Still the Darling of EB-5
by Mona Shah, Esq.
Yi Song, Esq.
EB-5 is a job creation program; however, due to the prevalence of real estate projects, it could
seem like a real estate program. Since regulations regarding job creation for real estate projects
have historically been limiting, a question arises: why do real estate development projects remain
among the most popular of EB-5 projects? It is no accident, and some answers can be found in the
history of the EB-5 program, economics, principles, and the letter of the law. This article examines
the reasons for its popularity, why developers and investors choose EB-5, noticeable legal nuances,
and the recent trends in EB-5 real estate projects.
How did EB-5 financing become
popular in the real estate industry?
Few would dispute that 2008 and 2009 were historically catastrophic years for real estate development, particularly for hotel
development. It became extremely difficult to obtain conventional financing, and construction loans were the first victims.
At the same time, EB-5 rules regarding real estate construction
jobs changed to facilitate the infusion of EB-5 funding into the
real estate industry, leaving EB-5 investors well poised to fill the
form of a memo addressing job creation. The memo stated, in
short, that jobs induced or created indirectly by construction
could be included in the job count for EB-5 purposes.
In the early years of EB-5, job creation regulations limited opportunity for EB-5 funds to finance real estate projects. Because
of restrictive and unclear rules regarding the use of construction
jobs—a big piece of the real estate employment pie—developers
had to forgo EB-5 funding for fear that projects would not meet
the job creation requirements of the EB-5 program. Recognizing
the potential for success in the pairing of real estate and EB-5,
Senator John Cornyn (R-TX) called upon USCIS, in December
2008, to publish its “views on the job creation requirement as
it applies to regional centers generally and the construction
industry specifically.”1 Under pressure from stakeholders and
legislators, USCIS issued its response in January 2009 in the
Why use EB-5 in real estate financing?
Developers are increasingly turning to EB-5, because the
EB-5 program serves as a plausible (and increasingly credible)
alternative financing mechanism for real estate developers. It can
be structured as a short-term low-interest non-secured loan—
non-delusive to the property owner’s equity. Additionally,
recent guidelines (as set forth in the May 30, 2013 Policy
Memorandum) have increased flexibility, allowing a project to
receive credit for job creation after construction has commenced
and EB-5 capital has been received to replace the interim or
bridge financing. EB-5 financing can be used even if it is not
contemplated prior to acquiring the temporary bridge financing.
The letter, and subsequent USCIS memorandums, cleared
the legal obstacles regarding construction jobs and allowed
large-scale real estate projects to access EB-5 financing, changing the face of the industry. The EB-5 program could provide a
steady stream of eager investors when other opportunities had
dried up. This change in construction job rules benefits regional
centers all across the country.
Letter to Senator John Cornyn from USCIS offices File No. CO703.2342,
Re: Job Creation Requirement for Immigrant Investor (January 16, 2009),
P.1, Para. 1.
E B 5 I n v esto rs M ag a z ine