What makes real estate such an attractive investment for EB-5 investors?

There is often a large construction element, which is good for job creation. However, all manners of projects can be successful EB-5 projects with the right planning (such planning is best done with an EB-5 immigration attorney).

Real estate serves as extra security for EB-5 investors because it is a collateral that may be liquidated to return capital to investors. Other types of projects do not offer the same level of security.

When traditional financing for real estate construction and development was difficult to obtain as a result of the Great Recession of 2007 to 2009, developers discovered EB-5 as a way to get projects financed (either in whole or in part) and completed. The EB-5 industry developed around these types of projects and matured from there. It seems that EB-5 was the right tool at the right time for real estate investment projects and continues to play an important role for many developers.

Investors seem to like real estate because they can actually see the building being built. Another reason is that most migration agents, through whom the regional centers work with to find investors, understand real estate projects and can better market their projects to investors. Also, the real estate project can easily show 10+ job creation at the I-829 stage as long as the construction was completed.

Real estate is tangible and has collateral. In other industries, there are no assets to protect investors, whose investment must be "at risk".

Real estate provides a higher level of security for the investment. The real estate property serves as collateral for a loan that EB-5 investors issue to the developer. Other projectsfor example, IT startupsdo not offer the same type of collateral and the outcomes of such projects are less certain.

It is true that real estate projects have received the most investments for EB-5 investors. There are various reasons for this, including that (1) most investors prefer real estate as opposed to other investments such as industrial, manufacturing and services-oriented sectors, (2) some investors are more familiar with the physicality of real estate properties than service industries such as operating restaurants, (3) real estate properties tend to be substantial purchases where multiple investors can be easily partnered together and, last but not the least, (4) various members of the real estate industry were the early promoters of EB-5 investments. For example, REITs can more easily raise funds through EB-5 investors. For all these reasons, real estate remains a popular choice for EB-5 investors.

The reason real estate investments are so popular for EB-5 Regional Centers is that real estate developers are the primary users of the program. There are many other business options as well but, overwhelmingly, real estate developers of condominiums, apartments and other real estate interests use the program and thus, any potential investor has more options in the real estate industry than any other. It also might be easier for a potential investor to understand the benefits of investing in the development, for example, of a hotel that is being managed by a well-known hotel brand.

Typically real estate development projects require large capital (ie., many investors) and have the capability of meeting the job creation requirement of 10 jobs per investor. Furthermore, since it is usually a big project with mixed funding, it is considered a stable investment; hence, popular with regional centers and investors.

In my opinion, here are some reasons for the popularity of real estate projects in the EB-5 Program: (1) In order to count direct jobs, employees should be employed for 2 years and it is easier to do that in large infrastructure or real estate projects. (2) In a loan-based model, it is easier to determine the collateral. (3) Investors prefer to see something tangible resulting from their investment. (4) Unless a recession hits, the value of real estate usually appreciates, thereby making it easy to refinance or sell the property for a profit.

A lot of it has to do with the fact that banks and insurance companies are still hesitant to finance real estate projects. In my opinion, real estate projects are still among the riskiest of deals an investor can make.