13 Jul EB-5 is NOT just for Hotels

Many EB-5 stakeholders associate EB-5 funding with hotel development projects and other traditional industries, such as assisted living facilities, mixed-use residential projects, restaurants, and public structures. However, a variety of innovative and non-traditional project types, as depicted in the table below, can also fit well within the EB-5 funding model. These may include eco-friendly fuel production plants, charter schools, biochemical manufacturing facilities, aeronautics, and technology. This article will explore projects across a variety of industries that have used the EB-5 Program successfully.

The following chart illustrates the traditional EB-5 industries as well as the lesser known non-traditional industries. Each of the industries listed has successfully used EB-5 capital to fund projects.

Affordable Housing
Affordable housing is in short supply in cities across the United States. Major cities like Miami and Seattle are creatively combatting this shortage using EB-5 capital.

The City of Miami’s Regional Center has begun development on its first EB-5 project, the Panorama Tower. Panorama Tower will provide affordable rental housing in a market that is currently limited to residential sales. According to a recent article, construction has already reached 19 stories and will eventually be 83 stories. Final completion is anticipated by the end of 2017 and will include mixed-use residential with 821 apartments; 100,000 square feet of medical office space; a 208-room hotel; 50,000 square feet of high-end retail space; 2,000 parking spaces; and a recreation deck with pools and a large fitness room. The project is expected to create 1,300 construction jobs, 192 management positions and 800 tenant jobs, and to house 220 visiting medical students.

In October, 2015, the project was approved to accept EB-5 applications. Florida East Coast Realty, the project developer, has fully funded the project. Once they are released, EB-5 funds will be used to repay a portion of the expenditure. The developer expects release of the EB-5 funds to coincide with completion of construction and receipt of the certificate of occupancy.[1] Once the Panorama Tower is completed, the Regional Center’s Managing Director, Mikki Canton, intends for many of the Regional Center’s future projects to be in the affordable housing category.[2]

Eco-Friendly Projects
EB-5 capital is being used to develop a mixed-use project known as Stadium Place along Seattle’s West Block. The development will include 400 units of market rate housing and, in accordance with an encumbrance on the property, 120 units of affordable housing.[3] The project will be seeking USGBC LEED Gold certification by including innovative sustainability features.[4] Additionally, the project may add a district energy system, which would be used by other developments and businesses, including the public stadiums. The system is intended to

. . . take wastewater from a King County Metro interceptor pipe immediately adjacent to the property, extract water and return the solid waste, and then extract hydrogen from the water through a patented gas synthesis process. This hydrogen gas will be used to produce electricity with no carbon emissions with the only byproduct being water vapor.[5]

In addition to funding eco-friendly components of project developments, EB-5 funds have also been used to develop eco-friendly business ventures.

Georgia Renewable Power (GRP) is a renewable energy company constructing and operating biomass power plants in both Georgia and North Carolina. The company is seeking EB-5 funds to support the building and operation of new biomass plants using two types of renewable resources[6]: woody biomass and poultry litter. Woody biomass includes low-grade wood waste such as woodchips, wood pellets, and tree limbs resulting from tree-thinning activities. Poultry litter is a mixture of manure and bedding.

Meredian Bioplastics, a vertical manufacturer of bioplastics located in rural Georgia, produces oil-based PHA biopolymers.[7] These plastics are 100% biodegradable and compostable, made using a feedstock of non-GMO canola oil—which is harvested and farmed locally—and fed to microorganisms that will naturally manufacture PHA in their single-celled bodies through biosynthesis. The PHA can then be used to create a number of bioplastic end products, including agricultural mulch film, cutlery, sandwich bags, and coffee lids.[8] The company will be using EB-5 funds for the retrofitting of a new canola crush facility and expansion of its bioplastics manufacturing operations in Bainbridge, Georgia.

Assisted Living
EB-5 capital has become an appealing source of funding for senior housing developers. Since many senior housing projects are new developments located in targeted employment areas (TEAs),[9] and are also likely to create numerous jobs, they can be a good fit for the EB-5 program. According to a report published by Senior Housing News, an industry news source, senior housing developers and owners can utilize the EB-5 program for nearly all aspects of senior housing, including independent living, assisted living facilities, memory care, and skilled nursing. As a result, many senior living developers have already leveraged EB-5 funding to finance 30 to 50% of the development budget.[10] Numerous EB-5 senior living facilities across the U.S. are currently in the works, all at different stages of development and funding.

