1. Q U A N Y U ( C H A R L I E ) L U
EB-5 Program In Commercial
Real Estate
2. Brief Overview of the Program
Employment-Based Fifth Preference program is an immigrant Investor Program
Created by Congress in 1990 to stimulate the US economy
General Requirements:
EB-5 investors must invest in a new commercial enterprise and it cannot invest in
noncommercial activity such as owning and operating a personal residence.
Create or preserve at least 10 full-time jobs for qualifying US workers within two years
or under certain circumstances within a reasonable time after the two-year period of
the immigrant investor’s admission to the US as a Conditional Permanent Resident.
The jobs requirement can be fulfilled by direct or indirect jobs creation
Capital Investment Requirements in terms of cash, equipment, inventory, other
tangible property, cash equivalent and indebtedness secured by assets owned by the
alien entrepreneur
Qualifying investment in the US can be $1M or $500,000 (Targeted Economic Area)
3. EB-5 Regulations
United Citizenship and Immigration Services manages the EB-5 program
Allocates 10,000 “EB-5” immigrant visas per year to qualified individuals seeking Lawful
Permanent Resident status
Congress has reserved 3000 of the 10,000 EB-5 for EB-5 investors who invested in Targeted
Employment Areas
Immigrant Investor Pilot Program is a program for investors to invest in an economic unit known
as a “Regional Center” which allows for a less restrictive job creation requirements based upon
creation of indirect jobs
The number of indirect jobs created through an EB-5 region center is based upon a business plan
and detailed economic analysis, which is evaluated and approved by USCIS
On May 1st, imposed a Chinese “retrogression” (wait list) for Chinese investors meaning that the
anyone who applies now from I-526 petitions will be at the end of the line
EB-5 Program dictates that no more than 7% of the visas can be allocated to the investors from the
single country. If other countries didn’t use their allotted visas, the visas were offered to Chinese
Investors
4. Detailed Requirements
Qualified employee: US citizen, permanent resident or other immigrant authorized to
work in the US, no H-1B visa holders
Direct jobs creation: Actual identifiable jobs for qualified employees, EB-5 investor
has directly invested his or her capital
Indirect jobs creation: created collaterally or as result of capital invested in a
commercial enterprises affiliated with a regional center by an EB-5 investor. May only
use the indirect job calculation if affiliated with a regional center
Full time employment status must includes minimum of 35 working hours per week
Targeted employment area: rural area or an area experiencing unemployment of at
least 150% of the national average rate or any area outside a metropolitan statistical
area that is designated by the Office of management and Budget or outside the
boundary of any city or town having population of 20,000 or more
5. Details on Job Creation
Jobs creation can be permanent jobs (35 hours per week) or construction jobs
that last two or more years.
Indirect jobs creations is the result of an economist’s report using a forecasting
model like RIMS II or IMPLAN
Direct impact of capital investment in specific “industry cluster” in a specific geographic area on
final demand of sales, using databases of economic activity of that area.
Indirect impacts generated from the suppliers and vendor of that industry and also the underlying
effect of the increased level of employments of the local community
EB-5 Regulations permit the allocation of 100% of a project’s job creation
benefits to EB-5 investors when the total project capital consists of both EB-5
and non-EB-5 capital
Example: 200M solar energy project, might have a total job creation impact of only 6 jobs per
500,000 invested due to the capital intensive and low employment profile level of the project. Thus
the total job creation is 2400. But if the EB-5 capital is only 100M of the total investment, then the
resulting 2400 jobs will provide 12 job credits for each EB-5 investor, satisfying the 10 jobs
requirement.
