How the New EB-5 Program Will be Favorable for Developers
Due to current economic conditions, the new EB-5 program will be favorable for developers as a source of capital. That is according to a recent Q&A with EB-5 Attorney Ronnie Fieldstone of Saul Ewing. Read on to learn more about the recent changes to the EB-5 program, what type of real estate developments will be attracting EB-5 capital and how developers can capitalize on the EB-5 program.
GlobeSt.com: With the adoption of new legislation on March 15, 2022, how has the EB-5 program been improved?
Ronnie Fieldstone: The most important improvement is that the EB-5 Reform and Integrity Act of 2022 has reauthorized the EB-5 Investor Visa program until 2027. In the past, the reauthorization used to be done on a yearly basis, which created unnecessary uncertainty over the future of the program. The new regulations create investor confidence and provide robust oversight to weed out bad actors and fraud. The new program puts in place more protections for investors and increases accountability for everyone involved in the process. The Act promotes investment in rural areas and high-unemployment areas. In the past, urban areas used to disproportionately attract EB-5 investment. In addition to Congress creating certainty for the program, a recent settlement agreement between US Customs and Immigration Services (USCIS) and Behring Regional Center LLS and other operators also clarified a lot of issues regarding the reauthorization of regional centers. Another improvement is that Chinese investors can now invest in rural projects and don’t have to wait for retrogression. Due to current economic conditions, the new program will be favorable for developers as a source of capital.
GlobeSt.com: What impact will the changes have on the global and U.S. Marketplace?
Fieldstone: Now that the program is back up and running, it will allow developers to see EB-5 debt as a more reliable source of funding and, most likely, become an important component of their capital stack. At the same time, foreigners can once again apply for the EB-5 visa to obtain a Green Card by investing from $800,000 to $1,050,000 in US projects depending on the area. This program will attract direct foreign investment to communities across the US and become – once again – a strong competitor to other nations offering a similar visa program for investors seeking to move their families to countries with more stable economies, better education for their children and richer professional and entrepreneurial opportunities. The EB-5 program brings economic development to the US by creating jobs, bringing new residential and commercial projects to neighborhoods, and expanding the ad-valorem tax base to fund municipal services. As the US economy is bound to slow down due to monetary policies designed to slow down inflation, EB-5 capital will become more important than ever. This source of funding played a key role in funding real estate projects during the Great Recession when the credit markets shut down.
GlobeSt.com: Due to recent changes to the EB-5 program, what type of real estate developments will be attracting EB-5 capital?
Fieldstone: Projects in rural areas will be the focus this time around. In these areas, we will see more master-planned communities, luxury resorts and other types of rural projects near major US cities. In many cases, developers will have to build the community infrastructure from scratch so, by being close to large metropolitan areas, they will be able to extend roads, water and sewer lines and so forth to bring costs down.
GlobeSt.com: Most of the EB-5 investors used to come from Asia, particularly China, do you see that changing this time around?
Fieldstone: Before the new program was implemented, Chinese investors saw a backlog of up to as many as 5 years to receive their permanent resident status. We’re hearing that may not be the case if Chinese investors invest in rural projects this time around. We also know that Latin America is on fire with people wanting to move their families out of those countries facing political and economic turmoil. I also believe Hong Kong and Taiwan will be good markets as the threat from China increases. We are also noticing that the type of investor this time around is a lot more sophisticated when it comes to scrutinizing EB-5 investment opportunities. They will either look and review everything themselves or have a family office do the due diligence on their behalf. Developers and regional centers will need to have all their paperwork in place and a strong business plan to capture the attention of this new generation of EB-5 investors.
GlobeSt.com: How can developers capitalize on the EB-5 program as interest rates make conventional financing unaffordable to developers?
Fieldstone: As we continue to see record inflation and rising interest rates, EB-5 debt is projected to take center stage as it did during the 2008-2009 Great Recession period. When traditional lending becomes hard to get, developers look for alternative sources of funding. EB-5 makes sense to them because the cost of debt is lower than traditional loans and can be more readily available if the EB-5 project has a solid business plan and a strong development team. A good example of this is the Legacy hospitality and mixed use project in downtown Miami near the Brightline where EB5 has played a significant role in funding the development of the project along with senior debt.
