Chapter 1: Financial Considerations
© James C Wolf Jan 2021 (updated July 2021)
Developers consider EB-5 funding as part of their capital stack since EB-5 money typically comes with below market terms: low interest rates, no personal guarantee, no prepayment penalty, subordination, etc. Estimating the Optimum EB-5 Raise is the first step in evaluating whether to seek EB-5 funding.
When looking at the option of EB-5 funding, a Developer typically considers the following:
Timing
EB-5 funding can take more than one year before it arrives. EB-5 is best used as a method to take out more expensive funding already committed to the Project.
Terms of EB-5 Funding
EB-5 funds typically are received by the Developer as a loan under very favorable terms, for example, 1-2% APR, unsecured, and repayment period of 5-10 years.
Capital Stack
EB-5: In order to give the offering an attractive job creation allocation, most developers find it is best to limit EB-5 funding to no more than 33% of the total project cost. Most EB-5 offerings provide Developers with debt financing, although some may provide an option to convert to equity.
Equity: In order to reduce EB-5 investor’s perceptions of risk, most developers find it is best to allocate at least 10 – 25% of the total project cost to Equity. The Developer must show availability of funds to support any planned Equity contribution.
Debt: The remainder of project cost can be allocated to commercial Debt. This debt usually holds a security position ahead of EB-5 debt. The Developer must show availability of funds to support any planned Debt, in the form of a Term Sheet from the Lender.
Minimum Investment per Investor
If the Investment will be placed in a project located in a high unemployment area or a rural area, the minimum investment per investor is $500,000.
In all other project locations, the minimum investment per investor is $500,000.
Some years ago, the USCIS proposed a rule raising the minimum investment amounts. The USCIS has taken no action to finalize the rule.
Optimum EB-5 Raise
Based on the guidelines for Capital Stack, Minimum Investment Per Investor, and Job Creation, the Optimum EB-5 Raise can be estimated.
For example, a hypothetical Project may cost $20 million to establish and generate $5 million annual revenues during the first two years of operation. The following table shows the Optimum EB-5 Raise would $6,500,000, allocating 27 jobs per investor:
EB-5 Capital for Developers
We give client-centered advice, representing only one side at a time in each EB-5 deal, without conflicts of interest or bias.
We leverage professional experience as an EB-5 attorney, EB-5 regional center operator, EB-5 Issuer, and EB-5 project developer, for benefit of each type of stakeholder.
For further information on EB-5 Capital for Developers, see other chapters in this series.
Schedule a call today with James Wolf, the experienced EB-5 investment attorney, to discuss your project’s capital needs and the potential for EB-5 investment.
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- Advising innocent partner’s counsel in EB-5 fraud litigation in California.
- Guidance to EB-5 Forensic Accountants investigating collapsed EB-5 investment
- Consulting on complex EB-5 cases.
- Directing and coordinating work of investor representatives in India, Mexico, China.
- Reviewing EB-5 fraud claims as to potential liability.
- Advising on potential EB-5 fund raises.
- Structuring and preparing source of funds documentation.
- Providing outside counsel review of I-526 and I-824 filings.
- Immigration counsel in lawsuits:
- against developer alleging misuse of funds in New Jersey.
- against regional center alleging mishandling of funds in New York.
