NEW YORK CITY—A partnership of Greystone, Capital United and NES Financial are developing an EB-5 redeployment program geared at addressing the impact of visa backlogs that has arisen as a direct result of EB-5 financings popularity in the real estate sector and specifically with Chinese investors seeking a green card in exchange for their investment.
The new initiative was announced at last week’s EB-5 Investors Magazine’s EB-5 Investment & Immigration convention in San Francisco and comes a little over a month after the US Citizenship and Immigration Service issued a clarification on EB-5 redeployment that does not create a material change as long as the redeployment occurs after the necessary job creation in the original “Job Creating Entity.” The EB-5 Redeployment Program provides for redeployment of funds at any time after the creation of the required jobs, which gives these entities the flexibility to take advantage of market cycles and sell or refinance their assets whenever they deem appropriate. It also gives “New Commercial Enterprises” the ability to fund shorter-term projects, such as for-sale condominiums, Greystone notes.
The EB-5 program provides foreign investors who invested at certain mandated levels in “at risk” projects that created jobs a means to obtain a green card. The redeployment program seeks to address a specific issue of a decline in Chinese investor visa applications due to the visa approval backlog that now exists. Chinese investors have been a major player in the EB-5 program. According a Bloomberg News report, U.S. State Department figures indicate that in 2016, Chinese investors accounted for about 85% of all EB-5 investment or $3.8 billion in the fiscal year that ended Sept. 30, 2016.
One of the most important emerging issues is the need for capital redeployment in the EB-5 sector. The issue arises when a project loan needs to be repaid or refinanced prior to the final step in the EB-5 immigration process being reached. Without redeployment, the solution can be complex and perhaps risky for EB-5 Regional Centers, project owners and investors. The risks may include redeploying capital in what could be higher risk or less desirable investments, the potential to mishandle or misappropriate investors’ capital, violations of US securities law or even falling out of compliance with the EB-5 program “at-risk” requirements.
“As the EB-5 program gains popularity, the visa backlog continues to grow and legislative reform remains on the horizon, we wanted to create a redeployment program that would alleviate concerns for NCEs, investors and migration agents while maintaining compliance, security and transparency,” says Allison Berman, head of Greystone’s EB-5 group. “With Greystone’s diverse range of lending platforms, it made sense to utilize our dynamic short-term loan program to support this redeployment program. It is critical to have a secure, short term, liquid option to address the redeployment needs of EB-5 investors.”
A company spokesperson tells Globest.com that Greystone is holding discussions with interested developers and regional centers and is hopeful it can raise $100 million for the fund by the end of 2018. The New York City-based commercial real estate lending, investment and advisory company has a goal of having the fund hit the $200-million mark by the end of 2019.
The newly launched EB-5 redeployment program will include investment in Greystone’s Real Estate Short Term Debt Fund, which will be an actively managed, diversified portfolio of first mortgage loans collateralized by commercial real estate assets. Financial technology services company NES Financial will provide fund administration services, investor reporting and financial reporting. Capital United will serve as an investment adviser to the fund.
“The popularity of the EB-5 program created a need for a program like this,” says Reid Thomas, EVP and general manager of San Jose, CA-based NES Financial. “Left unchecked, EB-5 stakeholders including NCEs, investors and their migration agents were exposed to significant risks. Anticipating this need is what prompted us to extend our industry leading fund administration to support EB-5 redeployment.”
Earlier this month, NES Financial announced that Capital United, a registered investment advisor with the Securities and Exchange Commission, was hired to provide the market with a timely and groundbreaking solution that addressees the risks and challenges of redeploying EB-5 investors’ capital.
“The EB-5 concept is a valuable tool for developers and sponsors, but it must also be approached with smart advisement, looking beyond the initial loan term and to ongoing, long term requirements regarding the investment of the capital tied to the visa application process,” says Brad Stedem, president, Capital United.