EB-5 Investor Funding Options For Real Estate Developers

With the housing and real estate crash of the past decade, American investors who are willing to risk involving their capital in new development projects are few and far between. Instead, real estate developers have been turning to a more cash ready funding source- foreign investors working through the EB-5 investment visa program. Since many of these foreign investors choose to fulfill their visa obligations by funding an EB-5 affiliated Regional Center, real estate developers have clamoring to become officially designated Regional Center investment businesses. But that may not be the best option. Pros and Cons of Regional Center Designation Regional Centers can get their projects pre-approved for EB-5 funding and they definitely attract EB-5 investors, but the very characteristics that make them attractive to investors may make it less attractive to run one. Unlike independent businesses, which can only count direct jobs, Regional Centers are allowed to count direct, indirect and induced jobs in full-filling the EB-5 requirement of a minimum of ten jobs created through investor funding. While this makes it easy for both Regional Center and investor to meet their program quota, the Regional Center management is solely responsible for creating and maintaining these jobs, as well as providing the documentation needed to show proof. That’s less work for foreign investors, and more work for Regional Center management. The application and approval process to become a designated Regional Center is also daunting. The process can take up to a year, and the expenditure in time and money can be prohibitive. Once designated, ongoing administration and documentation requirements can be overwhelming. Because of this, some developers choose to go another route. Alternative Options One viable option for real estate developers looking to become involved with the EB-5 program is to simply entice a designated Regional Center to “adopt” their development project. The big plus here is that the project gets all the benefits of being involved with the Regional Center and their foreign investors, but the developer doesn’t have the huge responsibility and commitment of managing the Regional Center itself. On the other hand, the developer does have to share project control with the Regional Center manager, and that could mean shared profits as well. Another option is to forgo Regional Center involvement and work towards attracting multiple EB-5 investors in a development project as an individual business. This can mean less work for developers, since the investors are responsible for much of the planning and documentation requirements. However, it requires a significantly larger number of jobs created and maintained—ten direct jobs per investor—and project pre-approval is not an option, and developers may have a hard time marketing their project to foreign investors. Finally, for those who find the application and approval process for Regional Center designation more daunting than the ongoing administration and documentation responsibilities required to maintain certification, buying an existing Regional Center is also an option.