The Real Estate Developer’s Guide to Accessing EB-5 Capital
This article is merely an overview to help real estate developers understand the general process of obtaining EB-5 capital and the minimum requirements for a qualified project, the parties involved, the application documents, and an outline of the entire process. Like many countries, the U.S. provides a means of entry for wealthy people who are willing to make a sizable investment into its economy for purposes of job creation. This is known as the employment fifth preference—or “EB-5”—immigrant visa, which allows people to obtain permanent residence immediately upon entry to the United States. Real estate developers have the opportunity to access the source of capital at very competitive interest rates for a term of 3-5 years as long as their projects will create a minimum number of full time jobs. The minimum number of jobs is determined by the capital requirements of the project.
There are three primary parties involved in the EB-5 application.
- The Regional Center
The organization that sponsors the investment project within its defined geographical area.
- The ‘Job Creating Entity’ (JCE)
The entity in which jobs will be created. Typically this is the real estate developer’s company.
- The ‘New Commercial Enterprise’ (NCE)
The entity in which the foreign investor invests his or her money.
Below are the documents that must be produced by the NCE (A List Partners) for the application process.
- Fully USCIS-compliant business plan
Created by 3rd-Party Business Plan Writer
- Regional Center approval letter
- Regional Center organization & formation documents
- Targeted Employment Area (TEA) letter (if applicable)
- Economic Analysis
Created by 3rd-Party USCIS recognized Economist
- Private Placement Memorandum (PPM)
Filed as a Security with the Securities & Exchange Commission (SEC) with professional management in control.
- Organization & formation documents for newly created PPM
- Loan Agreement between NCE and JCE (Developer)
Below are the documents that must be produced by the JCE (Real Estate Developer) for the application process.
- Deed to the property
- Land Purchase Agreement
- Organization & formation documents for developer’s company
- Executive Summary of the development project
- 5-year Operational Pro Forma
- Permits & zoning approvals
If developer is still in the permitting stage, must produce a timeline of when permitting will be completed
- Construction bid, schedule, and support letter
- After-Developed/As-Built appraisal (market study)
- Competitor analysis (at least 3 competitors)
- Biography of the developer
- Staffing descriptions (if applicable)
- Marketing strategy
This list is normally just the starting point for the economist and business plan writer to create a fully compliant economic analysis and business plan. Expect to produce more documents as requested and and be prepared to make timely revisions.
The development project must create a minimum of 10 jobs (indirect & direct) per foreign investor, which is calculated by the economist. So the initial job creation analysis goes a long way towards determining if the development project will be a good candidate for EB-5 capital. However, 3rd-Party financing can and is often times used to bridge the gap if the maximum allowable EB-5 capital is not enough for the developer to complete the project.
Calculation of Maximum Allowable EB-5 Capital
Standard Investment = (Job Creation Count / 10) x $1,000,000
Targeted Employment Area Investment = (Job Creation Count / 10) x $500,000
Locating Qualified Foreign Investors
After all documentation has been finalized and properly submitted, the next step is to present the offering to qualified foreign investors who are seeking an approved investment. If the investor likes the development project as an investment and are ready to proceed, he or she will then subscribe/invest in the NCE and wire the funds into an escrow account.
The foreign investor then begins working with his or her Immigration Attorney to prepare the I-526 petition, which proves the investor’s eligibility for the EB-5 Visa program. Once the I-526 petition is approved by USCIS, which typically takes around 6 months, the money is moved from the escrow account into the NCE’s account and subsequently loaned out to the JCE (Developer).
Once the development project has been completed, the JCE (Developer) pays off the loan and the NCE processes the final distribution to the foreign investors and the new entity (security) is dissolved.
While it does require a lengthier process to obtain, accessing EB-5 capital offers savvy real estate developers access to larger amounts of capital at a cheaper price and significantly more favorable loan terms.
For more information on how A List Partners works with developers using EB-5 capital, reach out to the A List Partners management team to begin the discussion.
For additional reading information on the EB-5 program, click here.