Since the market rebound, EB-5 capital has become the most attractive source for many real estate developers to fill the gap in the capital stack for their projects. The EB-5 program provides a path to permanent residency for foreign citizens who invest at least $500,000 (pending reform legislation would raise this amount to at least $800,000) in a project that creates at least 10 jobs for U.S. workers.

EB-5 immigrant investors are ideal investors as they may accept the lowest returns and most flexible loan structure. A less publicized advantage is these investors lack the practical and legal ability to exert pressure on the developer. Furthermore, the investors’ goal to obtain a visa does not motivate them to be aggressive.

The investors’ pooled capital contributed to an EB-5 investment vehicle formed by a government approved Regional Center is deployed to the project as mezzanine financing, typically a mezz loan. Immigrants prefer the loan structure with its fixed maturity date and quick UCC foreclosure remedy, rather than preferred equity, because they believe it will lead to timely completion of the project and pay off of their loan. Project completion ensures that jobs will be created, the key to the issuance of the visa and green card, the investors’ primary investment motive. Although the investor expects his investment to be returned, in contrast to the conventional investor, the return on the investment is a very low priority. However, despite the rights and remedies granted by the loan documents, practical and legal constraints often render these theoretical.

Read full article as published in the Commercial Observer.

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Jeanne Calderon is a Clinical Associate Professor of Business Law. Gary Friedland is a Scholar-in-Residence.