6. Details on Targeted Employment Area
Unemployment TEA:
1. Aggregate annual unemployment for that area is 150% of the national average
unemployment rate, designated by the Governor of each state or an agency or individual
designated by the Governor. Normally this will be either the state agency responsible for
maintaining the unemployment database or the agency responsible for economic
development
2. Normally maintain employment data for MSA’s at the census tract level. Some states will
permit regional centers to propose designation of areas that combine qualifying census
tract with non-qualifying census tracts such that the aggregate average annual
unemployment is in excess of the 150% national average
3. Example: Affluent areas of Manhattan might be designated as TEA’s if combined with
high unemployment areas of Harlem
Rural TEA:
1. Outside the limits of any metropolitan statistical area-as designated by US Department of
Commerce
2. Not within the limits of any incorporated (city, village etc.) area with a population of more
than 20,000
7. Regional Center Requirements
1. Must focus on a contiguous geographical region of the US
2. Promote economic growth through increased export sales, improved regional
productivity, job creation and increased domestic capital investment
3.Demonstrate in verifiable detail how jobs will be created directly or indirectly
4. Commit sufficient funds to promote and oversee capital investment
opportunities in the regional center
8. EB-5 Process for Developer
Step 1
•Determine if the project has the necessary characteristics to successfully raise financing through the EB 5 Program. Mainly
on identifying the job generation potential and the location of the project
Step 2
•Determine Regional Center options (if not a direct EB-5 project). Find the approved Regional Centers for the geographic
area where the project is located and discuss the terms which the Regional Center would agree to sponsor the project.
Step 3
•Targeting investors as China accounts for over 50% and South Korea accounts for over 20% of all EB-5 visas in recent years.
Step 4
•Have offering documents prepared for the EB-5 financing. Most of the financing go through the channel through limited
partnerships and thus involve the sale of securities. The business owner will need a private placement memorandum,
limited partnership or limited liability agreement, and subscription agreement for the EB-5 offering.
Step 5
•Negotiate with other financing sources for the conditions that typically pertain to the exit strategy for the EB-5 investor and
security for the EB-5 financing
9. EB-5 Process for Developer
Step 6
•Preparing the offering for sale to foreign investors. The Regional Center or marketing agents generally will assist in the
translation of the offering memorandum
Step 7
•The marketing agents will coordinate with emigration agents or financial institutions in the foreign country to market the
offering to investors
Step 8
•Obtain subscriptions for the limited partnership or limited liability company interests and commence the EB-5 visa process
for each foreign investor. Investor will sign a subscription agreement and put the full amount of money into escrow and
commence the immigration process by filing I-536. Currently timing of the releasing of the fund can be shortened with
agreements.
Step 9
•Completion of the project, provide the requisite documentation for the investors to have the condition removed from their
legal permanent residence status. The project would require proof that the proposed project was completed in accordance
to the business plan and the requisite job were in fact created.
Step 10
•Reputation of the developer is important in the EB-5 world. Developer must have the track record for completing projects
and reputation of a professional project team
10. Details Structure for EB-5 Funding
Regional Center vs. NCE(New Commercial Enterprise) vs. JCE (Job
Creating Enterprise)
Investor does not invest in the Regional Center. Instead he “associates” with the
Regional Center by investing in a project that Regional Center sponsors or arranges
EB-5 investors invest in the NCE which needs to be equity capital
NCE must invest all of that capital in the JCE
NCE investment can be deployed as a loan or equity
Loan model vs. equity model
Most of the investments are structured under the loan model
Immigrant investors capital deployed by the NCE to JCE as a loan
Loan can be secured by a first or junior mortgage against the property, secured by
equity interests (mezzanine financing)
Loan closing, JCE pays origination fees or points to the NCE
During the loan term, JCE makes periodic interest payments which are equal to the
total of the migration brokers gees, management fee to the NCE’s manager and
interest component payable to the immigrant investors
Loan model involves two-tier structure while equity model can be a one-tier or two-
tier structure
11. Details on Loan and Equity Structures
Debt Model: Two-tier structure
NCE and JCE are separate entities
NCE is the lender and the JCE is the borrower
Investors equity investment will be in NCE which uses the proceeds to
invest in the JCE
NCE would be a creditor and not have an equity interest in the JCE.
One-tier structure is not permitted or appropriate for loan model
Equity Model: One-tier or Two-tier structure
One-Tier: Immigrant investors can contribute equity capital directly to
the entity that owns the property and will create the jobs. NCE and JCE
are one and the same entity
Two-Tier: investors can contribute equity capital to the NCE. Pooled
capital would be contributed as equity capital to the JCE.
