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EB-5 Visa Program Can Be Cash Cow

August 7, 2015 CGS3 CGS3 Team

Mortgage originators see results from the immigrant-entrepreneur program

Phil Jelsma | Partner, CGS3

More than 20 years after it was created by Congress, a program designed to create jobs and help foreign investors become U.S. permanent residents is showing solid results for commercial mortgage originators. The Federal Immigrant Investor Program, known as the EB-5 visa program, allows foreign nationals and their families to obtain green cards in exchange for investing in U.S. job-creating ventures, often in distressed areas.

Although EB-5 was signed into law in 1992, it wasn’t until recently that the commercial real estate sector started to realize its value as a non-traditional financing tool — such an effective tool, in fact, that after reaching record levels in the summer of 2014, the EB-5 program had to be suspended for two months.

This past fall, 10,928 foreign investors submitted investment applications — mostly for real estate developments — up from 6,346 in 2013 and 486 in 2006. More than 80 percent of applicants were approved and became eligible for a temporary visa, suggesting that investors who applied this year will fund nearly $4 billion in investment if all of the projects go forward.

Administered by the U.S. Citizenship and Immigration Services (USCIS), the EB-5 program requires a minimum investment of $500,000 in a targeted employment area (TEA) with a population of at least 2,000 and an unemployment level that is at least 150 percent of the national average. It is important to note that if an investor chooses to make the minimum investment, then the project must be in a TEA.

Under current law, 10,000 EB-5 visas are available per year, representing $2 billion to $3 billion in capital per year. In 2014 — for the first time since the program was launched — the maximum number of visas were allocated.

Offering further evidence of the program’s success is the rapid growth of the regional centers authorized by USCIS to pool investments and develop projects. There were just 11 regional centers at the end of fiscal-year 2007, a number that grew to 675 by this past June. Every state has at least one regional center, and many operate in multiple states.

Two Types of Investors

EB-5 offers two foreign-national investment options. Applicants can invest on their own as individual investors, or they can pool money and invest through an EB5 regional center. Solo investors must do all the legwork alone — meaning the individual must find the qualifying property or business in which to invest and manage on his or her own.

Projects that pool investor funds, however, must use the regional center and also offer “new commercial enterprise” investment opportunities. Once a project is approved, the foreign investor can apply for conditional lawful permanent residency. Developers around the country are successfully using the EB-5 program to raise huge amounts of capital for projects from groups of various sizes — from just a few investors to pools of 100 or more.

EB-5 financing has been used for projects that include large commercial-property developments, casinos, hotels, assisted-living facilities, manufacturing plants, mixed-use projects and more. Because hotels tend to generate jobs, they are an especially popular investment for EB-5 financing. Recent high-profile completed EB-5 financed projects have involved investments ranging from $1.5 million to $600 million.

But there are downsides to the EB-5 program. EB-5 financed-deals can be slow to close — taking as long as 12 to 18 months — and as a result bridge financing may be necessary. In recent months, it’s taken even longer than usual for developers to get EB-5 financing because of the backlog of applications. Additionally, EB-5 financing is a complex process and requires significant professional expertise, which may increase transaction costs. Finally, funds may be held in escrow pending immigrant-petition approval and may need to be returned if the petition is denied.

Because of its limitations, the EB-5 program works best for those in no rush to finance. As a result, high-visibility projects, such as the renovation of the Sahara Hotel and Casino in Las Vegas or New York City’s $600 million Hudson Yards mixed-use development, tend to attract EB-5 investors.

The Fine Print

To successfully place EB-5 financing, investors must ensure the targeted project has some key characteristics. These include choosing a developer with equity in the project, adequate resources and a strong development track record as well as assuring capital is committed to fund the entire project.

The following due diligence steps are also recommended in connection with pursuing EB-5 financing:

  • Confirm the project generates the necessary number of jobs;
  •  Speak to marketing agents in the country if you are targeting/marketing the project in a foreign country;
  • Contact a regional center for a geographic area of contacts;
  • Prepare a private-placement memorandum, subscription agreement, LLC operating agreement or limited partnership agreement;
  • Determine financing source;
  • Translate documents into foreign language;
  • Get subscription agreement, funds and file I-526 immigrant petition;
  • File to have conditions removed from 1-526 petition once the project is completed;
  • Continue to communicate with investors.

A few final noteworthy items regarding EB-5 financing for potential investors are worth noting. Funds can fit anywhere in a project’s capital stack, from unsecured debt to preferred equity. The loans are usually for a five-year term, and interest rates range from 2 percent to 7 percent, compared to the standard 10 percent to 12 percent interest rates, especially for bridge loans or mezzanine debt.

EB-5 money can replace sponsor equity or other more expensive bridge capital, but it is not easy to draw down on EB-5 money because it can take as long as 14 months to get approval of I-526 petition to commence the draw down.

Under the program’s rules, the money can be used for soft costs, construction working capital and to replace bridge capital.

The Bottom Line

Ultimately, if you’re investing in a significant commercial real estate development and can wait a minimum of nine months for financing, then the EB-5 program may be more cost effective than a conventional loan.

In fact, between $3 billion and $4 billion in direct foreign investment could be raised annually, as new regional centers are formed. Developers and investors, however, should stay informed and keep abreast of the evolving trends and laws related to EB-5 financing — a program that has become more sophisticated and complex as it surges in popularity.


Eb-5 Visa Program Can Be Cash CowPhil Jelsma is a partner and chair with the tax practice team at Crosbie Gliner Schiffman Southard & Swanson LLC (CGS3). Jelsma is recognized as a leading joint-venture and tax attorney. He has a nearly 30-year background in real estate exchange transactions, syndications, nonprofit corporations and international tax planning.

Reach Jelsma at or (858) 367-7675. 


Reprinted from Scotsman Guide Commercial Edition and, August 2015. All rights reserved. Third-party reproduction for redistribution is prohibited without contractual consent from Scotsman Guide Media.