The RockBridge Senior Living Group, located in South Carolina, focuses on providing high quality service to seniors and their families, while maintaining the traditional southern experience. The company plans to develop additional assisted living facilities in the Southeast using EB-5 funding. EB-5 funding for these projects usually averages about 30-50% of the total capital stack.

Linden Village, an assisted living facility located in Seattle, Washington plans to open its doors in September, 2017.[11] The facility will feature 79 units of assisted-living housing in studios, as well as one- and two- bedroom configurations. A total of 21 units will be devoted to memory care patients. Amenities will include: a rooftop deck, an entertainment center, medication management, and full meal plans. The total funding for the project is $22,000,000, with almost half of the amount—$10,500,000—sought from by EB-5 investors.
Restaurant Franchises
Restaurant chains are an attractive option for EB-5 investment. Over the last few years, restaurant companies have realized EB-5’s potential to fuel growth and expansion and have set up systems for EB-5-specific franchising.[12] Accordingly, restaurant industry stakeholders are increasingly looking to EB-5 as a financing vehicle, particularly for multi-unit operations.

A successful example of an EB-5 project in this industry is Voodoo BBQ. The franchise group that brought Voodoo BBQ of New Orleans to South Florida initially attracted 10 investors through the EB-5 program—or a total of $5 million. The funds were allocated for us to partially finance four new locations, including the Pembroke Pines and Fort Lauderdale area restaurants, both of which opened in 2013. Additionally, the group completed another offering involving 10 investors to fund four more locations, including Hollywood and Boca Raton.[13] All of the EB-5 funded Voodoo BBQ restaurants locales have been designated as TEA’s, qualifying them for the lower $500,000 investment threshold.[14]

Innovative Technology
Vertebral Technologies, Inc. (VTI), located in Minnetonka, Minnesota, manufactures unique spinal implant technology that provides less invasive solutions for spinal surgeons and a shorter recovery time for patients. In November, 2015, VTI announced it had received $3.5 million into escrow from EB-5 investors.[15] The company will be developing a second facility in Santa Clara, California to serve as a manufacturing site for the state-of-the-art machinery to produce the company’s breakthrough spinal implant devices.[16]

Supermarkets
Lucky’s Market is a supermarket chain that provides an extensive selection of farm fresh and locally grown produce along with top quality naturally raised meats, seafood, fresh daily prepared foods and comprehensive natural living and grocery departments. [17] In 2013, Lucky’s Market launched an EB-5 offering with Immigration Agents in China, Vietnam, Korea and Taiwan and received investment from 27 investors from each of these regions. [18] Lucky’s Market continues to grow and is currently represented in 11 states from Florida to Wyoming. [19] Each new store has been developed in a TEA and is designed to create more than 10 full-time jobs per investor.[20]

Direct vs. Regional Center Investment
Although many of the larger development projects discussed above used Regional Centers as an investment vehicle, it is important to note that numerous EB-5 projects have been successfully funded through the direct investment model – often through a pooled direct investment vehicle, whereby multiple investors may pool investment resources into a single project without specific ownership percentage requirements.

The major difference between a Regional Center and direct investment project is the job creation requirement. USCIS permits a Regional Center project to count both direct and indirect jobs,[21] while a direct investment requires that each EB-5 investment in a New Commercial Enterprise (NCE) result in the creation of at least 10 new, permanent, full-time, direct W-2 jobs (or preserved jobs in the case of a troubled business).[22]

One advantage to directly investing in an EB-5 project is that it is generally more expeditious. Additionally, since indirect jobs will not be involved, investors can avoid the additional expense of obtaining an economic impact report. Finally, direct investors can negotiate a more active role in the NCE’s business activities, which may alleviate concerns over the recent news of investment scams involved in Regional Center projects. The direct investment model lends itself well to franchise businesses, such as restaurant and supermarket chains, because these industries tend to create a significant number of direct jobs.

