Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/143044
LEGAL BRIEFS Foreign Aid w by Geoffrey S. Goss While the broader economy is still seeking firm footing, commercial real estate appears to be among the early engines of growth. Sustaining momentum in property markets comes with the ever-present challenge to secure funding, as lending and capital markets continue to remain tight. Developers — particularly those willing to take advantage of sophisticated fnancing or complicated structures — are not without additional funding options, however. Development in signifcantly challenged markets such as Cleveland and New Orleans has remained consistent in recent years due to broad application of new markets and historic tax credit-backed funding. Additionally, a newer government-backed program known as EB-5 has shown stunning signs of growth and ofers hope to developers seeking new funding sources. What Is EB-5? Established as a part of the Immigration Act of 1990, the EB-5 immigration visa program permits foreign nationals to qualify for permanent residency in the U.S. under the employment-based fifth preference category — hence the name. Trough the EB-5 program, foreign nationals who invest a minimum of $1 million in U.S. businesses can receive green cards for themselves and their immediate family, if the investment is made in a business that thereafer creates at least 10 full-time jobs. Te minimum investment amount is reduced to $500,000 if the investment is made in a business located 18 July | August | 2013 in a "targeted employment area" — a rural area or an urban area with an unemployment rate that is at least 150 percent of the national average. EB-5 investment activities are typically coordinated by, and project funding and investment is ofen operated through, one of the almost 300 regional centers designated by the U.S. Citizenship and Immigration Services agency. Tese centers focus on specifc geographic areas and work to promote economic growth through increased exports and productivity and job creation. As the EB-5 program has evolved, both equity and loan models of investment have been developed. The equity model refers to projects where a regional center, along with the foreign investors, takes direct ownership in the business or property. On exit, after the minimum five-year holding period, the investors elect to sell either the business or their equity interest and/or dissolve the business. Conversely, the loan model typically involves the investors and regional center creating a stand-alone entity, which then makes a loan to the subject business or property. Te loan exit occurs following the maturity date, usually based on a fveyear term. As the program has prospered, the loan model has become more prevalent due to the relative certainty as to exit modes and timing — when the loan is paid of. With the equity model, exit timing and costs are susceptible to market forces. If a developer wants to buy out the investors, the costs could escalate if the project is particularly successful. Qualification Process EB-5 investments can be used for almost any commercial real estate project; however, all projects utilizing EB-5 funds must be reviewed by USCIS. It is not unusual for funds to not be available for up to 12 months following the initial closing. EB-5 investments must weave through a lengthy review process that evaluates both the project and the investors. Te review includes analysis Commercial Investment Real Estate Photopat/Veer The EB-5 program offers developers another funding option.