Capital Raising: The capital raised from an EB-5 offering is best suited as a replacement for mezzanine level financing or additional outside equity that may be needed for a developer’s project. There are a number of reasons for this but two of the main reasons have to do with job creation based upon the needs of the EB-5 investors as well as the costs of capital in comparison to one another.
The costs of capital comparison is likely an easy one for a developer to understand as mezzanine financing and outside equity are both high cost capital whereas the right development project should be able to attract EB-5 investment at a reasonable rate. The job creation needs of the EB-5 investor may be a little more difficult to follow. Too often developers think about direct employees working in the operations of a business whereas in EB-5 we like to look at direct, indirect and induced job creation that can be measured through input-output models such as IMPLAN or RIMS II. Simply stated, money being spent translates into jobs being created either directly or indirectly as well as what is known as induced job creation.
Unlike most senior loans from a bank, an EB-5 loan to a developer is the product of a securities offering to prospective EB-5 investors. This means the underlying development project needs to be more than just an idea. The project needs to be able to satisfy defined underwriting criteria such as:
- Sources and uses of capital are clear
- When spending in the project will occur is clear
- Assurances that construction will be completed on time and on budget such that the job creation needs of the EB-5 investors will be satisfied.
The suitability of a project goes well beyond this however the readiness and the quality of the underlying project play heavily into how easily EB-5 capital can be raised for a developer’s project.
Please take a few moments to read through all six sections of this page in order to understand what makes a project not only “suitable” for EB-5 but what makes a project one that EB-5 investors are likely to find suitable for their immigration needs.