Last week, we announced that we had released the 2017 installment of our annual EB-5 white paper series, “EB-5 Trends & Insights: A Data-Driven Look into the Changing Landscape of Investor Immigration.” Today we take a closer look at one of the more interesting findings from this year’s report: the emerging trend of private equity funding appearing alongside EB-5 dollars in project capital stacks.
In the first half of this decade, EB-5 project capital stacks typically assumed the breakdown we see on the left. However, following banks’ tightening of construction loan standards since the financial crisis (and particularly in light of the most recent Basel regulatory standards), decreased lending has created a funding gap for many projects.
Developers are understandably wary of staking more of their own cash than is necessary on any individual project. And an increased EB-5 share, were it even possible in today’s marketplace of fierce competition for investment, would narrow the project’s job cushion (the level of expected project job creation above and beyond the required 10-per-investor minimum) to margins that may make regional centers uneasy.
Private equity, however, is a natural place to look to make up the difference. The recent boom in global interest around U.S. real estate has not been lost on private equity firms, who are eager to market to foreign investors. And regional centers, for their part, see an opportunity to sell to the same customers twice: Those who have made an EB-5 investment have obviously already satisfied their due diligence requirements with regard to the project at hand, and may be looking to move additional wealth into their new home country — which a PE investment accomplishes handily.
Additionally, EB-5 projects stand to benefit from the increased security, transparency, and institutional rigor to which the private equity market is already accustomed. But they will also need to be structured differently — to be built on new operational and compliance platforms, and to appeal to a class of investor who expects higher levels of servicing, reporting, and transparency.
Overall, we see this as a very positive trend for the EB-5 industry as a whole. And, with competition for EB-5 dollars growing ever stronger, we believe private equity’s convergence with EB-5 will only become more prevalent in the years to come.
Many more insights await you in this year’s white paper, “EB-5 Trends & Insights: A Data-Driven Look into the Changing Landscape of Investor Immigration.” Download your copy today!
PS — In case you missed last year’s paper, you may find it here.