Development Finance: Why EB-5? Q&A
Last year, the Port Authority established an EB-5 financing program for qualifying job-creating development projects. Nationally, EB-5 is a proven funding mechanism for all types of real estate. As a return for investment in the project — it delivers green cards to qualified foreign investors each year.
“EB-5 is very productive in the Cleveland real estate market, for example, delivering capital through an established Regional Center,” according to Susan Thomas, Port Authority vice president of public finance. “We liked that model, we thought it would be a good fit in our market, so we found a partner with a similar mindset.” The Port Authority’s partner is the Cleveland International Fund, a federally designated Regional Center.
Thomas says area developers should take a strong look at EB-5 as they assemble project funding. “It may be new to Greater Cincinnati, but it’s become industry standard across the country for sizeable projects,” Thomas says. Cleveland International Fund has closed EB-5 deal value of $232 million since 2010 and holds the distinction of having taken deals to successful delivery of green cards to international investors.
Q: Why did the Port Authority establish an EB-5 project financing program last year?
A: EB-5 capital can be an incredibly flexible and reliable source of project capital; it meshes well with other sources of capital, grants and subsidy; and terms can be very attractive. It expands the Port Authority’s capabilities as a development partner.
The Port Authority also likes EB-5 because it sources capital from outside of our region, increasing gap funding and lessening the need for public subsidy.
And, we like it because of what an active EB-5 program can communicate about our region – that we have a variety of innovative financing solutions for significant real estate projects.
Q: In a development project, how is EB-5 best used?
A: The Port Authority’s EB-5 program in Southwest Ohio is designed expressly to finance job-creating commercial real estate development and expansion projects. The Port Authority’s EB-5 program is optimal for projects of at least $30 million – it takes that size project to meet the EB-5 program job creation requirements.
Many developers consider EB-5 capital as a potential source to fill a major space in the capital stack. We look to deploy EB-5 gap financing in the form of first mortgage or mezzanine loans.
Q: How do I know if my project qualifies?
To qualify under the Port Authority’s EB-5 program, your project needs to be located generally within Hamilton County or urban areas around the cities of Hamilton and Middletown, which are considered Targeted Employment Areas. Your project will include or represent some mix of office, retail, hotel, multifamily, and industrial.
Q: What does the investment process look like – is it costly, and how long does it take to get the money into my project?
A developer or owner starts by contacting the Port Authority for a project assessment. The Port Authority helps advise on capital structure and conducts due diligence, and assists with other debt or equity pieces that may be needed. All of the work with the foreign investors is handled by the Regional Center, in this case Cleveland International Fund. They reach out to qualified investors, and make sure projects can deliver a return for their capital. The EB-5 investor’s principal investment will stay in the project, “at-risk” for approximately 5-7 years. His primary reason for making the investment is to secure a visa.
Because of the extended duration of the immigration process, the Port Authority offers bridge financing to ensure that the project receives EB-5 capital on the same day that other agreements close.
Q: Is EB-5 a permanent program?
EB-5, a program administered by U.S. Citizenship and Immigration Services, has been active for 25 years, but it is not permanent. The Regional Center program has attracted the majority of EB-5 capital. EB-5 legislation is pending that would modernize and reform aspects of EB-5 program, and there is bi-partisan support to make it a permanent program, in recognition of the tens of thousands of jobs that have been created since 1990 and billions of dollars that have been invested in U.S. businesses.
Port Authority EB-5 Program Contact: