Why the EB-5 Program is Essential for Residential Real Estate

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It’s critical that the public, the residential and commercial real estate industry, and elected officials across the country understand the benefits of the EB-5 program, the jobs it creates and saves, and the potential it has to support post-COVID economic recovery.

Property investors have been riding a wild wave during the pandemic, with the short-term rental market stalling and then restarting, and property prices in many second home markets soared. What future for new buyers of second homes and for managers of more robust real estate portfolios? We’ll explore that and more throughout May at Inman.

Since 1990, the EB-5 Immigrant Investor Program has been a gateway for qualified foreign investors (who must pass security checks and meet specific capital and job creation requirements) to obtain lawful permanent residence in the United States.

The program is an incredibly effective project funding tool, ensuring job creation and supporting long-term community and economic development.

The program is a catalyst for hundreds of development projects, hundreds of thousands of jobs, and it has played an important role in the country’s economic recovery from the 2008 recession. Now, this job-creating juggernaut is set to take end June 30, 2021, unless Congress acts.

Following the mortgage-backed securities financial crisis of 2008 which severely affected the real estate sector, bank financing options for real estate projects have become expensive and scarce. Many developers have turned to alternative financing methods, including private equity, and many sophisticated real estate developers have noticed a great, previously unknown, niche financing tool: EB-5 capital.

History tells us that the program is not in danger. In fact, it has been reauthorized 19 times as part of the State Department’s or Department of Homeland Security’s annual spending measure. This time, however, the reauthorization is tenuous.

At the end of 2020, the program’s traditional reauthorization language was “decoupled” from its traditional spending bill moorings and given its own end date. This means that it is not only scheduled to expire on June 30but now it also lacks the certainty provided by an unavoidable supply bill.

From a developer’s perspective, EB-5 investments are structured like a mezzanine or senior construction loan. However, they are generally cheaper than bank loans or private equity assistance because EB-5 investors aren’t primarily focused on ROI. Instead, most EB-5 investors care primarily about their immigration goals and the security of their capital.

In addition, EB-5 investment terms are generally more flexible. In the case of a mezzanine loan, the terms of the EB-5 loan closely follow the terms of the primary lender and in all cases, since EB-5 lenders do not have to follow rigid banking policies, the terms of investment are often tailored to the needs of the project.

Given its flexibility, reliability, and low cost, EB-5 financing has become a powerful option for many looking to expand into the residential real estate space. Indeed, between 2010 and 2015, over $1.1 billion in EB-5 capital has been invested in residential real estate construction projects across the country.

For EB-5 investors, residential developments and mixed-use developments with a residential component are very common and sought after because overall they are seen as a resilient asset class, providing security for their investments and a process of successful immigration.

Overall, the program provided more … than $41 billion in capital investment around the world to fund various developments and support American businesses, all at no cost to the American taxpayer. This deployment of capital has created at least 820,000 jobs for American workers, a key contribution after the 2008 recession, when residential real estate projects struggled to secure reasonable financing.

Right now, as more millennials enter their thirties, there is an increase in demand for multi-family housing, which presents an ideal opportunity for the multi-family sector to thrive.

With less than 90 days until the program expires, time is running out. It’s critical that the public, the residential and commercial real estate industry, and elected officials across the country understand the benefits of the EB-5 program, the jobs it creates and saves, and the potential it has to support post-COVID economic recovery.

If you would like to support the reauthorization of the program, take the simple step of joining the Coalition to Save and Create Jobs. It’s easy, it’s free and it’s powerful.

Aaron Grau is the Executive Director of Invest in the USA (IIUSA) in Washington, DC Connect with him on Twitter or LinkedIn.

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