Last week H.R.1625 – Consolidated Appropriations Act, 2018 was enacted. The Act includes a continuation of funding, until September 30, 2018, for the EB-5 Regional Center Program.
EB-5 financing has been a low cost financing alternative for real estate developers when compared to other capital sources. EB-5 credit facilities are typically structured as staged funding vehicles for pre-vertical costs and expenses. While the projects differ as to concept (eg., high rise, mixed-use, single family, and condo projects), EB-5 financing has played a vital role in allowing our developer clients to move projects forward, while at the same time allowing developers to recoup sizable portions of their initial outlays, including for land acquisition. In two of the transactions we recently handled, the EB-5 financings were extended before a senior mortgage loan facility and other components of the capital stack had been finalized.
Over the past few years there has been a lot of ongoing discussion as to whether the EB-5 program would be continued, and if so, whether the program would need to be revised to make it more difficult to obtain investors. However, we continue to actively represent clients in obtaining EB-5 mezzanine construction loan financing in major housing construction projects located in Florida, New Jersey, and California. We were recently involved in a private equity EB-5 transaction, and are currently assisting one of our clients in increasing its EB-5 mezzanine loan facility from $50 million to $100 million. Typically, our representations involving EB-5 financings are in the $50 million range (although financing amounts can be substantially less than or greater than that amount).
The September 30, 2018 extension of the EB-5 program, while albeit short, is good news for developers seeking to utilize this type of financing, as it delays potential restrictive changes to the program that have been proposed by Senator Grassley and others in Congress. The relatively short extension, the future uncertainties surrounding it, and the lead time required to obtain this type of financing require developers who are interested in obtaining EB-5 financing to expeditiously move forward.
In the coming weeks we will be posting additional blog information regarding the EB-5 program from the perspective of real estate developers, including issues in structuring transactions to avoid potential pitfalls.