One-tier structure is more common for EB-5 investment in equity model
14. Usually EB-5 loans are structured as fully non-recourse mezzanine loan structure in capital
stack
Loan maturity is typically a 5 years loan with possible 2-12 month extension option; after I-829
removal of conditions approved
Total Cost for developer in EB-5 Mezzanine loan (8-10%)
Deal Terms with Existing Regional Centers
Rental Model Terms:
The developer sets its own interest rates and term
Pay rental fee to the regional center
-$200,000 a year annually or 1.0-2.0%of the loan annually
-$7500 flat fee per investor
Loan Model Terms:
Interest rate offered will vary between 3.0-5.5%
Origination fee will vary between 0-2.5% of the loan
Legal Costs from borrower range between $50-200K
Marketing costs range from $20-100K plus the administration fee
Termination fees if borrower cancels
Pricing and Terms for EB-5 Loans
16. Capital Stack for Commercial Real Estate with EB-5
Loans
Senior Lender (Construction and Acquisition) 55%
Developers’ equity 10-15%
EB-5 Funding (Mezzanine and Preferred) 30-35%
55%
10%
35%35%
Senior Lender
Developers
Equity
EB-5 Funding
17. Timing of EB-5 Funding
Time to create a Regional Center (Approximate)
Preparation of application: 2-3 months
Processing by USCIS: 6-8 months
Regional Center Approval: 8-11 months
Time to syndicate an offering and obtain approvals releasing funds
from escrow (Approximate)
Start time: all project documents prepared for offering
Marketing 40 units (20M) 4 months
Processing legal 2 weeks
Audit 2 months
Firm’s report on investors' source of funds 2.5 months
(report can be prepared concurrently or in advance)
All I-526 approved-5 months after last unit submitted 5 months
All capital released to investment 6- 12 months
after start
18. EB-5 Process for Investors
Step 1-Investors who wants to invest into
regional center needs to identify the
potential regional centers that he or she
would like to invest in and to file the state to
qualify as an “accredited investor”
Step 2-Fill out the subscription agreement
and fund the investment to Regional
Center. One time administrative fee charged
to the investor by the Center. Then the
regional center will submit the documents
to file your I-526 Petition. If the I-526
approved , the investor executes and submit
a form to request an interview with USCIS
or the Department of State. Then if
favorable family member must enter in the
US within 180days, and starts 2 years
conditional period
Step 3-Filing of the I-829 petition to remove
the conditional visa. If granted, investor will
receive unconditional green card status.
19. Timeline for EB-5 Investors
1. I-526 Application-adjudication process 12months
2. I-485 interview and conditional visa issued 3-6 months
3. Time lapse before eligible to file I-829 21-24 months
4. I-829 application-adjudication process 8 months
Total 4-5 years
20. EB-5 Loans Default Situation
USCIS stated that EB-5 investment must be at risk
which means the loan cannot be guaranteed
Regional Center can charge a larger default interest
rate and may obtain collateral in the event of default
The mezzanine structure in the capital stack of the
project allowed the EB-5 loans' to obtain a option to
replace the developer and assume the first mortgage
obligation
21. Major Borrower from EB-5 Funding
Related Realty- Raised more than $800M from
approximately 1600 investors and controls 1/3 of the EB-
5 market nationwide. Raised $600M for Hudson Yard
Project alone
Forest City Ratner-Raised $728M for its Barclays Center
project-Phases I,II &III
Silverstein-Raised $250M for its Fore Seasons Tribeca
Acadia Realty-Raised $180M for its City Point Project
22. Major EB-5 Lenders
In house Regional Centers:
Silverstein
Related
Extell
EB5 Capital
Focused on Washington, DC Metropolitan Area and California
Equity investment
Operates 2 regional centers
Can AM Regional Center
Focused on Philadelphia and Pennsylvania area
Operates 6 regional centers underneath
Golden Gate Global Regional Center (GGG)
Based in San Francisco
Sponsor of multi-phased redevelopment project in San Francisco by Lenner Corporation.
GGG raised $200M of EB-5 capital for this project
USIF-US Immigration Fund
Sponsored numerous project in EB-5 portion in exceeding $100M
$500M for phase 2 and 3 of Barclays center