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Real Estate As A Capital Contribution For EB-5

by Joseph Whalen

There is a bit of confusion surrounding real estate in the EB-5 context. Folks are mixing apples and oranges. To be more precise, folks are confusing various EB-5 issues and purposes. Most EB-5 Regional Center (RC) projects involve building, remodeling, or refurbishing some particular property in order to provide a proper place to conduct new business or expand and/or stabilize existing business. Some RC projects involve EB-5 investors having a stake (ownership interest even if in the minority) in the new or expanded business (or in rescuing a “troubled business”). Other RC projects may simply involve providing financing to a developer who is doing something to create or preserve jobs. Whatever the case may be, it has to happen somewhere!

There are different ways in which the “place” where the business will happen becomes part of the particular EB-5-RC-affiliated project. The parcel of land, office building, factory, hospital, clinic, nursing home, resort, ski slopes, department store, restaurant, mall, or whatever exists somewhere. The place is not free for the taking, it must be owned by someone. It may already belong to someone involved in the RC-affiliated project or it might have to purchase specifically for the RC-affiliated project in order to fulfill a greater purpose.

That real property may be supplied by a project partner, the RC itself, a RC-affiliated non-EB-5 investor, or probably the best approach might be for an EB-5 investor (or more than one such investor) to acquire the desired property and use it as his, her, or their “capital contribution” to the overall RC-affiliated project. The particular investor(s) who contribute(s) the place for business surely would have established a specific very strong nexus to the RC-affiliated job-creating project and would have solid evidence of their “capital investment” in said “project”. The associated EB-5 investors who contribute additional cash or some other tangible assets will also have a very strong nexus. When the combined efforts of the aforementioned EB-5 investors along with his or her non-EB-5 investor partners some of whom hopefully at least some will be domestic investors come together to create and/or preserve jobs then everybody wins.

So, I suggest that we look at the real estate as part of the overall EB-5 RC-affiliated project as depicted via the Business Plan for that particular project as a “capital contribution” of a limited number of EB-5 and/or non-EB-5 project partners. There is sufficient nexus to show that without a place to do business; there can be no business, or job creation (or preservation). The consideration of the cost of real property need not be and in general, cannot be, included in any economic input-output model as a means to forecast jobs. Job creation is not the real property’s direct purpose in any development.

While the actual location will have a distinct influence on the data available for use as input into any economic model its influence is qualitative in nature rather than quantitative. You will get more customers at a major crossroads in a densely populated and interesting place surrounded by major attractions than on a back road deep in the middle of a sparsely populated and rarely visited “nowhere special”. The survey data as well as extrapolations and projects based on them, and commensurate multipliers are connected to a specific place. Such data is commercially available based on location, specific industry types and numerous other variables.

In closing, it seems to me that some confused people who were not clear on the true purpose of the “Pilot Program” or the intricacies of economic models succeeded in confusing others. I am afraid that folks who don’t know what they are doing are doing them anyway and making matters worse. Specifically, certain non-economists are buying software and trying to produce their own economic analyses for EB-5 and proving the old adage: garbage in-garbage out. Additionally, folks are asking economists to produce economic analyses without being specific about the items demanded for EB-5 compliance purposes. That last problem is because the folks asking for EB-5 economic analyses don’t know what is required and thus cannot relay proper specifications to their economists. That is exacerbated by handing over Business Plans that are not up to the task and are insufficient for EB-5 purposes.If folks need training, they should get it and save themselves headaches. That’s my two-cents, for now.

About The Author

Joseph P. Whalen is not an attorney. He is a former government employee who is familiar with the INA. His education is in Anthroplogy with a concentration in Archaeology and has both a BA (from SUNY Buffalo) and an MA (from San Francisco State University) in Anthroplogogy. He previously worked as an Archaeologist for the U.S. Forest Service before becoming an Adjudicator with INS which became USCIS.

The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.