The world turned upside down last year as the world began to battle the Coronavirus pandemic. The spread of COVID-19 has caused entry and exit bans, quarantines, and travel restrictions throughout the world. Here are three ways COVID-19 is reshaping the EB-5 landscape and how Christian Tyler Properties has tailored its EB-5 solutions around these circumstances:
1. Popular EB-5 Project Sectors Facing Downturns
While commercial real estate as a whole has been affected by the pandemic, EB-5 financing is often used to fund high-profile hospitality, retail, and office projects, and these asset classes have been among the hardest hit by the downturn caused by COVID-19.
For example, industry experts believe that one of three hotels will close and never reopen due to COVID-19. According to a leading EB-5 lawyer, this is a concern for many EB-5 hotel projects, as the hospitality industry accounts for almost 17 million jobs and has been adversely impacted by the pandemic. Hospitality projects with EB-5 financing in their capital stack are having a difficult time meeting the job creation and income targets in the wake of COVID-19 as the industry downturned.
Long before the pandemic hit, our team at Christian Tyler Properties focused our development efforts on Senior Living Facilities across the United States. Also known as “Assisted Living”, these facilities are for older adults who need help with daily care, such as help with medications, meals, housekeeping, and/or laundry. These projects have been strategically chosen for development so that EB-5 investor families can be confident in the security of their investment, because they offer unique advantages such as various government incentive programs for refinancing and high demand with low supply.
Given their congregate nature and the population served, assisted living facilities have some risk of being affected by COVID-19 just like all sectors of society, but the risk is not as high as nursing homes, which are cited by the CDC as being at the “highest risk” level of Long-term Care Facilities. It is worth nothing that while nursing homes have been particularly hard hit by the coronavirus pandemic, assisted living facilities are NOT the same as nursing homes.
2. Smaller Companies and Projects Are Rising to the Spotlight
Many of the major EB-5 players are not raising EB-5 capital as they did before the pandemic and experts say there is still demand from investors to participate in the program. Combined with the November 2019 EB-5 Modernization Regulation which changed the targeted employment area (“TEA”) requirements, different players in the EB-5 industry have risen to the spotlight, causing a significant change in the composition of EB-5 project developers.
When the EB-5 TEA requirements changed last year, our projects were largely unaffected. While a large majority of EB-5 projects are located in flashy locations such as New York City, we strategically develop our projects in locations that qualify as “rural” under EB-5 TEA requirements and therefore meet the qualifications for the lower EB-5 investment amount.
3. Job Creation in Jeopardy for Large-Scale EB-5 Projects
EB-5 investors are required to create 10 U.S. jobs, and the loss of millions of jobs due to COVID-19 is creating problems for developers involved in large-scale EB-5 projects – especially the hospitality projects that have hundreds of EB-5 investors included in the capital stack.
We intentionally avoid these risks and only offer smaller sized projects (USD $5.0 million to USD $20.0 million) with fewer investors, rather than grossly oversized offerings that contain potentially hundreds of investors in a single project.
Smaller projects mean quicker turnaround of the investor families’ capital. They also mean a shorter EB-5 fulfillment window which allows for a more agile approach to industry changes and compliance regulations. Whether a project is having to respond to changing industry demands, such as after a pandemic, smaller EB-5 fulfillment windows mean that the project can begin and complete its EB-5 raise in a relatively short period of time and quickly adapt to new changes in the marketplace.
Furthermore, less investors in a project means that market conditions for the first and last
investors in a project are similar. Often in large scale developments, the first investors in an EB-5 project may be subject to additional delays or processing conditions that are not present in the final investors in a project. By having fewer investors, almost all of them experience the same situations and can better respond to potential issues like monetization, processing timelines, or legal recourses against USCIS if necessary.
Christian Tyler Properties wishes families in areas impacted by this virus to be safe and healthy during this difficult period. Should EB-5 investors have questions about the impact the coronavirus pandemic may have on the EB-5 visa process or the commercial real estate industry, please feel free to reach out to us at email@example.com.