Commercial Loans Blog

EB-5 Commercial Loans and the EB-5 Program

Posted by George Blackburne on Wed, Jul 17, 2013

America needs more jobs for its citizens.  Many wealthy foreign investors wish to immigrate to the United States.  Why not make a deal?  If a foreign investor starts a company here in the U.S. that creates enough new jobs for Americans, the foreign investor can immigrate to the U.S.

This is exactly what Congress has done.  It has created the United Sates Citizenship and Immigration  Services’  EB-5  Immigrant  Investor  Pilot  Program  (the  “EB-5 Program”).  The program has been very successful in creating good-paying jobs here in the U.S.  Last year $1.2 billion worth of EB-5 loans were closed.

The program is also very popular among wealthy foreign investors wishing to emigrate.  The entire quota of 7,500 visas were issued last year.  There is talk of increasing the quota to 10,000 visas soon.

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Basically these foreign investors are paying to jump to the head of the line for a visa.  These investors do care about the success or failure of their investments; but the return on their investment is secondary to gaining the right to move to the U.S.

The entire process of EB-5 funding is a program developed by the United States Citizenship  Immigration Service (USCIS) known as EB-5 Pilot program.  USCIS is a division of Homeland Security.

The EB-5 process can offer foreign immigrants a fast track path to obtaining US Visas for their "entire family". Simply said, by investing $545,000 into an approved United States Citizenship and Immigration Services (SCIS) project under the EB-5 Pilot Program that will successfully create 10 U.S. jobs for every $545,000 invested, an entire  family can obtain Visas into the U.S. within 6 to 8 months.

Potential EB-5 investments (usually structured as mezzanine loans) are not usually sold on a one-off basis to individual foreign investors.  The paperwork is far too extensive for small deals.  Instead, specialized investment bankers in China (and other countries) raise around $30 million to $35 million per offering in units of $545,000 per investor.

Therefore EB-5 commercial loans are very, very large, and most EB-5 loans are structured as multifamily or commercial construction loans.  However, EB-5 loans have been successfully used to finance solar power facilities, convention centers, student housing, corporate headquarters, residential communities, mixed use properties, county sheriff's offices,  chemical plants, stadiums, dental schools, and roadways.

Usually the total project cost is at least $20 million, and ideally in excess of $100 million.  In the hypotheical case of a $100 million commercial construction project, the borrower-developer usually obtains a $55 million conventional construction loan.  The EB-5 loan regional office provides a mezzanine loan of, say, $30 to $35 million, and the borrower-developer contributes $10 million to $15 million in cash and equity.  Smaller EB-5 loans have also been done in less populated states, sometimes down to as small as $10 million.

Put another way, developers can now use EB-5 funds as a component of their project capital stack. The EB-5 component can be best described as a typical mezzanine loan that will be secured with the developers interest in the project, subordinated to the senior loan, but fully non-recourse.

The EB-5 loan interest depends on the overall project details, including the experience and strength of the developer; however, the cost of an EB-5 mezzanine loan (8-10%) is considerably less than a typical mezzanine loan (15-18%).  Furthermore, the developer can substitute expensive equity investors with an EB-5 mezzanine loan, whereby the senior lender will accept a portion of the developer's equity from the EB-5 mezzanine loan funding.

The normal breakdown of the capital stack is something like the following:   
 
    Senior Lender (construction and Acquisition)        55%   
    Developer's Equity                                           10-15%
    EB-5 Funding                                                  30-35%

Generally speaking from the time that we receive a confirmation from the developer that they want to proceed by signing the term sheet, we anticipate that within about 6 months time the funds will be available to begin funding the project.

If you have a project that seems to meet these requirements, please send me, George Blackburne III (the old man), an email at george@blackburne.com.  In the subject line, please type, "EB-5 Loan".

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Topics: EB-5 loans