Thanks to a recent publication by two scholars from NYU Stern School of Business, we now have a solid understanding of recent trends in the use of EB-5 capital, particularly in the realm of real estate development.
In March 2016, Professor Jeanne Calderon and Scholar-in-Residence Gary Friedland, Esq. published a paper entitled, “EB-5 Capital Project Database: Revisited and Expanded,” which includes data on 27 large-scale real estate projects that are in the process of utilizing a sizeable amount of EB-5 capital. This paper is a follow-up to their initial article, “Roadmap to the Use of EB-5 Capital: An Alternative Financing Tool for Commercial Real Estate Projects,” which was released in May 2015.
Both papers define large-scale projects as commercial real estate ventures in major metropolitan areas with total development costs of at least $150 million and an EB-5 capital component of at least $40 million (although most of the listed projects involve $100 million or more of EB-5 capital). Data sources include internet sites–websites of the Regional Centers, developers, and migration agents—and news articles.[1]
In addition to providing data about each of the 27 projects[2]—including their capital stacks and EB-5 financing details—the authors cull together a list of 20 recent trends in the use of EB-5 capital. While the authors recognize that their limited sample of projects may not be adequate for drawing general conclusions about the use of EB-5 capital, “the list is sufficiently representative of large-scale projects to illustrate some recent trends” among EB-5 projects across the board.
Below are some of the most interesting trends highlighted in the report.
- The number of “megaprojects” using a sizeable amount of EB-5 capital has risen dramatically over the past year. These projects represent some of the largest capital raises in the Program’s history and include Resorts World Las Vegas ($999 Million); New York’s Hudson Yards – Tranche 2 ($600 Million); 2 World Trade Center ($500 Million); and Los Angeles’ Century Plaza ($450 Million). Most of these projects did not start to raise EB-5 capital until 2015 or later.
- Substantial amounts of EB-5 capital are being used. Nineteen of the 27 projects involve at least $100 Million of EB-5 capital, and nine of them use over $200 Million. The average EB-5 capital component of the 27 projects is $207 Million per project.
- The vast majority of EB-5 Projects are located in TEAs. Based on the sources used by the researchers, all of the project locations appear to qualify as Targeted Employment Areas (TEA’s), including the Waldorf Astoria located in Beverly Hills 90210, a highly affluent neighborhood with a median home sales prices of $2 Million and a median income of $96,312.[3] (Read our report on how wealthy urban centers—some with 0 percent unemployment because they are non-residential—become designated as economically distressed areas here).
- EB-5 is being used as a mainstream source of capital: The authors find that EB-5 capital is no longer being used for projects that have stalled or by developers who are unable to borrow capital from conventional lenders, as was common prior to the rebound of the real estate market in 2012. The projects included in the Database confirm that EB-5 capital is now recognized as a mainstream source of capital for development projects, not limited to those projects that encounter difficulty in obtaining financing…Most of the projects were acquired by the developer relatively recently with the plan to develop the property as soon as possible.
- Many recently formed Regional Centers are sponsors of large-scale real estate projects. Nine Regional Centers appear on the Supplement’s list, but not on the initial Database published in May 2015.
- The EB-5 Loan Model is preferred to the Equity Model: Twenty-two of the projects are using a loan model, one is using an equity model, and the models for the remaining projects are “to be determined.” According to the authors, the tendency to use a loan model makes sense given the needs of investors and their representatives: Apparently, the migration agents and the immigrant investors strongly prefer the loan model to the equity model because it provides for a defined exit strategy – a fixed maturity date. In contrast, the equity model typically relies upon the occurrence of a capital event that may be within the developer’s control. This preference is not surprising given that the investor’s primary motive for making the investment is to qualify for the EB-5 visa, and then to recover its investment as soon as possible.
- Certain Project types continue to dominate. “Multifamily” comprises a major component of more than 15 of the projects, while hotels serve as the major component of at least 8 of the projects. Additionally, making an appearance in the database are some so-called “unconventional” real estate related projects, such as SkyRise Miami, a planned entertainment and observation tower to be built on the shore of Biscayne Bay in Miami, known as the “Eiffel Tower of Miami.”
These and the other observations shared by the authors confirm that Regional Centers are continuing in earnest to file applications for projects in anticipation of reforms that will likely be passed by September 2016. Equally important, the highlighted trends point to the important and critical role played by EB-5 capital in enabling the construction of large scale development projects in urban centers across the U.S.
Given all the uncertainty over the future of the program, anyone looking to get into the EB-5 space should act quickly. e-Council Inc. is highly experienced, both directly and in conjunction with our EB-5 strategic partners, in conducting Due Diligence Assessments that can guide developers in pursuing EB-5 capital for their projects. e-Council Inc.’s professionals are also experts in creating a Matter of Ho-compliant business plan and provide a wide range of complementary services designed for the EB-5 application.
To inquire about our wide range of EB-5 concierge services, including project oversight and coordination, our best-in-class Matter of Ho-compliant business plans, due diligence project assessments and a wide range of ancillary services, please contact us at info@ecouncilinc.com.
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[1] The authors emphasize that they do not independently verify the information and data, since many Regional Centers are not willing to provide such information.
[2] For details on the individuals projects included in the Supplement, consult the “data sheets” at the end of the report.
[3] http://www.propertyshark.com/Real-Estate-Reports/2015/02/04/l-a-s-top-10-priciest-neighborhoods/; http://maps.latimes.com/neighborhoods/income/median/neighborhood/list/