Opportunity Zone Magazine Volume 1, Issue 3 - Page 50
50 OPPORTUNITY ZONE MAGAZINE | VOLUME 1 • ISSUE 3
EB-5 AND OPPORTUNITY ZONE OFFERINGS -- A SYNERGISTIC APPROACH
EB-5 capital can either be
mezzanine debt, senior debt or
preferred equity or common
equity. OZ investment can only
include equity, either preferred
related to capital contributions do not generally benefit
foreign investors. Accordingly, the needs of each investor
group are complimentary and not competitive. From a timing
standpoint, an EB-5 offering generally involves an investment
of somewhere between 5 to 7 years in, and can be even longer.
By definition, in order to take full advantage of the capital
gains elimination under the OZ program, the investment must
be held for at least 10 years.
The exit strategies with respect to both programs are very
similar. This would involve a sale and/or refinancing with
respect to EB-5 investors. receiving a return of their capital.
With respect to the OZ program, a refinancing can return
capital without triggering a sale until such time as the property
is held 10 years, in which event the property can be sold on a
tax efficient basis.
Based upon the increase in the capital contribution amount
due to the new regulations that became effective on Nov. 21,
2019, investors in the EB-5 program may require a higher rate
of return on capital to offset the longer time period that the
investment will need to be maintained. OZ investors desire
both a fixed preferred return on outstanding invested capital,
as well as sharing in the project appreciation that will be taxfree
if the requirements of the OZ program are satisfied.
Many developers in the EB-5 program are likewise
participating in the OZ program for all of the reasons set forth
above with respect to the similarities of the two programs. In
addition, EB-5 regulators may look more favorably on a project
that otherwise is located in an OZ since that type of location
has already been designated by the federal government as in
need for capital infusion and job creation. From a marketing
standpoint, it is also beneficial if there are government
subsidies or other tax in centers that apply with respect to the
development of the project to add credibility and viability of
the project as a result of same.
It will remain to be seen to what extent both programs are
utilized together in a project. However, many developers
are now trying to combine the fundraising benefits of both
programs with respect to particular projects.
Ronald Fieldstone is a partner at Saul Ewing Arnstein &
Lehr LLP and is the chair of the firm’s Opportunity Zones and
Qualified Opportunity Funds practice, which consists of 40
attorneys who handle tax, real estate, corporate and securities
issues on investments and projects in these designated
areas. His work includes offering guidance on strategies for
investing in Opportunity Zones and preparing fund documents
for compliance with securities law rules and regulations. He is
also actively involved in the EB-5 visa industry as a corporate/
securities counsel. He received his bachelor’s, master’s and Juris
Doctor from the University of Pennsylvania.
Rohit Kapuria is an attorney at Saul Ewing Arnstein & Lehr LLP
and is a vice chair of the firm’s Opportunity Zones and Qualified
Opportunity Funds practice. Kapuria focuses in particular on
assisting clients with matters involving securities, including
reviewing fund documents for compliance with securities law
rules and regulations.