A few months ago we wrote a note listing some of the largest known EB5 projects. These projects were done in several states and by different operators but they all had one thing in common: real estate. Some projects involved hotels, some were mixed-use complexes, one was even a casino but they all involved the purchase of real estate which an investor in the project could consider to be collateral (depending on their position in the capital structure). This may give an onlooker the impression that the purchase of real estate is a requirement for EB5 transactions. This is certainly not true and as our firm embarks on an EB5 raise for a software company this month it occurred to us that we should revisit this matter.
The primary purpose of allowing investments through the Immigrant Investor Program is the creation (or maintenance) of jobs. The government does not care about the industry in which these jobs are created, as long as it is legal of course, but it would prefer if they are sustainable full-time jobs (hence a USCIS review of a business plan to gather the thought process behind the project and requirement for a certain number of hours worked). There is no requirement for the purchase of real estate and you see this evidenced by numerous franchised restaurants that lease their locations and are funded by foreign investors.
There are of course reasons why real estate related projects are popular with the program. Firstly, it is an obvious source of collateral for an investor who may not fully understand the primary business operating model and secondly real estate projects often involve the creation of construction jobs and these usually help a project to meet the required jobs-to-funding ratio.
As we mentioned above, we are currently helping a super cool software company to raise EB5 funds. The Company’s client base (primarily in e-commerce) is about to increase ten-fold and it needs a significant increase in staffing to handle this growth - the very purpose of the immigrant investor program. The next time you assume that your business plan isn’t a fit for EB5 funding because you don’t have a real estate component give us a call, you may be happily surprised.