Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
What is EB-5 financing?
The Immigrant Investor Program, also known as “EB-5,” was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by immigrant investors by creating a new commercial enterprise or investing in a troubled business. There are 10,000 EB-5 immigrant visas available annually.
EB-5 provides a pathway for an immigrant investor to gain lawful permanent residence for themselves and their immediate family. The program requires that the immigrant make a capital investment of $500,000 in a new commercial enterprise located within a rural area or an area that has experienced high unemployment of at least 150% the national average.
The new commercial enterprise must create or preserve 10 full-time jobs for qualifying U.S. workers within two years of the immigrant investor’s admission to the US as a Conditional Permanent Resident.
The investment generally goes into a project as a loan that offers developers rates significantly lower rates than traditional financing.
While it was intended to spur development in distressed and rural areas across the U.S., it has come under criticism for serving as a tax break for the wealthy real estate developers. That’s why new federal regulations were enacted which recently went into affect.
The new EB-5 Program
The EB-5 program’s new federal regulations double the minimum dollar amount that all foreign visa-seekers must plow into development projects.
The rules are designed to clamp down on abuse, to modernize the 30-year-old federal program and to keep up with inflation.
The new rules will make it more difficult for developers to secure financing for projects. While scores of EB-5 projects across the country have been completed, many have faced litigation and complaints from investors.
Under the new regulations, investors must contribute $900,000…up from the previous $500,000…for a project in a low employment zone.
The new rules also prohibit developers from adding a sliver of a targeted employment area on to a project in a wealthier area in order to qualify for the lower investment amount.
Other notes of interest
More than $1.2 billion of EB-5 money went to Related Companies’ Hudson Yards megaproject in Manhattan, considered the largest private real estate development project in U.S. history.
Recently, investors have been less reliant on EB-5 for their projects because of weakened demand from Chinese investors who have to wait years for their green cards.
In one notable example of EB-5 abuse could be seen in the Palm House Hotel, a condo-hotel project in Palm Beach, Florida. The developer assured roughly 90 investors that their $500,000 stakes would go to building the last 5-star hotel in the area. Instead, the developer used the money to pay off his personal debts, and buy a 151-foot yacht.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com