11 Aug EB-5 Funds Help Cities Build Affordable Housing

High-rent cities across the U.S. have been leveraging EB-5 funds to finance development projects involving low-income housing. In fact, some cities have formed their own Regional Centers with a particular focus on sponsoring affordable housing projects. (Though the precise definition of “affordable housing” varies across jurisdictions, the U.S. Department of Housing and Urban Development defines it as housing for which the occupant[s] is/are paying no more than 30% of his or her income for gross housing costs, including utilities.[1]) At a time when the merits of the program are being hotly debated, the value of EB-5 capital to provide finding to make low-income housing available to struggling Americans should not be overlooked.

For instance, the City of Miami’s efforts to leverage EB-5 funds to finance low-income housing for South Florida residents have received significant media attention. e-Council Inc. recently reported on the City of Miami’s Regional Center, which is currently the only fully city-owned, -managed, and -operated regional center in the U.S., covering the three main South Florida counties of Miami-Dade, Broward, and Palm Beach (see our article here). Miami officials said they decided to start a Regional Center primarily to address the city’s lack of affordable housing. A study conducted by the University of Florida’s Shimberg Center for Housing Studies found that Miami-Dade County lost nearly 21,000 affordable apartments for low- or medium-income people between 2000 and 2012. Many such buildings were torn down or converted to attract residents with higher incomes. Over the same period, developers built 88,000 condominiums, a large proportion of which were in the luxury category.

The first project sponsored by the Miami Regional Center — a luxury, 83-story mixed use high-rise called the Panorama Tower – will provide the necessary income to help defray the costs of setting up the Regional Center.  That done, Managing Director Mikki Canton expects many of the Regional Center’s future projects to be in the affordable housing category.[2] To that end, Miami Mayor Tomás Regalado held a conference at City Hall on July 29, during which immigration attorneys addressed many local developers on how they could use the city’s EB-5 Regional Center to build affordable housing. The mayor said affordable housing is the number one issue on which residents contact his office. More than 52,000 people in Miami-Dade County are on the waiting list for publicly funded affordable housing.[3]

Other cities are already working towards developing EB-5-funded affordable housing projects in their areas. For instance, in Seattle, EB-5 funds helped build 115 affordable units at Stadium Place, an office-hotel-retail-residential project located in front of the Seattle Seahawks stadium. In San Francisco, the redevelopment of Hunters Point Shipyard, a 495-acre de-commissioned Navy base along San Francisco’s southeast waterfront, will also feature low-income living space. Located in one of the poorest sections of the city, the project received several hundred million dollars from individual EB-5 investors and will include the building of thousands of homes, as well as 10,000 square feet of retail, 25 acres of parks and open space. As part of its negotiation with the city, the Shipyard developer pledged to devote 30% of its planned 10,000 units to affordable housing.[4]

EB-5 funds are certainly helping to level the playing field between luxury housing projects—which many developers view as highly profitable—and moderate-income housing—which are often dismissed as unprofitable. In light of the lower interest rates associated with EB-5 capital, these funds offer relatively inexpensive funding, particularly when compared to traditional bank loans. Another advantage to using EB-5 capital is that developers generally do not have to put as much cash into projects.[5] A further benefit to developing affordable housing is the ability to use EB-5 capital in combination with federal tax credit programs, such as the low income housing tax credits (“LIHTC”). According to the U.S. government, an average of over 1,450 LIGTC projects and 110,000 units were placed in service during each year of the 1995 to 2013 period.[6] EB-5 funding is an excellent source of gap financing to assist projects incorporating the use of tax credits within their capital stacks, but which are in need of additional capital or financing to become financially viable.[7]

One strategy for making affordable housing more financially appealing to developers was suggested by Randall L. Sidlosca, an immigration attorney with Fox Rothschild with a specialty in EB-5, at Miami’s recent conference:  build mixed-use developments. “Combining rentals with green space, cultural and social activities, retail, and health and wellness facilities makes a project more attractive to investors.” Adding retail and health uses to a project can help meet the EB-5 program’s permanent job creation requirements.[8]

The recent media coverage of the City of Miami’s efforts, as well as the efforts of other similar entities, to tackle their dearth of affordable housing options is bound to catch the attention of real estate developers across the U.S. The EB-5 program may in fact be part of the solution to the general shortage in the U.S. of affordable housing for low- and middle-income Americans.

To inquire about our turnkey customized EB-5 services, such as our best-in-class Matter of Ho-compliant business plans, project assessment and ancillary services, please contact us at info@ecouncilinc.com.

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[1] http://www.huduser.org/portal/glossary/glossary_a.html

[2] http://www.wsj.com/articles/miami-taps-eb-5-visa-program-to-help-fund-affordable-housing-1438892939

[3] http://www.bizjournals.com/southflorida/news/2015/07/29/eb-5-a-good-solution-for-miami-affordable-housing.html

[4] https://eb5projects.com/updates/posts/163-can-rich-immigrants-help-houston-build-affordable-housing; http://www.sfbarc.com/projects/hunters-point-shipyard/

[5] http://www.wsj.com/articles/miami-taps-eb-5-visa-program-to-help-fund-affordable-housing-1438892939; https://eb5projects.com/updates/posts/163-can-rich-immigrants-help-houston-build-affordable-housing

[6] http://www.huduser.org/portal/datasets/lihtc.html

[7] https://eb5projects.com/updates/posts/163-can-rich-immigrants-help-houston-build-affordable-housing

[8] http://www.bizjournals.com/southflorida/news/2015/07/29/eb-5-a-good-solution-for-miami-affordable-housing.html