Despite many shifts in U.S. immigration policy over the last decade and a half, one permanent residency program – the EB-5 Immigrant Investor Program – has thrived. Since its inception in 1990, EB-5 has enabled many thousands of foreign investors to support the U.S. economy and plug millions of dollars into U.S. commercial real estate developments and other projects.
That’s not to say that acquiring those dollars is easy for real estate sponsors. Like so many government programs, EB-5 is burdened with complicated regulations. And even in 2016, the investing and fundraising practices behind EB-5 remain mired in inefficient, paper-based processes. Thanks to new technology, however, utilizing EB-5 is finally getting simpler (for both foreign investors and the developers of the projects they support).
For background, the EB-5 program is designed to stimulate the U.S. economy through job creation and capital investment by foreign investors. Under the EB-5 guidelines, Non-U.S. investors who invest in real estate and certain other “commercial enterprises,” or who support other efforts that create U.S. jobs, become eligible to apply for permanent residency. (More information on EB-5 is available here.)
EB-5 has been popular for years, but has grown especially valuable to developers and other real estate sponsors of late as foreign investors’ interest in U.S. real estate skyrocketed once the market recovered from the Great Recession. The number of applicants vying for the government’s annual allotment of 10,667 visas has doubled nearly every year since 2009, and 2015 reportedly marked the first year that the maximum investor quota was hit.
Yet the exponential growth in interest in the program, and the resulting increase in EB-5 eligible investment opportunities, hasn’t made the EB-5 experience any easier for stakeholders on the capital-acquisition side.
U.S.-based real estate firms (and other businesses that create jobs) love EB-5, because the program can help them fill a variety of funding gaps. EB-5-driven investments can serve as mezzanine financing, augment bank-lended capital, or provide equity for a variety of projects – be they new construction, value-add redevelopments, or other initiatives. And while EB-5 investors are just as eager to earn returns as any other kinds of real estate investors, most are exclusively interested in safe, hands-off, passive opportunities – meaning they’re rarely seeking controlling interest or sky-high returns in exchange for their large (typically $500,000 or greater) contributions.
What real estate operators don’t love about EB-5, however, is the lack of infrastructure. The program itself has few specifics surrounding fundraising, but since most developers and sponsors prefer to conduct EB-5 raises privately – and work with outside partners to source wealthy investors from outside the country – the benefits of online capital raising through crowdfunding, which can streamline the commercial real estate capital formation process, have been largely unavailable to them.
But that’s beginning to change. Some real estate crowdfunding platforms, including EarlyShares, enable sponsors to utilize their deal management technology for private capital raises (in compliance with the 506(b) private placement guidelines) through “online EB-5” offerings.
“Online EB-5” is essentially crowdfunding without the crowd: invitation-only functionality enables developers and owner-operators to make their raises visible and accessible only to the investors they share the deal with. Armed with better deal management functionality, sponsors can more easily track investing activity and communicate with investors, and can make their investment details and documents accessible to investors through a secure online portal. (More information on EarlyShares’ EB-5 functionality is available here.)
Equipped with more simplified EB-5 syndication process, more developers may explore EB-5 for smaller projects in the $2-$10 million range in 2016. Given EB-5’s growing popularity, now is a smart time for EB-5-focused developers to leverage new tools – and they may want to act fast: The competition for each sponsor’s share of that 10,667 investor quota could be very strong in the year ahead.