Developers in the EB-5 space can earn investors’ trust and enhance their project efficiency by providing transparent capital structures that are designed to protect their capital from the beginning.
During a recent Eb5investors.com webinar, industry professionals Andrew Wall, a broker-dealer from Dynaxe Capital, Trevor Anderson from regional center HomeFed Corporation, and EB-5 attorney Christian Triantaphyllis from Jackson Walker law firm, explained the importance of developers integrating due diligence, legal compliance, and investor protections into every layer of the capital stack and disclosures.
They agreed on meaningful sponsor equity, transparent capital stacks, credible collateral, and first-position rights to achieve transparency and make the structures attractive to EB-5 investors, thereby facilitating the investment and their application.
“My focus is on making sure that the project they select will facilitate their EB-5 immigration process. I want to make sure that my clients can get a green card out of the project that they’re investing in,” Triantaphyllis said.
Clarity about investor equity and bank debt in the capital stack is needed
Sponsors and developers should invest a substantial amount in the project to demonstrate their confidence in it, they said. A significant contribution can influence the investors’ decision-making.
“It’s great when the developers are willing to provide that,” Anderson said. “It speaks to their belief in the project and the fact that they’ll be successful.”
“We’d love to see like 10% to 20% skin in the game equity from the developers,” Wall adds.
The panelists also recommended keeping debt to a minimum in the structure to improve security.
In case of a public or institutional parent backing the fundraising, developers must be prepared to articulate governance, risk controls, and reporting that satisfy immigration regulation and their investors.
Developers must demonstrate the placement of EB-5 capital within the capital structure and justify this position in comparison to other financing sources.
They also advise quantifying each source of equity and timing of deployment and demonstrating that any collateral backing EB-5 capital has durable, realizable value.
Regarding investor protections, they recommend that developers establish structures where EB-5 funds have strong security in the first position to attract investors.
“If the sponsor is in the first position on an asset, I want that first position to be in an asset that has value,” Wall said.
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