How can developers best take advantage of EB-5 capital? -

How can developers best take advantage of EB-5 capital? Staff

By Marta Lillo

Real estate developers play a crucial role in the EB-5 process by overseeing the development of properties that applicants will invest in to obtain this U.S. visa. 

Much information is available on how new developers can become involved in the EB-5 industry and benefit from EB-5 capital. However, they need to take some fundamental steps to become eligible participants. 

According to EB-5 attorneys, developers should focus on preparing to navigate strict regulations to succeed in the EB-5 program. Key best practices include accessing legal advice, selecting the right Regional Center (RC) to collaborate with or lease from, and potentially establishing their own RC. Additionally, new developers should diversify their capital sources, ensure accurate document preparation for EB-5 investors, and conduct thorough market research and project consulting.

Finding the right EB-5 project fit

Some immigration attorneys say that developers should first consult experienced immigration law firms to navigate EB-5 compliance and maximize benefits, including access to lower investment thresholds in Targeted Economic Areas (TEA), which now stands at $800,000, and whether their projects are EB-5 compliant.

The developer can maximize EB-5 financing opportunities and establish an effective relationship with a Regional Center with proper legal advice, said Charles Foster, chairman of Foster LLP and lead of the firm’s EB-5 practice group.

“They should first consult with an immigration law firm with experience representing investors in securing their residency under the EB-5 preference and developers with projects being offered to such investors. For the most part, a developer’s project can be structured to be both EB-5 compliant and, depending upon the developer’s flexibility, located in a TEA, whereby the project could be marketed at the lower minimum investment of $800,000 rather than at the normal minimum $1,050,000 level.”

Foster adds that developers new to EB-5 must understand that marketing projects at $1,050,000  when the business is not in a TEA is difficult “when there are equally good EB-5 projects being marketed at $800,000.”

Houston EB5 managing director Roberto Contreras also notes that many developers try EB-5 fundraising based on their background in a specific foreign country, but relying on one or two countries is risky due to market volatility. He recommends new developers to monitor the market landscape before investing.

“I would encourage developers to follow the industry closely to see where opportunities may be. For example, right now there is high demand for rural projects as a result of the recent data released by the USCIS showing potential backlogs for Indian and Chinese born applicants for urban high-unemployment areas.”

Renting vs. owning an EB-5 Regional Center

A second best practice is partnering with EB-5 RCs, which allows developers to count indirect and induced jobs towards the 10-job minimum condition investors must meet to comply with EB-5 regulation, enabling access to larger funding.

Foster adds that deciding whether to operate as a developer or work with an established RC is critical, either through a partnership or renting the organization.

“The advantage of so-called ‘renting’ a Regional Center is that the developer can not only start faster in marketing their EB-5 project, but the developer can take advantage of the Regional Center’s experience in marketing EB-5 projects abroad,” Foster said. “To set up one’s own Regional Center not only takes time to prepare the application, but it also takes many months before an EB-5 Regional Center project would be adjudicated by U.S. Citizenship and Immigration Services (USCIS).”

He added: “Another alternative the developer could explore is the possibility of buying an existing RC as Regional Centers are frequently on the market where it was unable to successfully develop a viable EB-5 project and is faced with having to pay increasingly high filing fees in order to maintain the Regional Center.”

Securities attorney and partner at Bradley Arant Boult Cummings, LLP, Shae Armstrong, adds that developers who want to comply with the role of job-creating enterprises (JCE) must decide whether to establish their own EB-5 Regional Center, rent one, or buy an existing center. This decision has advantages and timeline considerations.

“I would agree that it is ‘usually’ the case that making Regional Centers and New Commercial Enterprises (NCE) separate companies is usually the best to avoid conflicts; however, there are exceptions in which NCE and JCE are affiliates of a single established, proven developer who may also own their Regional Center,” he said. “In such cases, if the developer maintains competent RC management and internal compliance procedures, there may be benefits to being affiliated, such as a Regional Center not being affiliated with numerous third-party NCEs, therefore lowering overall risk exposure for the RC and indirectly, the NCE.”

Armstrong adds that if the developer were to affiliate with an experienced developer who already owns an RC, it could streamline the EB-5 process, reducing risk exposure.

Meanwhile, Contreras cautions against renting an EB-5 RC without considering costs.

“I normally advise against renting a Regional Center unless the developer is willing to spend significant start-up costs. Many people underestimate the amount of compliance involved and how competitive the EB-5 fundraising market is. It takes an entire and experienced team to administer things the way the USCIS wants to see them,” Contreras said.

DISCLAIMER: The views expressed in this article are solely the views of the author and do not necessarily represent the views of the publisher, its employees. or its affiliates. The information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal, immigration, and financial experts prior to participating in the EB-5 program Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.