Why EB-5 redeployment funds is a great financing option during the pandemic
By Eb5 Investors Staff
Even though COVID-19 has created significant challenges and uncertainty related to the near-term performances of EB-5 projects, there are options on the market. For qualifying developers and real estate owners, EB-5 redeployment funds can be an excellent source of alternative financing, particularly in the current post-COVID capital markets environment when the resources are scarce, said Christine Chen, chief operating officer at CanAm Enterprises.
As of Jan. 29, 629 CanAm EB-5 investors (representing a total of $314.5 million EB-5 principal) have submitted their consent forms to opt for a redeployment into a portfolio of market rate, and USCIS-compliant investments, including mezzanine loan, private equity deals, a mixture of mezzanine or PE or newly issued municipal bonds, she said.
“At CanAm, we have been utilizing redeployed EB-5 capital for real estate developments primarily in the form of mezzanine loans,” Chen said, “These mezzanine loans differ from traditional EB-5 loans in that they are not subject to the job creation requirements of the EB-5 program. Our capital is available immediately to fund different project types: new construction, asset repositioning and/or tenant improvements in a variety of asset classes, such as, office/commercial, hospitality, residential/multifamily, industrial, and mixed-use properties.”
In November 2019, CanAm announced the repayment of its first redeployment investments to their investors totaling $43.5 million, but that was just the beginning. In 2020 alone, five EB-5 project loans repaid in full and on time, totaling $450 million, including CanAm’s largest EB-5 repayment of $350 million from its All Aboard Florida project in August 2020. Of that, 447 investors consented to be redeployed, Chen said, and the rest were eligible to be repaid. The capital of $223.5 million have been redeployed in a range of different real estate development projects across Florida, each conforming to their investors’ time frames, risks tolerances and other factors.
“To date, we have repaid 3,500 investor-families, an aggregate principal amount of $1.75 billion,” Chen said.
CMB Regional Centers are also redeploying funds and first started redeploying capital for its EB-5 investors who had not yet completed their sustainment period in 2013. Since that time CMB has successfully returned capital to EB-5 investors in 24 separate EB-5 partnerships that required redeployment, said Matt Hogan, vice president of project development at CMB Regional Centers.
The pandemic has also impacted the U.S. hospitality market in particular, which has over the years represented a substantial amount of the available EB-5 investment opportunities, he said. Additionally, the pandemic has affected the pace of development across the U.S. as well as the availability of viable and marketable opportunities. Certain local governments have limited on-site construction activity and the issuance of permits, which means that certain projects may face the risk of costly delays, he said.
“From a redeployment perspective, this has created challenges in terms of finding the right markets, asset types and developer relationships for redeployment,” Hogan said. “The investment funds need to be placed at risk, but the investments do not have to be risky so CMB has placed many of its new redeployment loans with trusted developer relationships and on asset types such as logistics, which has thrived during the pandemic.”
Hogan also pointed out that the strongest regional centers have a long history of experience in EB-5 and they have navigated the changes in the EB-5 program requirements through the years, including redeployment.
“The best regional centers have a proven ability to be flexible, adapt to EB-5 program changes and serve as a true fiduciary for their investors both from an immigration as well as an economic perspective,” he said.