EB5 Investors Magazine - Page 36

Continued from page 33 programs, but EB-5—being housed in a different part of the government—is not included in those trainings. It’s not part of the new market tax credits or those different types of programs. The one exception is the training that is provided by the Council of Development Finance Agencies (CDFA). CC: Do you think there are more barriers to entry in terms of inner city development than there would be in other non-inner city development areas, or do you think this is something that affects EB-5 and the development world as a whole? KZ: These are barriers that affect the utilization of EB-5 in general and are not specific to the inner city. We did not uncover any inner city barriers specifically. CC: You also discuss public private partnerships, which is something that we’ve covered in the magazine in the past, and they seem to be growing. Do you think that such partnerships have a particularly important role in inner city investments? KZ: Yes, we think they’re very important and it’s because often the public sector can’t do it alone, and neither can the private sector. There can be significant public barriers, such as zoning or regulation, and then the private sector obviously has more access to capital and, I think, more access to innovative development ideas and projects. Yet, the public sector also can have a more robust pipeline of projects that they could consider funding with EB-5. CC: So getting into the specifics of the report, why did you choose these particular projects? What qualities were you looking for when you chose the case studies? KZ: When we were engaged to write this report, we said we would write a maximum of three case studies, and we honestly couldn’t limit ourselves to doing three. So we wound up doing five and we could have done more. Our research uncovered a wide variety of really interesting case studies, but we chose these because of their location, their potential for replication, and their positive impact on their community. They also seem to have provided significant local job opportunities. Then two of them seemed to be really unique to us: E3 Cargo Trucking and the Education Fund of America. E3 Cargo Trucking involves the direct funding of a business. And charter schools are an interesting trend in the inner city because of all the education challenges, so we thought that would really be interesting for our demographic. CC: What are some impacts of inner city investment for the community, for developers, or even for investors? KZ: Most inner cities are characterized by underinvestment. So they need more investment just to create more thriving infrastructure, robust commercial districts, housing – you name it. That’s the impact for the community: it’s badly needed. For the investors, it’s the opportunity to invest in an area where 34 you can have a significant impact beyond just the return on your investment. When they get it right, they’re able to invest in projects that, but for EB-5, would not make it. In addition, again with the public private partnership, the investors and the developers can find that alignment and then they have the support of the public agencies. They can leverage public funding and other resources. Oftentimes inner cities offer a cheaper place to do business and you can leverage more resources, and other funding opportunities. When the investments are part of a broader economic plan, their risk is generally diminished. CC: As you mentioned in the report and as we’ve mentioned in our conversation, investors, a lot of times, especially from China, will favor real estate projects or large projects. How can the industry deal with that or remedy that to get people to invest in smaller inner city projects? KZ: This is a tough one because investors may have a bias and there is also a bias on the EB-5 approval process, where it’s very easy to get real estate projects approved because they understand those models and they’re used to it. The other issue is that the fixed costs associated with any project mean that the smaller projects may not be profitable. I think the industry as a whole needs to study the viable smaller projects, like E3 Cargo Trucking and the charter schools. The more that they can learn from them as a smaller model and start to replicate that and put it out there as a viable option will help. There also needs to be something done in the government in terms of how they’re processing approvals and what they’re counting for jobs. It’s not just an investor bias. And I have to say that the cargo trucking and the charter school case studies are the ones that everyone continues to ask us about. I think there’s a real demand for smaller projects. The more smaller projects get funded, I think the more they can be replicated. “In inner city investment nothing is easy. For us, EB-5 didn’t seem to have any more challenges than any other tool.” CC: What did you learn from your research? I know that’s a big question, so breaking it down a bit—how many projects do you see operating in inner cities? What are some of the challenges and advantages of developing in an inner city? What are some of the transferrable insights or trends across your case studies that you noticed? KZ: We found about 180 EB-5 projects. We know there’s a lot more happening in EB-5 than we anticipated and that the economic development field understands. So that’s one thing. It is still a relatively hidden tool that has a lot of potential. At the other end of this we really came out thinking, “Wow! It really does have a lot of potential for the inner city.” There are challenges with it, like any special government program. In EB5 INVESTORS MAGAZINE Continued on page 36