The federal EB-5 program is an economic development initiative that allows foreign investors in nations such as China, India, South Korea and Brazil to emigrate to the U.S. after investing stipulated levels of capital into an American business or development project. Such projects have to create jobs for American residents, and the program has funded the development of mega-projects such as Hudson Yards in Manhattan as well as numerous hotels. Although the regional center program is currently set to expire on September 30, 2016, it is expected that it will either be renewed in its current form or reformed to improve its administration. Program renewal is supported by the U.S. Conference of Mayors, one of the most powerful voices in the nation for American cities. In addition, a bill to revise and continue the program (S. 2415) is pending in the U.S. Senate with Senator Chuck Schumer of New York as a co-sponsor. A provision of that bill seems to allow—under certain circumstances—the Secretary of Homeland Security to include permanent jobs generated by retail establishments in the job-creation metrics of a regional center project. If that interpretation is approved, that particular provision could open up a new source of economic development capital for mall redevelopment projects—particularly those incorporating mixed-use components.
GLBA will be assisting its regional center ally in educating developers and economic development officials on the requirements of the program and how EB-5 capital can be incorporated into the capital stack of development projects. In addition, GLBA will be identifying prospective development and redevelopment deals that are a good fit for the gap financing provided by the foreign investors. Projects should have a minimum total development budget of $35 million in order to support the economics of an EB-5 capital raise. However, EB-5 syndications are inherently scalable, and financings in excess of $200 million have been executed under the program. GLBA’s focus will be identifying small and large mixed-use, healthcare, lodging, charter school and other commercial projects with transformative and community development impacts in four states: NY, NJ, CT and PA. These projects will typically involve complementary debt and equity investment from other sources.
In recent years, the EB-5 program has exploded in popularity. This is because it offers a unique arbitrage opportunity that translates into a source of mezzanine capital or preferred equity that is low-cost on a risk-adjusted basis. At its core, the program is simply another example of the globalization of capital markets. For more information, contact Lamont Blackstone at (914) 663-0498.