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EB-5 Set to Expire, but South Florida Developers Count on Short Extension

EB-5 Set to Expire, but South Florida Developers Count on Short Extension

EB-5 Visa, EB5 Visa, EB-5 Investment

Developer Rodrigo Azpurua has protected his EB-5 projects from potential changes in the federal visa law by limiting his project size and the amount of EB-5 capital used.

The president and CEO of Riviera Point Development Group said he keeps his real estate developments under $30 million and ensures EB-5 funds make up no more than half of his capital stack.

Riviera Point has built 1.2 million square feet of commercial real estate financed with EB-5 funds, a hotly debated program that allows foreign investors to place $500,000 to $1 million in a job-creating U.S. venture in exchange for a green card.

"When your capital stack is supported by legislation that by nature is subject to changes, we as developers have the responsibility to plan accordingly," Azpurua said.

The EB-5 visa investment program is set to expire April 28, but an extension is pending. The cash-for-visa program's growing popularity has been marred by a number of fraud cases in recent years, exposing the need for stricter oversight.

One of the proposals legislators are now debating to increase the investment threshold from $500,000 to $1.35 million in areas of high unemployment and from $1 million to $1.8 million in all other areas.

"This program has gone through a lot of shake-up, confusion and uncertainty, and that hasn't helped the industry," said Arnstein & Lehr partner Ronald Fieldstone.

Azpurua's Miramar-based company is working on two hotel projects seeking EB-5 funds, the Radisson Red near Miami International Airport and La Quinta Inn & Suites near SeaWorld Orlando. While fundraising for the Miami hotel is nearly complete, the Orlando project is now entering the EB-5 market. If the investment threshold changes this month, the developer will restructure the offer. If investors are required to drop more money, the project must offer a better return, he said.

But for small projects like his, restructuring shouldn't be as big a legal burden as for the mega projects backed by EB-5.

Fieldstone, a Miami lawyer, is involved in 20 South Florida developments tied to the program. Passed in 1990, the program's popularity surged after the latest recession when financing for new construction dried up. Today, a large chunk of South Florida developers have tapped into EB-5, now a mainstream method of financing, he said.

Funding In Pipeline

EB-5 money has found its way into a spectrum of projects ranging from high-end condominiums like Paramount Miami Worldcenter to small-scale restaurant chains like Tap 42 Craft Beer Bar & Kitchen, which used it to fund its South Florida expansion.

Fieldstone hopes investors who have already filed their petitions will be grandfathered, shielding them from any change in the law, but the truth is "we don't know," he said.

Fort Lauderdale lawyer Ron Klein said projects that have secured their EB-5 funds should be in the clear, but things could get complicated for those in the midst of fundraising.

If a portion of investors came in at $500,000 and the rest are subject to a higher threshold, the developer may face a number of issues. Namely, contracts and loan documents will be impacted, the Holland & Knight partner said. This hiccup could lead to legal trouble over breaches of contract with lenders and investors.

"It could create some serious problems for projects that are underway and are not fully financed with their EB-5 money," Klein said.

Due to the complexity of the issues at stake, both lawyers don't expect any significant changes in the law this month. Similar to last year, a clean extension to Sept. 30 is expected by most in the industry.

This time around, however, EB-5 stakeholders should brace for change come September, the lawyers said.

Paramount Miami Worldcenter in downtown Miami secured $55 million in EB-5 funds from 110 investors this year, said developer Daniel Kodsi. The development team behind the 60-story, 500-unit tower was initially looking to lure Chinese buyers to Miami when they adopted the program. Chinese investors have traditionally dominated EB-5 investments.

Kodsi found that tying investors to the Miami project came with an added bonus: Some were converted into condo buyers. Buyers from 40 countries have signed contracts for units at Paramount — and China is tied for third.

He said EB-5 reform won't have a material effect on projects like Paramount because the funds account for merely a sliver of the project's capital base.

"The majority of capital in South Florida is not EB-5. Even in our capital stack, it hovers around 10 percent with 90 percent coming from other sources," Kodsi said. What EB-5 has done for Paramount is boost its marketing reach to buyers who may not have looked at Miami otherwise.

For Azpurua, EB-5 was a vessel the developer used to fulfill a market need. He discovered the program in 2011 when he noticed a need for new office space in suburban Miramar. Bank capital for new construction was scarce following the downturn, so he found EB-5 in his search for alternative financing.

Azpurua raised $17 million from 34 investors to build the 70,000-square-foot Professional Center at Riviera Point office park.

"When the economy was constrained, we were able to build and create jobs for the local community," he said. "We need to support the program because it's for the benefit of our country."



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