Why The EB-5 Program Works Well For Real Estate Investments

Since the financial crisis of 2008, traditional lenders have significantly tightened their purse straps, and many developers have subsequently resorted to seeking alternative funding sources.

One alternative financing source that is gaining popularity stems from the EB-5 visa program, where foreign investors invest capital into the United States in exchange for green cards.

What Exactly Is EB-5?

The EB-5 program provides foreign investors with the opportunity to obtain a green card in exchange for investing $500,000 to $1 million in a U.S. business venture. However, there are conditions attached to the investment capital: each investor’s capital must create at least 10 full-time jobs for U.S. workers.

Why Do Real Estate Developers Like EB-5?

Real estate developers seek EB-5 funding because of the relatively low interest rates and no personal guarantees. Interest rates on EB-5 projects can be as low as 2 percent and rarely exceed 6 percent. The market standard term for an EB-5 investment is typically around 5 years, with two one-year options to extend.

Why Do EB-5 Investors Like Real Estate Projects?

Historically, EB-5 investors have shown a significant preference for real estate projects because real estate is tangible in nature. Investors from China, who now account for more than 80 percent of all EB-5 investors,according to CNNMoney.com, can easily fly to the United States to inspect a project site for themselves. They can get an appraisal of the project’s value upon completion and can typically conduct a due diligence review of the developers and their EB-5 project without significant hassle.

EB-5 investors also prefer real estate projects because these projects are thought to offer a clearer and safer path to having their investment returned. Unlike manufacturing or restaurant projects, real estate projects are less reliant on income or cash flow to repay investors. Instead, an exit strategy for investors may come in the form of a property sale or refinance.

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