Below is a chart depicting some of the differences between direct vs. indirect (Regional Center) EB-5 investments:

Conclusion

Clearly, hotels are but one of a plethora of business industries that can, and do, benefit from EB-5 funding. Savvy developers, business owners and investors in a variety of industries can use EB-5 funding as an inexpensive alternative to traditional financing. While proper due diligence and a team of knowledgeable EB-5 professionals are necessary to vet and prepare a case for any EB-5 project, knowing the various opportunities available is an excellent place to start on the road to success.

To inquire regarding our turnkey customized EB-5 services, including our best-in-class Matter of Ho-compliant business plans, due diligence project assessments and a wide range of ancillary services, please contact us at info@ecouncilinc.com.

e-Council Inc.’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from an attorney or other professional legal services provider. For specific questions about any legal matter please consult with an attorney or other professional services provider.

1 http://www.bizjournals.com/southflorida/news/2015/10/20/panorama-tower-begins-accepting-eb-5-funding-with.html
2 http://www.wsj.com/articles/miami-taps-eb-5-visa-program-to-help-fund-affordable-housing-1438892939
3 http://stadiumplace-eb5.com/index.php/stadium-place-eb5/project-summary
4 http://stadiumplace-eb5.com/index.php/stadium-place-eb5/facts-and-figures; LEED stands for Leadership in Energy & Environmental Design
5 Ibid
6 Renewable resources are naturally replenished over a relatively short period of time, and include sunlight, wind, rain, tides, and geothermal heat.
7 Polyhydroxyalkanoates (or PHAs) are linear polyesters produced in nature by bacterial fermentation of sugar or lipids. They can be combined to produce biodegradable bioplastics.
8 Mulch film are black plastic sheets farmers use to prevent weeds, protect crops, and increase yield.

9 A TEA is either a “high unemployment area” in an urban setting (i.e. part of a Metropolitan Statistical Area, or MSA) that has an unemployment rate of at least 150 percent of the national average or a “rural area.”

10 http://cdn2.hubspot.net/hub/440119/file-2295662992-pdf/SHN_REPORT_TEXT_W-ChartsV3.pdf.pdf?t=1439293199118&_hsenc=p2ANqtz-8ORmhylvBl4YM4DYp0Q278q4GT0QDtm8KDBomQr56RR9PbQAvtmcd2q_1PKDeWUoko2iuw9xbS4wMgGlfeb5v7sXPzXQ&_hsmi=15446906
11 http://www.eb5wwrc.com/lindenvillageseniorcommunity
12 http://nrn.com/franchising/chains-attract-foreign-investors-eb-5-visa-program

13 http://articles.sun-sentinel.com/2013-04-12/business/fl-foreign-investors-restaurants-20130408_1_eb-5-foreign-investors-restaurant-chains;  http://www.prweb.com/releases/2013/11/prweb11285687.htm
14 http://www.eb5restaurants.com/frfg-5-voodoo-bbq–grill-2.html
15 http://www.einnews.com/pr_news/297470140/vertebral-technologies-inc-raises-3-5-million-series-b-financing
16 http://nesfinancial.com/vertebral-technologies-inc-selects-nes-financials-eb-5-solution-suite-for-silicon-valley-medical-technology-development/
17 http://www.luckysmarket.com
18 http://www.luckysmarketeb5.hk/USCIS-approval.html
19 http://www.luckysmarketeb5.hk/USCIS-approval.html
20 Ibid
21 According to USCIS, “Indirect jobs are those jobs shown to have been created collaterally or as a result of capital invested in a commercial enterprise affiliated with a regional center by an EB-5 investor. A foreign investor may only use the indirect job calculation if affiliated with a regional center.” See http://www.uscis.gov/eb-5.
22 Troubled business means a business that has been in existence for at least two years, has incurred a net loss for accounting purposes during the twelve- or twenty-four month period prior to the priority date on the alien

entrepreneur’s Form I-526, and the loss for such period is at least equal to twenty percent of the troubled business’s net worth prior to such loss. For purposes of determining whether or not the troubled business has been in existence for two years, successors in interest to the troubled business will be deemed to have been in existence for the same period of time as the business they succeeded.  8 C.F.R. § 204.6(e).