Legal Briefs

Foreign Aid

The EB-5 program offers developers another funding option.

While the broader economy is still seeking firm footing, commercial real estate appears to be among the early engines of growth. Sustaining momentum in property markets comes with the ever-present challenge to secure funding, as lending and capital markets continue to remain tight.

Developers — particularly those willing to take advantage of sophisticated financing or complicated structures — are not without additional funding options, however. Development in significantly challenged markets such as Cleveland and New Orleans has remained consistent in recent years due to broad application of new markets and historic tax credit-backed funding. Additionally, a newer government-backed program known as EB-5 has shown stunning signs of growth and offers hope to developers seeking new funding sources.

What Is EB-5?

Established as a part of the Immigration Act of 1990, the EB-5 immigration visa program permits foreign nationals to qualify for permanent residency in the U.S. under the employment-based fifth preference category — hence the name. Through the EB-5 program, foreign nationals who invest a minimum of $1 million in U.S. businesses can receive green cards for themselves and their immediate family, if the investment is made in a business that thereafter creates at least 10 full-time jobs. The minimum investment amount is reduced to $500,000 if the investment is made in a business located in a “targeted employment area” — a rural area or an urban area with an unemployment rate that is at least 150 percent of the national average.

EB-5 investment activities are typically coordinated by, and project funding and investment is often operated through, one of the almost 300 regional centers designated by the U.S. Citizenship and Immigration Services agency. These centers focus on specific geographic areas and work to promote economic growth through increased exports and productivity and job creation.

As the EB-5 program has evolved, both equity and loan models of investment have been developed. The equity model refers to projects where a regional center, along with the foreign investors, takes direct ownership in the business or property. On exit, after the minimum five-year holding period, the investors elect to sell either the business or their equity interest and/or dissolve the business.

Conversely, the loan model typically involves the investors and regional center creating a stand-alone entity, which then makes a loan to the subject business or property. The loan exit occurs following the maturity date, usually based on a five-year term.

As the program has prospered, the loan model has become more prevalent due to the relative certainty as to exit modes and timing — when the loan is paid off. With the equity model, exit timing and costs are susceptible to market forces. If a developer wants to buy out the investors, the costs could escalate if the project is particularly successful.

Qualification Process

EB-5 investments can be used for almost any commercial real estate project; however, all projects utilizing EB-5 funds must be reviewed by USCIS. It is not unusual for funds to not be available for up to 12 months following the initial closing. EB-5 investments must weave through a lengthy review process that evaluates both the project and the investors. The review includes analysis and due diligence on the project, the business, and the company business plan.

Moreover, the lead time to funding also encompasses negotiation and execution of the investment documents between the project sponsor and the regional center; marketing of the investment opportunity overseas; securing of foreign investment funds; application, review, and processing of investor visa applications; and, finally, delivery of investment proceeds to the project. To be clear, whether EB-5 project investments are made through loan or equity model, such investments will pool funds from multiple investors and the overall number of investors is limited only by the aggregate size of the investment (keeping the applicable minimum investment requirements in mind, however).

If both the project and an investor are approved by USCIS, the investor receives a conditional two-year green card. The investor and immediate family can apply for permanent residency based on the EB-5 investment. If approved, EB-5 investors then become permanent green card holders and can later apply to become U.S. citizens. Upon receipt of conditional permanent resident status, investors and their immediate families are entitled to the same benefits as other lawful permanent residents.

For eligible projects, the EB-5 program offers developers access to diversified project funding. Whether through a debt-based or equity-based model, EB-5 can help developers close funding gaps, increase capital stacks, or expand equity. Other than the $1 million investment requirement (or $500,000 in applicable geographic locations), there is no definitive minimum investment required. The time and costs involved in securing funds and approvals, however, may create cost inefficiencies for projects requiring less than $5 million in funds. But sponsors of large development projects, particularly those with lengthy lead or build times, may find significant benefits and financing cost savings using EB-5 funds.

Of course, as with most evolving programs, the EB-5 standards and rules remain fluid. Developers should be sure to consult with qualified counsel to ensure the developer’s interests are well protected and overall project compliance is maintained.

Geoffrey S. Goss is a partner in the Real Estate Practice Group of Cleveland-based Walter Haverfield. Contact him at


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