Yes, the capital stack of an EB-5 project is important as it is an indicator of its success and viability.
By virtue of an investment of $800,000 in a government pre-approved project in the United States, foreign investors can obtain U.S. residency and Green Cards for themselves and their qualifying family members. The EB-5 program provides two distinct investment options for foreign nationals seeking to obtain U.S. Green Cards through their investment, namely the direct investment route and the regional center route.
Given its greater flexibility and higher approval rates, the regional center route is considerably more popular among foreign applicants. Regional centers are designated organizations within the U.S. that provide investors with investment opportunities and facilitate the funding of EB-5 projects. An investor will have a choice of projects for their EB-5 investment. To protect their investment and avoid immigration risks, investors must carry out due diligence in choosing a suitable project. An intelligent investor must inquire about the capital stack of an EB-5 project prior to making an investment decision.
The capital stack of the project refers to the composition of the investment funds used for the construction of the project. Project sponsors generally use various sources for funding a project, including traditional debt from a financial institution such as a bank or a government institution, EB-5 capital, as well as the regional center’s sponsors own capital. Compared to traditional forms of financing, EB-5 capital is relatively affordable given lower rates of interest. Therefore, developers often obtain EB-5 funding to repay higher interest construction loans. Applicants should analyze the capital stack of a project to ensure that the project has various sources of funding and does not solely rely on capital derived from EB-5 investors.
Investors should be wary of a project that is solely funded by EB-5 capital. The involvement of financial and government institutions is a positive sign. This is because institutional lenders such as banks require a certain level of assurance during the underwriting process prior to approving a loan. For instance, the borrower must demonstrate a well-developed construction plan including the involvement of a qualified builder. In addition to loans from third-party institutional lenders, the financial involvement of the project’s sponsor is a positive sign as it shows the sponsor’s confidence in the project.
A solid capital stack is one in which all three forms of financing – sponsor equity, construction loan, and EB-5 capital – are involved.
With over a decade of experience in the EB-5 industry, we are ready to assist you and your family navigate your way through your U.S. golden visa process. We will guide you in asking the right questions when making an investment decision. We will facilitate your communication with the regional center to ensure that you are comfortable with a project prior to remitting your investment funds. If you are interested in starting your immigration journey to the United States, contact our team today for an initial complimentary consultation.