EB-5 investors have historically tended to show a predilection for private brand-name projects akin to Marriott hotels. But lawyers say that’s changing as investors are increasingly looking for low-risk ventures and finding them in public projects.
The quarter-century-old program has gained considerable traction of late, and state and local governments are seeing EB-5 capital as a viable source of income to help fund infrastructure and other projects. They are also benefiting from several new U.S. Citizenship and Immigration Services regional centers aimed at facilitating such investments.
Participants in the EB-5 program, which was established in the early 1990s, can invest as little as $500,000 into a U.S. project and, provided the project creates at least 10 jobs per investment, come away with their principal back, a green card and minimal return on the investment.
“Investors are very highly motivated by security,” said Michael G. Homeier of Homeier & Law PC. “When people say, ‘I’ve got the city of San Antonio behind me,’ they’re more willing to invest, to take a risk.”
Among the matters Homeier has recently worked on is a San Antonio project that saw the city get involved in redeveloping — with the use of EB-5 capital — a former U.S. Air Force base into multifamily housing.
A massive Pennsylvania Turnpike project is another example of a project being funded largely by EB-5. That project, roughly half of which is being financed by $200 million of EB-5 capital, involves building an interchange connecting the Pennsylvania Turnpike to Interstate 95 in southeastern Pennsylvania. The project is expected to create 5,300 jobs.
Homeier said he’s also seeing significant public-private partnerships with EB-5 capital in New York and Los Angeles.
Those and other projects, while not emblazoned with international hotel brands, are increasingly appealing to investors, who are concerned with getting their $500,000 or more back and, often most importantly, walking away with a green card for themselves and their dependents.
“We’re seeing more offerings out there,” said Kate Kalmykov of Greenberg Traurig LLP, describing public projects. “There’s more accountability with a public project. You’re getting funds from states and municipalities, and sometimes federal funds.”
Meanwhile, USCIS regional centers are popping up to facilitate such investments. Akerman LLP recently helped to open up a regional center in Puerto Rico that specializes in public projects, and a center in South Florida that focuses on projects that often have a public benefit component.
“There are a number of regional centers that have been formed for purposes of helping a local community,” said Steven P. Polivy of Akerman. “Typically, an EB-5 public-private project will be only partially funded from EB-5. There are a number of other public-private sources that will come to bear.”
Part of the appeal of public projects, from an investor's point of view, is that they typically come with that safety net — various sources of funding that can help sustain a project if it goes south. Public projects may have tax credits, tax incentives, and even grant financing tied to them. And they might even use bond financing at the end of a project.
Public infrastructure projects, lawyers say, are also gaining more appeal among Chinese investors — who make up the vast majority of the EB-5 investor pool — because of the boom in infrastructure in China.
“The Chinese community feels that infrastructure investment is a good use of money, with a perception that government involvement is a quote, 'guarantor,'” said William A. Stock of Klasko Immigration Law Partners LLP. “That has made the projects particularly marketable in China."
“The investment returns that the investors are getting are relatively low ... so they have a low tolerance for risk,” Stock added. “There’s a perception in the marketplace that the public projects carry lower risk than the private opportunities.”
Among other public projects to receive EB-5 financing are the New York Wheel and the Pennsylvania Convention Center in Philadelphia. The Staten Island Ferris wheel project, a $500 million undertaking, has reportedly gotten $150 million from EB-5 investors. And the 244 investors in the project to expand the Convention Center were recently returned their collective $122 million investment, after the project fulfilled the job creation requirement.
“The program is now so large. There are so many additional stakeholders than just the private developer world,” Homeier said. “The public world is getting increasingly involved as well.”
And governments, in courting EB-5 capital, are not only interested in capital for their present projects but also using the program to try to lure entrepreneurs to their areas, Kalmykov said.
“It’s a great way to attract capital to a city, a state, and also it’s a great way to attract investors to settle in those places,” Kalmykov said. “It brings them exposure. Many people feel comfortable about investing in a city or state."