An old program is receiving new attention—and potentially driving due diligence opportunities in the process. Back in 1990, Congress created EB-5, an Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (USCIS) that is designed to stimulate U.S. economic growth through both capital investment by foreign investors and job creation. This program welcomes foreign investment by either allowing investors to create a new commercial enterprise or invest in a distressed company. EB-5 supports the availability of 10,000 immigrant visas annually, with 3,000 set aside for investors in Regional Centers. This program, while currently undersubscribed, provides great opportunities for U.S. economic growth, decreased unemployment levels, increased commercial real estate investment deals, and consequently, a new avenue for environmental due diligence work. Due to the recent renewal of the program, EB-5 has been gaining traction and has even become the topic for workshops and events.
In most cases, EB-5 investors are concerned with securing their visas, with most willing to risk losing their investment through a “cost of citizenship” justification. The program provides citizenship opportunities for investors and their immediate family, as long as they invest either $500,000 in a “Target Employment Area” (an area with unemployment at 150% or more of the national average) or $1,000,000 anywhere in the U.S. As well as the monetary investment, the program requires that at least 10 jobs be created or preserved within two years of the investment. The projects may be small businesses (“mom and pop” shops) created and funded solely by the foreign investor or can be large commercial ventures that were created by a U.S. business and funded through pooled investments from foreign nationals.
On candidate projects, EB-5 investors need to consider the following factors:
- Will the project create at least 10 jobs so that the visa will be secured?
- Will the investment be returned with no loss of principle?
- Will there be a return on the investment?
The success of this program could have positive implications for environmental consultants across the country, particularly for those working in gateway metros, like those listed in the table below, that are attracting the attention of foreign investors. There have also been many documented, successful EB-5 deals in secondary markets like Phoenix and Miami, but none surpassing the volume of successful deals in San Francisco.
As of the end of September, more than $3 billion of capital has been funded through EB-5. The USCIS reported in July that it approved triple the number of EB-5 petitions in FY12 as it did in FY09, supporting the growth in program interest among foreign investors. Recently, the EB-5 program was extended by the federal government through September 30th of 2015. Thus far, EB-5 has brought in millions of dollars of commercial real estate investments through the country.
The starting point for these investments is focused around what the program calls “Regional Centers,” which have been established in nearly every U.S. state to act as a “clearing house” that promotes projects that meet the requirements needed for foreign investors to secure EB-5 visas. These Regional Centers are defined as “any economic unit, public or private, which is involved in the promotion of economic growth, improved regional productivity, job creation, and increased domestic capital investment”. Regional Centers act as loan shops whereby developers can submit their projects to the center in an effort to receive EB-5 capital for their project. “A regional center gives a developer an exclusive territory, such as a county, within which EB-5 funds may be utilized for a specific type of project or industries”, according to a K & L Gates report released in late September. K & L Gates stated that Regional Centers can be used to pool funds from foreign investors who either provide a term loan or acquire ownership interest in a project.
According to the USCIS, there are 209 Regional Centers operating in 40 states as of July 2012. Since a reported 92% of EB-5 visa petitions are filed by foreign investors capitalizing on the benefits from Regional Centers, these centers have become the preferred mode of investment for the program.
EB-5 as a Driver of Business Opportunities
For environmental professionals looking to capitalize on the opportunities presented by EB-5, it is important to understand the parameters of the program, know the existing availability of projects and identify which brokers are doing the deals. Foreign investors are looking to the U.S. for opportunities, and the recent extension of the EB-5 program is facilitating even more transactions. Environmental consultants can align themselves with Regional Centers, determine which brokers are working with overseas investors and track the deals that are happening in their local metro. In terms of how environmental due diligence on EB-5 loans is completed, Todd McNeill, Senior Director at Metropolitan Capital Advisors Ltd., shared that “EB-5 loans are much like most commercial real estate loans in that, typically as a condition of closing, the borrower will need to provide a clean Phase I environmental site assessment report along with other due diligence items. The Regional Center making the EB-5 investment vis a vis the foreign investor’s money would need to have the ESA report addressed to them.”
According to Jones Lang LaSalle, the industrial and office sectors performed well both in the U.S. and globally in the third quarter, with many foreign investors looking at deals in each. Environmental consultants should keep their eye out for potential environmental due diligence work in areas like Boston, New York, Washington D.C., San Francisco, and Houston that have high levels of square footage for rentable building office space. As well, the industrial sector has promising levels of inventory for EB-5 transactions in areas like Chicago, Philadelphia, Dallas, Los Angeles, Inland Empire and Atlanta, to name a few. The availability of inventory in the retail, office, industrial and multifamily sectors bodes well for foreign investors looking for opportunities in the U.S.’ gateway cities, with EB-5 sweetening the pot for those interested in U.S. citizenship.
Identifying the top EB-5 foreign investors and aligning with, and utilizing, Regional Centers (click here for the current list) can open a new avenue of business for environmental consultants interested in capitalizing on the opportunities coming from new projects through the program. As interest in EB-5 continues to rise, and with potential backing from the current presidential administration, now appears to be an opportune time for environmental consultants to take advantage of the program.
Fortunately, for environmental consultants working in Miami, there is an EB-5 finance workshop, professional networking opportunity and holiday event on November 8th whereby consultants can learn who key EB-5 players are and will have a chance to mingle with attorneys, EB-5 experts, bankers and commercial real estate developers. For those EPs that are not in the Miami area, but are interested in EB-5 opportunities, you can follow this EB-5 blog to find out more about upcoming events (Las Vegas) and project opportunities in your metros. There have been many logged events throughout the U.S. so far this year and there looks to be many on tap for 2013 for consultants interested in learning more about the program and networking to foster new connections and business opportunities.
For more information, and a general overview of the EB-5 program, click here.