NEW YORK CITY—While EB5 isn't a new program, it has only caught on in recent years, leading some developers who use it—as well as advisor and lender participants to carry one prevailing suggestion to potential users of the program: use caution.
That was a key message at a presentation Thursday night in Midtown entitled, “EB-5 Visa Financing for Real Estate Development in New York City.” Hosted by the Mortgage Bankers Association of New York and the law firm of Greenberg Traurig, the event included a panel discussion among Jeffrey Grasso, director of investor relations, Silverstein Properties Regional Center; Sam Giarrusso, senior EVP, BankUnited and attorney Kate Kalmykov of Greenberg Traurig.
The program allows overseas investors to finance $500,000 to $1 million of a real estate project in the United States in exchange for a green card and, ultimately, permanent residence. The developer, for its part, must promise to offer investors at least 10 jobs for two years or more.
Growth of EB5 has been explosive, noted moderator David Soares, president and CEO, Lexden Capital. “It's a funding source being sought after aggressively by lenders. In 2012, there were just over 210 regional centers in the United States. That's more than doubled, with 430 operating as of the beginning of this year.”
(The office of US Citizenship and Immigration Services defines a regional center as “any economic entity, public or private, which is involved with the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment.” A developer must work with one, or set one up, to participate in the EB-5 progam.”)
While popular, EB-5 offers many opportunities for error. “There's too many dead bodies and carcasses floating around from deals that fell apart,” said Soares. Panelists offered some tips on avoiding a deal's demise.
“As a lender, you need to stay up on what's happening on the EB-5 platform,” said Giarrusso. A provider of bridge financing for deals in the space, he suggested that such loans not be treated any differently than monies provided for other deals. “If you just take the EB5 out of it, the loans fit the same rules as any bridge financing. “
“The risks are about the same as other deals,” he continued, “but they may become heightened if people aren't filling out paperwork correctly.”
Added Grasso, “We don't underwrite from EB5 because a deal can go sideways fast.” Silverstein is working to raise $250 million to fund the Four Seasons hotel it's building in Lower Manhattan, and plans to do so by the end of next year.
Advised Kalmykov, “Developers looking to apply for the program need to hire a business plan writer, economist, securities attorney, a bank to oversee escro and an immigration attorney,”
Among other types of help that may need to be enlisted, developers using EB-5 need to have patience. “The whole cycle [for such a deal] takes five years.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
