UNDERSTANDING EB-5 INVESTMENTS — BY CHRIS FOULGER
So , when picking an EB-5 investment , does product type matter ? In short , not as the sole determinant .
benefited from a concerted effort to try and bring manufacturing jobs back to the United States .
Residential has long been thought of as the safest asset class . After all , people will always need a place to live , and the credit crunches that afflict other areas of real estate are mitigated with Government Sponsored Entities ( GSEs ) like Fannie Mae and Freddie Mac which provide subsidized , consistent financing for the residential sector .
So , when picking an EB-5 investment , does product type matter ? In short , not as the sole determinant . However , the investor should consider whether the proposed project is appropriate for the location proposed and be sure there is sound reason and data to support the success of the new development . An office building built in a terrible location but fully leased to a longstanding credit tenant such as JP Morgan for 20 years could be a great investment , while a high-end residential project may be a terrible bet if built in a sub-par location . Any of these asset classes can provide a safe and appropriate EB-5 investment as long as the overall investment thesis makes sense .
If the project sponsor does not have successful experience with the proposed asset class being run , don ’ t walk to the next project .
Large VS Small EB-5 Projects
A decade ago , the EB-5 market was dominated by $ 100 million mega-projects . The market today leans toward smaller bite-sized projects . Does project size matter ? Maybe , but that isn ’ t the right question . More critical than project size is the project status and the questions surrounding it .
Questions such as : Has construction started ? Does the developer need the EB-5 money to start the project , or do they have a bridge lender or their own funds to cover any EB-5 shortfall to ensure project completion and job creation ? Many EB-5 investors place their money in escrow and must wait years before it is drawn and utilized in the project because the developer cannot start the project until all the EB-5 funds are raised . This may be prudent for the developer , but it places the EB-5 investor in a very precarious position , not knowing when their jobs will be created or perhaps when they might recoup their investment .
Sponsorship Equity and Experience
Nothing provides evidence of a sponsor ’ s belief in their project , such as investing a large amount of their own money as equity . The deal should be structured so that the developer is positioned to risk all their money before EB-5 investors risk losing even a dollar . It may be beneficial if the sponsor has previous EB-5 experience , but it is much more relevant that they have experience with the proposed business . If the project sponsor does not have successful experience with the proposed asset class , run , don ’ t walk to the next project .
Choosing the Right EB-5 Project is Part of a Successful Application
EB-5 Investors certainly face a steep learning curve . They must learn about the intricacies of U . S . immigration law , related to the EB-5 program , and evaluate a complicated real estate transaction on the other side of the world .
An investor ’ s first defense against making a misstep should be picking a reputable immigration agent and lawyer who has deep experience with EB-5 . However , investors must carefully evaluate the projects the agents recommend . It is helpful to use professionals to do proper due diligence .
By selecting a reputable agent and immigration attorney , committing time to review the project ’ s business plan and accompanying documents , and studying the developer ’ s reputation , EB-5 investors can position themselves for success .
CHRIS FOULGER
Chris Foulger is the president of HomeFed Corporation , providing overall strategic direction for HomeFed ’ s operational and development entities . Before joining HomeFed in 2005 , he was vice president of Cottonwood Partners , an office building developer and pension fund advisor with assets throughout the country . A member of the Urban Land Institute , Foulger has a bachelor ’ s degree in economics from the University of Utah and a master ’ s degree in real estate development from the Massachusetts Institute of Technology .
→ 26 EB5INVESTORS . COM EB5 INVESTORS MAGAZINE