06 May More International Developers Using EB-5 Funds in Capital Stack

The classic EB-5 Immigrant Investor Program scenario involves a U.S. company seeking a loan from a pooled EB-5 investment as part of its capital stack. However, a new trend in the EB-5 space is the growing number of international developers using EB-5 funds to finance projects on American soil. Many, like the investors themselves, are China-based.

The rules around raising EB-5 funds are the same whether the developer is American or international. The project is still obligated to create the same number of jobs per investor. Additionally, EB-5 investors and their families are subject to the same program requirements as any other immigrant in the EB-5 category.[1]

International developers have a great advantage when it comes to finding and recruiting investors for EB-5 projects. Many such companies have deep personal networks in their country of operation that can be leveraged to raise capital. An additional benefit is that such companies don’t need an agent or middleman to recruit potential investors, which allows them to save time and money. Since they are based in a foreign country, they can solicit investors under applicable foreign law, but are not subject to U.S. law.[2]

Many such projects are already off and running. For instance, the Shanghai-based real-estate firm Minqiang Investment Group (MIG) is using EB-5 funds to build a hotel next to a convention center in downtown Tacoma, Washington. According to The Seattle Times, half of the $170 million project will be funded by 190 EB-5 investors, mostly from China, with the balance coming from MIG and a bridge loan. MIG’s subsidiary, Yareton Investment Funds, has already started construction in Des Moines, Iowa on a Sheraton hotel it expects to open in August, 2015.[3] Yareton Investment Funds is actually a USCIS-approved regional center. Its principals are Albert Sze, a U.S. citizen, and Chun Yang, a Chinese national who founded MIG.[4]

Chinese developer Greenland USA—a subsidiary of Shanghai-based Greenland Group—is in the process of constructing the “Metropolis” project in Downtown Los Angeles. The project will consist of four high-rise towers, including a 350-room Indigo boutique hotel and private residences.  Greenland Group is the largest diversified company in China with major real estate developments around the world including: London, Seoul, Sydney and the massive forthcoming $4 billion Atlantic Yards project in New York.[5]

Projects such as these are often a joint venture between international and American developers. Such a partnership is beneficial to foreign developers who are not as familiar with U.S. corporate governance and the workings of American commercial real estate development. Experienced U.S. developers can guide international companies toward compliant and efficient outcomes. Ultimately, the partnership is a win-win for both parties. According to EB-5 Investors Magazine, “The Chinese development groups benefit by achieving portfolio diversification in the United States at a time when the Chinese real estate market has softened. Similarly, the U.S.-based developers gain access to cheaper capital often higher in the capital stack, and a strong local partner to market EB-5 investments in China at a time when the EB-5 marketplace has become more competitive.”[6]

The increasing involvement of international developers in the EB-5 program has raised some debate. Some U.S. developers complain that Chinese companies can use the visa program here, but U.S. companies can’t solicit investors there.[7] Proponents argue that such partnerships are revitalizing communities and adding American jobs, both of which are the stated goals of the program. In addition, increased competition in the EB-5 space improves the overall quality of projects available to investors.[8]

To inquire about our turnkey 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.

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] EB5 Investors Magazine. http://www.eb5investors.com/magazine/article/international-developers-eb-5-marketplace

[2] Seattle Times. http://www.seattletimes.com/business/real-estate/chinese-developers-use-eb-5-to-fund-their-own-us-projects/

[3] Ibid.

[4] http://www.seattletimes.com/business/real-estate/chinese-developers-use-eb-5-to-fund-their-own-us-projects/

[5] DTLA Rising. http://brighamyen.com/2014/02/16/chinese-developer-greenland-begins-construction-1-billion-metropolis-project-downtown-la/

[6] EB-5 Investors Magazine. http://www.eb5investors.com/magazine/article/international-developers-eb-5-marketplace

[7] http://www.seattletimes.com/business/real-estate/chinese-developers-use-eb-5-to-fund-their-own-us-projects/

[8] EB-5 Investors Magazine. http://www.eb5investors.com/magazine/article/international-developers-eb-5-marketplace