projects , over time it is expected that all EB-5 stakeholders , including EB-5 investors , agents and the NCE itself , will come to appreciate that the no longer requiring job creation opens the opportunity to redeploy to lower-risk options and / or to diversify deployment among several different investments .
In interviews with industry stakeholders , three approaches to redeployment have been commonly seen to date :
• Extending the initial loan to the original developer for the same project
• Arranging a new loan to the prior developer for a similar , new project
• Arranging a new loan to a new developer engaging in a new project similar to the original
Among these options , extending the initial loan to the original developer may or may not be a legally viable option , depending on the legal interpretation of , “ at risk ” and if and how the funds are technically used . The other two options involve investing capital in new ‘ similar ’ projects to the original EB-5 project . By definition , however , this option would likely imply “ job-creating ” investments which in turn implies a higher risk to the EB-5 investors , because job creation typically comes by the construction of a large project and / or the launch of a new business .
The Integrity Act , in eliminating geographic restrictions from redeployment , re-opens the path to making diversified loans directly to borrowers , via private lenders , or via professionally-managed private credit funds . Without the need for a ‘ nexus ’ to job creation , EB-5 funds can now be redeployed to already cash-flowing projects for further risk reduction . Examples may include making loans to stabilized businesses with collateral and cash flow , such as already-constructed real-estate developments for renovations , or businesses looking to fund machinery purchases for expansion . Of the options above , only working with a professionally-managed fund reduces the NCE ’ s responsibility in sourcing , evaluating and ordering due diligence on potential investments . If private fund managers who can deliver 6 % -8 % ( after fees ), on wellcollateralized loans , and who have themselves have passed independent due diligence , the argument becomes a compelling one for all stakeholders .
" NCEs can explore redeployment options that can generate marketcompetitive returns , reduce investor risk , and ultimately preserve and enhance the reputation of regional centers , by presenting winwin solutions for all stakeholders ."
The following table presents an overview of the pros and cons of the various approaches to redeployment .
OPTION |
RULE COMPLIANT |
' AT RISK ' |
RETURNS FOR STAKEHOLDERS |
RISK MITIGATION |
FLEXIBILITY FOR PAY-BACK TIMING |
Extend existing loan Yes Possible Minimal Lower risk Possible
Loan to a new job-creating project
Yes Yes Yes Higher risk Unlikely
Loan to a stabilized project Yes Yes Yes Med . Risk Possible
Loan to multiple stabilized projects
Yes Yes Yes Lower risk Yes
Stocks No N / a N / a N / a N / a
Bonds No N / a N / a N / a N / a
20 EB5 INVESTORS MAGAZINE