Page 31

CRE Finance World, Summer 2013

Euros, Yuans and You: The EB-5 Investor Visa Program as a Capital Source for Commercial Developers “Under the EB-5 program, developers can attract foreign capital to invest in domestic projects at significantly lower cost than traditional sources of capital.” ING Investment Management Real Estate Finance – Atlanta A publication of Summer issue 2013 sponsored by CRE Finance World Summer 2013 29 Establishing and Operating a Regional Center One of the selling points of the Pilot Program for real estate developers is the possibility of investing through regional centers, rather than directly in a specific project. Both developers and investors are wary of the requirement that the investor be actively involved in the day-to-day operation of the investment. Developers typically balk at novice involvement in decisions, and few investors possess sufficient expertise to provide meaningful input. Unlike classic EB-5 investments, however, investments in regional centers operate more like other pooled investment vehicles, such as private equity funds. Investors provide capital to a regional center, which acts as an “investment manager” for the aggregated funds. This allows investors to make relatively passive investments and still reap the benefits of preferential visa status, and gives developers the creative and budgetary control they require to maximize such investment. The benefits of the regional center designation are somewhat tempered by the time, effort and expense required to obtain “regional center” status from the U.S. Citizenship and Immigration Service (“USCIS”). Sponsors of a proposed regional center must prepare a detailed proposal to USCIS including projections of (i) the economic benefit to the geographical region, (ii) direct and indirect job creation, and (iii) the amount and source of investment capital and a description of proposed marketing efforts. At the same time, sponsors must retain a network of brokers and other professionals to market the proposed investment opportunity abroad to qualified EB-5 investors. This marketing effort may require the sponsors (in the case of a real estate project, often the developer’s principals) to travel to investors’ home countries to present the potential investment directly to the source of capital, and typically necessitates a costly team of professionals (lawyers, marketers and EB-5 experts) to navigate the process. As may be inferred, setting up a regional center and obtaining investment capital is time consuming — often taking longer than a year. Accordingly, businesses in need of capital must consider such costs and timing in deciding whether the EB-5 program is right for them. Potential Criticism of EB-5 Program Despite its recent popularity, the EB-5 program is not without its critics. Some argue that the marketing of EB-5 investment opportunities to foreign nationals has made U.S. business too reliant on foreign brokers. Some of these brokers, working largely without SEC or other regulation, prey on naïve visa-hopefuls by recommending investments that eventually fail to satisfy the program requirements.16 As a result, many foreign nationals have ended up either losing their entire investment or having their investment disqualified (or even both), thereby negating their ability to obtain a permanent green card and exposing the investors to deportation.17 In fact, only 42% of foreign nationals who obtained EB-5 visas have gone on to obtain permanent residency.18 In addition, the government only tracks the number of visas issued, not whether the actual investments serve the purposes of the program. Some blame this lack of supervision for the tendency of USCIS to approve projects, such as multifamily developments, that are relatively simple to understand but have little chance of achieving the employment benchmarks required for a successful EB-5 investment.19 This has led some critics to call for stricter regulation and oversight of the program.20 Broad Support Despite such criticism, providing incentives to foreign investors as a means to generate investment and invigorate the domestic Full Service Real Estate Manager  Balance Sheet Origination  CMBS Origination  A/B Structures  Fitch Rated - Commercial Primary Servicer CPS2- - Commercial Special Servicer CSS3+ - Contacts Jason Tessler Head of Production 770-690-6707 Mike Cale East Coast 770-690-4788 John Foley Midwest 770-690-4805 Dan Siegenthaler West Coast 770-690-4652 INVESTMENT MANAGEMENT WWW.INGINVESTMENT.COM


CRE Finance World, Summer 2013
To see the actual publication please follow the link above