Officials with the Bluegrass International Fund provided information to members of the Interim Joint Committee on Economic Development and Workforce Investment on Thursday about EB-5 loans, as a way to galvanize state economic growth and long-term job creation.
The EB-5 program was established in 1990 to encourage foreigners to invest in the United States and create American jobs in exchange for a U.S. green card.
As credit markets have tightened in the wake of the financial crisis, more and more businesses, municipalities and developers have turned toward EB-5 funds to raise the required capital to finish their projects, but not widely in Kentucky.
Investments must be at least $500,000 or $1 million in “Targeted Employment Areas,” a location that reflects an unemployment rate of 150 percent of the national average, to get the green card.
Lynn Allen, CEO of Bluegrass International Fund told committee members about the competitive advantages of EB-5 capital.
“It will lower their overall cost of funds,” Allen said. “We can compete with banks, we can certainly compete with equity, any other type of financial source. The only capital source we can’t compete with from a rate standpoint are tax exempt bonds.”
Allen pointed out that another advantage of an EB-5 loan is the flexibility it offers.
“It lends against alternative revenue streams, “Allen said. “A bank will not lend against a tax increment financing payment. Our investors are a little bit more forgiving because, again, they want the green card.”
Other criteria for EB-5 investors include the fact that jobs must be filled by U.S. citizens and permanent residents. The investment must fund a new or troubled for-profit enterprise.
The investment must create 10 full-time positions and jobs must last for two years. Investments must be “at risk”, and the investors’ financial contribution must be obtained legally and cannot be borrowed.
The first project in Kentucky using ten million dollars in EB-5 capital, is a $40 million mixed use boutique hotel in the Butchertown section of Louisville.
“This is a neighborhood which has been emerging,” Allen said. “There’s been some retail in there there’s some art galleries, there’s a couple of restaurants, but it hasn’t had an anchor. This is a partnership between Creation Gardens in Louisville and a group out of Raleigh, North Carolina that whose one of their principles serves on the international board of Marriott.”
Bluegrass International Fund officials believe that EB-5 loans will focus on job-creating real estate projects in the following areas; mixed-use developments, biomedical and healthcare, research and education, and advanced manufacturing.