EB-5 Financing at Work in Two Inner Cities

Written by Amanda Maher

The EB-5 Immigrant Investor program, initially launched in 1990 to use foreign direct investment to create jobs in high poverty and high unemployment urban and rural areas, has experienced a rapid uptick in applications over the past few years.  In short, immigrants can become eligible for an EB-5 visa if they make a minimum direct investment of $500,000 or $1 million, depending on the geography of the investment, into projects creating at least 10 full-time jobs. Since the Great Recession and tightening of credit markets, developers have increasingly sought out EB-5 financing to fill capital gaps.

So how are developers putting EB-5 capital to work?

Two cities, Miami and Los Angeles, offer two different examples of how developers are effectively using EB-5 for economic development. In Miami, developer Wexford Science and Technology (now BioMed Realty Trust) used EB-5 funds to help finance the University of Miami Life Science and Technology Park. The Los Angeles Economic Development Corporation has teamed up with CanAm Enterprises to further a range of local business and economic development projects.

University of Miami

In the early 2000s, the University of Miami began land banking property with the intention of expanding the campus. One of the first expansion projects was the University of Miami Life Science and Technology Park (UMLSTP) located in inner city Miami and in the center of the second largest Health District in the United States. The first phase of this 5-phase expansion project was the construction of a 252,000 sq. ft. life science building that would cost roughly $107 million to build.

The developer of UMLSTP, Wexford Science and Technology, had experience using EB-5 loans in the past. For this project, Wexford teamed with BirchLEAF – a regional EB-5 center comprised of Leaf & Associates (an immigration law firm) and Birch Capital (a real estate investment firm) – to tap into $20 million of EB-5 investments made by 40 foreign investors. The project’s affiliation with the University of Miami, a reliable anchor tenant, made the project attractive to foreign investors.

The project had to create at least 400 jobs to satisfy the EB-5 requirements. It is estimated that the project actually created over 1,200 jobs at an average salary of $34,000 during construction, and over 1,500 direct/indirect jobs at an average salary of $50,000 after the building became operational. As of October 2013, the building was 80% occupied and all EB-5 investors had received their visa approvals.

In 66 of the 100 largest U.S. inner cities, an anchor institution like the University of Miami is the largest employer. As anchors expand, the EB-5 program could be a valuable tool for stimulating growth in the surrounding urban economy by supporting the transfer of new technology.

However, J. Bruce Ricciuti, Managing Director of Birch Capital, notes that without targeted strategies, inner cities may not reap the benefits of EB-5 projects. For instance, the UMLSTP borders the Overtown neighborhood, one of the poorest in Miami, with a poverty rate of 39%, median income of $15,000 and minority population of 87%. Simply creating jobs at the new life science and technology park wouldn’t guarantee a benefit to residents of this neighborhood. Instead, the University of Miami and Wexford created a deliberate community benefits agreement, which included the development of a new health clinic at the Overtown Youth Center and a workforce development and vocational program geared toward training disadvantaged residents for employment in life science and technology careers.

Los Angeles County Regional Center

Los Angeles – it’s home to Hollywood. Movies, music and productions are apparent on nearly every street corner, it seems. But what happens when Hollywood reaches its capacity, and there isn’t sufficient real estate to accommodate the bustling industry?

In March 2008, a new regional EB-5 center, known as the Los Angeles Film Regional Center, was approved. It first targeted investments in the motion picture and television industry in Los Angeles County. In its earliest years, the Los Angeles Film Regional Center helped Time Warner with three projects, aggregating $272.5 million in EB-5 loans from 545 investors. More than 3,500 direct and indirect jobs have been created as a result. In 2010, the Los Angeles County Regional Center supported a $125 million loan to Sony Pictures Entertainment through a total of 250 investments. It is estimated that Sony’s expansion will create an additional 3,250 jobs.

Recognizing that EB-5 investments could be used as a tool for greater economic development, outside of the entertainment industry, the Los Angeles Economic Development Corporation (LAEDC) teamed up with the regional center in an exclusive partnership that would target other clusters for EB-5 investments as well. In 2012, the newly renamed Los Angeles County Regional Center was approved and it now encompasses industries such as agriculture and food processing, alternative energy, health services, higher education, technology, and transportation. A brand new project, for instance, will be helping Molina Healthcare to raise $35 million in EB-5 investments, which should create more than 700 new jobs for local residents.

Carolyn Hull, Director of the LAEDC, explains that EB-5 investments have not been used effectively in low-income areas to date, but there is great potential to do so. “EB-5 should be thought of as another tool in the economic development toolbox,” she says. But in order to be most effective, and to impact inner city areas, “economic development agencies and regional centers should prioritize projects in low-income communities or projects that will disproportionately benefit low-income residents.” For instance, if EB-5 is going to be used to build new hotels (which is often the case) or expand hospitals’ assets, career ladders should be established so lower-income and lower-skilled workers do not remain stuck in dead-end or low-paying positions at these hotels and hospitals. Moreover, whenever EB-5 projects also utilize public resources, cities and their economic development agencies should also leverage project-labor agreements that require a certain percentage local hire and/or MBE contracting.

Though the EB-5 investment program is not new, it’s being used more frequently and in increasingly creative ways. As noted in the case studies above, there are significant opportunities to leverage EB-5 investments to spur growth within inner city economies. What’s clear is that there’s no one-size approach to using EB-5 and that developers have found ways to utilize the program in a way that meets that city’s needs.

ICIC recently released a report entitled “Increasing Economic Opportunity in Distressed Urban Communities with EB-5”. Read more to learn ways that EB-5 can catalyze high-impact development projects.