the mission and can bridge that gap.

Sources: USCIS, IIUSA