On Wednesday, March 28th, a record-breaking number of attendees from a wide cross-section of the EB-5 industry joined us for the NES Financial 2018 EB-5 Data Insights Webinar. The one-hour presentation, led by Reid Thomas, Executive Vice President and General Manager at NES Financial, provided an in-depth look at key trends in the EB-5 market today. The data was aggregated from over 600 of NES Financial’s EB-5 clients, representing all types of projects and spanning the last 8 years, with an emphasis on data collected in 2017.
The realities of China retrogression and the uncertainty of pending legislative reform served as the thematic lens for surveying and reporting on the industry landscape. These twin forces have continued to exert pressure on the market for the past few years, and they reached a tipping point midway through 2017, creating visible signs of turbulence throughout the EB-5 industry. The webinar dug deeper into the undercurrents to identify and discuss both challenges and opportunities, in 2018 and beyond.
Between 2016 and 2017, the distribution, concentration and number of Regional Centers across the country held relatively steady. However, starting in 2017, our data revealed a notable shift in the composition of EB-5 projects: the average project size had fallen from $50 million to $35 million, and the median target EB-5 capital raise amount had dropped from $35 million to $16 million. This reduction in project size was most evident in the largest industry sector, hospitality. 2017 saw a significant increase in the number of economy, business and boutique hotels, alongside a decrease in the number of luxury and resort hotels. We believe this trend will continue as the industry continues to work through the realities of China retrogression and pending legislative reform.
Follow the Flow of Investors
When looking at investor inflows, the big headline of 2017 was the slowdown of Chinese investors. But the story, as told through our data, is really about the beginning of a new chapter in EB-5 industry history: by the 4th quarter of 2017, the combined inflow of investors from countries other than China topped the inflow of Chinese investors for the first time.
To further contextualize this important shift, our data indicated that while the inflow from China for the first two quarters of 2017 was actually up from 2016, over the next two quarters it plunged to a historic low. By the end of 2017, the inflow from China was 28% below its normal level. However, at the same time, the combined inflow from markets outside of China dramatically increased to nearly 200% its level the year prior. In particular, Vietnam, India and Brazil posted tremendous gains last year. Interestingly, investor inflows across Western European countries had also substantially increased. Indeed, the growing diversification of investor inflows confirms that the investments made to develop channels in many new markets around the world are paying off — a timely and noteworthy trend that we believe will bolster the strength of the EB-5 market for years to come.
Getting More Out of Less
From 2015 through 2017, EB-5 projects coming online and available to receive capital rose in number. Conversely, over the same period, the number of investors available to invest in EB-5 projects tapered off. As a result, more projects are competing for fewer investors than ever before. In addition, an analysis of funding velocity (i.e., the time it takes to fund a project) revealed that it now takes twice as long to raise the same amount of capital as it did just a few years ago. Faced with this challenge, more and more projects have been adopting NES Financial EB-5 administration solutions, not only as an industry best practice, but as a way to differentiate themselves and successfully compete for investor dollars. In fact, the data shows that our clients who fully embrace and utilize the value-added marketing services of the NES Financial Medallion Program are able to raise capital 50% faster than those who don’t.
Our data, along with our daily hands-on involvement with the full spectrum of the Program, tells us the stage is set for 2018 to be the most transformative year in EB-5 industry history. As an industry thought leader, we will be closely monitoring and reporting on three important stories that continue to unfold: 1) industry consolidation, 2) the investor pool, and 3) new legislation. Developments in these three areas will have the net effect of turning over industry control to the strongest players — those able to provide the best-quality investment opportunities, develop successful channels into international markets beyond China, leverage alternative sources of capital (like traditional equity or debt) to round out their capital stacks, and provide investors with the highest levels of security, transparency and compliance through the entire project life cycle.
Allow us to address your business needs by contacting us. We look forward to hearing from you!