Creative Funding for an “Impossible” Project

eb 5 investment 300x155 Creative Funding for an Impossible Project

Traditionally, the U.S. immigration process involves navigating a labyrinthine bureaucracy–red tape, hoops to jump through, etc.  For those without the resources or time for the legal route, there’s always the option of braving the dangerous wilderness of the U.S.-Mexico border. While neither route can be described as “convenient,” these are certainly the most popular methods of entry. But another route of immigration is proving increasingly promising: investing in U.S. business ventures to obtain a green card.

A while back, I discussed some of the details of this investment/immigration strategy. The EB-5 Visa for Immigrant Investors first appeared over 20 years  ago as part of the Immigration Act of 1990. Designed to stimulate economic activity (as the country emerged from the Savings & Loan crisis, etc.), the policy offered the incentive of a green card to foreign investors with either $1,000,000 or $500,000 (depending on the area) in a venture that created at least 10 U.S. jobs. While some have criticized the EB-5 Visa as a way for wealthy investors to circumvent the country’s usual immigration process (a legitimate complaint), the citizenship-for-investment program has seen very few takers because of its cumbersome requirements and inefficient management.

Still, anything that draws foreign capital is worth looking into, for real estate endeavors or anything else, and it looks like EB-5 still has a future. Last fall, Congress approved the continuation of this program (in a shameful act of bipartisan effectiveness). Recent policy changes are making the green-card-for-capital strategy more viable, particularly, I think, for private investors in U.S. real estate. 

Since the recession, investment groups and developers in the States have had to seek creative solutions to secure financing, and the EB-5 program is one of those outside-the-box strategies we’ll likely see more of in 2013. Obviously, the green card is simply there to sweeten the deal; foreign investors are still going to examine real estate deals for their stability and potential returns. Fortunately, U.S. real estate often offers both these things, and the green card may be the one thing swaying investors to an opportunity in the States rather than Brazil or London.

EB-5 capital, in fact, is proving to be the lifeblood of some CRE projects. In Jay, Vermont, a tiny ski resort near the Canadian border, foreign capital is bringing about one of the biggest development projects the state has ever seen. According to the New York Times, the project’s developer is

expanding the Jay Peak ski resort, which he co-owns, …building a biomedical research firm and a window manufacturing plant, extending the runway at the local airport and rehabilitating much of the nearby town of Newport… There, he is developing the waterfront, adding the town’s first hotel and a conference center and rebuilding an entire downtown block. He is also creating what he says is the largest indoor mountain bike park in the world and a state-of-the art tennis center.

The price tag for the entire project, which [the developer] says will create 10,000 direct and indirect jobs over several years, is $865 million.

JayPeakTram Vermont 300x191 Creative Funding for an Impossible Project

Building up an enormous resort, in a very rural part of a very rural state seems a little ambitious.

Okay, it seems insane.

Even so, the NYT reports the developers have $275 million of EB-5 investment, which will pay for the development of a hotel, an enormous indoor water park, condos, a hockey arena, and retail properties.

When we examine the details of this project, it actually starts to make a little sense. First of all, the project’s co-developers have more than a little “skin in the game”–they’ve personally invested $90 million, showing investors this project is quite legit. On top of that, remember that this is a very rural area, so the minimum investment amount is only half a million. Most importantly, this project is taking place near the Canadian border.

While traditional resort towns have had a fair share of challenges in the recession (and post-recession), and new tourist-oriented developments seem incredibly risky, the Jay/Newport development project has the potential to draw customers from not one but two economies (Canada’s, remember, has shown great stability since the financial downturn.) The expanded resort is just a 2-hour drive from Montreal, and a reasonable distance from major cities in the U.S. Northeast.

So the project has potential. If nothing else, when all those foreign real estate investors come to the States, they’ll have someplace to ski. And an indoor water park. And a hockey arena.

2 comments for “Creative Funding for an “Impossible” Project

  1. Jim McMonagle
    January 4, 2013 at 12:17 pm

    Excellent commentary. If people want to spend lots of money in the US, we should do what we can to reduce the red tape barriers.
    The paradox is that this government program is designed to attract high-income (i.e. the one percent) into the US tax system, whereas the “fair share” doctrine is designed to drive the high-income individuals away from the US.
    If the resort is a failure, will the US government bail them out?

  2. Eric Hawthorn
    January 4, 2013 at 12:50 pm

    Interesting points, Jim. As U.S. real estate continues to prove stable (relative to other countries), it seems as if the amount of foreign capital in CRE will continue to grow, regardless of this visa program. Still, this program may give an edge to developments like the one above, which would likely struggle to entice the “average” investor.

    Thanks for reading!

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