Part 5 of a series on creative Real Estate financing.
A developer financing method returns – IRS provides clarity on the use of historical rehabilitation tax credits
Using Crowdfunding to finance real estate projects
Using New Market Tax Credits to finance projects
Let the Purchaser do the Financing
E5-B visas are another growing source of liquidity in the real estate and construction world.
The Immigrant Investor Program, commonly known as the EB-5 Program, is a federal immigration program run by the U.S. Citizenship and Immigration Services that gives foreign nationals a tempting proposition: invest at least $500,000 in a U.S. business in an economically depressed area and obtain an EB-5 visa for themselves and their families. At the end of a two-year period, if the investment creates 10 new full-time jobs, the investor and accompanying relatives obtain permanent residency in the U.S. The Program applies to projects in non-economically depressed areas as well, but the minimum required investment is increased to $1,000,000.
Originally launched in 1990 to little fanfare, the EB-5 Program has boomed in the past seven years, in part due to Chinese nationals looking to invest in the U.S. real estate market and avoid the regular green card lottery. It’s quite possible another surge in applicants is on its way, this time from Russia.
The Program is proving to be very popular with hotels and franchise owners looking for new franchisees. The Wall Street Journal reports that Marriott International Inc., Sony Pictures Entertainment, and the developers of the Barclays Center, home of the Brooklyn Nets, are some of the larger companies that have funded projects using EB-5 visas.
Investors typically see a low rate of return on their investment – around 1 to 3% – which can be very attractive to developers looking to borrow at low cost. EB-5 Program funds also are considered more flexible because they usually do not carry as many restrictions as loans from a traditional lender. The dependence on USCIS approval, however, can create timing issues in the development process. Additionally, there have been some concerns of fraud and the SEC has recently been involved in multiple investigations.
The Program’s growth will likely continue as long as the lending market remains tight and any substantial immigration reform remains tabled in Washington.