Construction is reaching record levels in the metropolitan region and around the nation. Developments are in various stages of progress in the five boroughs, as well as New Jersey, Long Island and Westchester County. Currently and over the past five years, one of the major sources of capital for these projects has been provided by the EB-5 (Employment-based 5 Category) program established by Congress in 1990 as a method of bringing in foreign capital and creating jobs. The program’s mandate is to use foreign investment to spur job creation while simultaneously affording eligible foreign investors the opportunity to become lawful permanent residents of the United States.
Through the EB-5 program, a program investor and his or her immediate family can obtain permanent residency in the United States by investing $500,000 into a United States Citizenship and Immigration Services (USCIS)-approved project located in a Targeted Employment Area (TEA) which creates/preserves at least 10 jobs for qualified U.S workers within the United States. A TEA for the purposes of the EB-5 program may consist of a state, county, MSA, city or tract with an unemployment rate greater than 150% of the national average as reported by the Bureau of Labor Statistics. The majority of foreign investors participate in the EB-5 program by investing in commercial enterprises managed by designated “Regional Centers”. A Regional Center is not merely defined as a geographic area but rather as a business entity that coordinates foreign investment within that area in compliance with the EB-5 statutory, regulatory and precedent decision framework. The Regional Centers are entities approved by the USCIS to secure foreign investment under the EB-5 program to use such investment to promote job creation within a defined geographic area.
EB-5 capital has been provided as mezzanine and preferred equity financing for a series of key economic development initiatives in New York City. Projects have included (a) Brooklyn Navy Yard Redevelopment Project, (b) Las Vegas SLS Hotel & Casino, (c) Seattle’s Stadium Place, (d) Barclays Arena and Infrastructure, (e) City Point Redevelopment in Downtown Brooklyn, (f) The Gem Tower on West 47th Street), (g) Steiner Studio Expansion, (h) the redevelopment of the George Washington Bus Station, (i) Bronx Hutchinson Metro Center, and (j) construction of the wireless infrastructure network in the New York City subway.
Currently, some of the tri-state regions’ leading owners and developers are utilizing the EB-5 program as a source of mezzanine debt or preferred equity. Projects include:
- Durst Organization residential development on West 57th Street between 11th and 12th Avenue, a 41- story, mixed-use tower with 711 residential rental apartments, 44,857 square feet of retail, and 285 below grade spaces.
- Kushner Companies-KABR Group, a multifamily rental development at 65 Bay Street in Jersey City, New Jersey slated to become the sister building of Trump Plaza Residence, comprised of 417 luxury rental apartments and 217 parking spaces.
- Durst Organization, 855 Avenue of the Americas, a mixed-use high rise, residential development which will have 375 luxury rental apartments, 127,000 square feet of Class A office space, and 57,000 square feet of retail space.
- Silverstein Properties, a mixed-use hotel and luxury residential condominium at 30 Park Place.
- A Related Companies development, Hudson Yards, is a planned 17-million-square- foot, the biggest private real estate development in the U.S.
- Witkoff Organization & Fisher Brothers, 101 Tribeca, a 63-story, 433,800 square foot luxury residential condominium tower. Developers, as well as lenders, are becoming more comfortable with allowing a prospective developer to obtain EB-5 capital. The cost of EB-5 financing currently ranges from 5% to 8% per annum, coupled with original fees. The term of the loan can range from four to six years, and in many instances is considered mezzanine debt or preferred equity.
As noted before, these developments are implemented through Regional Centers to promote job creation within a defined geographic area. Regional Centers can be public or private entities, and in certain instances owned by a developer. Three prominent developers who own and operate their own Regional Centers include The Related Companies, Extell Development Company, and Silverstein Properties. In addition to these national developers, a number of local developers include David Marx, who owns Atria Builders LLC, Marx Development Group, and the Lam Group.
These Regional Centers and developers often travel to China, Europe, the Middle East and South America to meet with prospective investors. The U.S Visa Office Update Report on visas shows that the U.S. gave 10,692 EB-5 investment visas in 2014. Among the EB-5 visas, China covers 9,128at a rate of 85%.
A recent Washington Post article reported that the number of immigrants entering the U.S. legally under the EB-5 program has risen nearly 700 percent since 2008 to 5,115 immigrants in fiscal 2014. The number of foreign citizens who have applied for visas has grown even faster, from 853 in 2008 to 12,453 in 2014.
While developers are interested in this program, there are high profile incidents of EB-5 fraud, and questions about the government’s claim of job creation, which has led certain U.S. senators to request a federal audit so that Congress can evaluate the program before its comes up for reauthorization in 2015.
In the interim, more and more local developers have reached out to Regional Centers to secure capital for developments.