Fast-track to U.S. residency

$500,000 and 10 full-time jobs.

That’s the going rate for a visa or two-year green card via the EB-5 Immigrant Investor program. Foreign investors in commercial projects get fast-tracked to permanent legal residency – although the term “fast-tracked” is somewhat relative.

Established in 1990, the program grants up to 10,000 visas a year, with as many as 90 percent of them going to Chinese applicants. While EB-5 money was subsequently used to great effect in New York, Los Angeles, Chicago and other major cities, Colorado has been largely off the investors’ radar.

That might soon change, however. There are now seven federally designated EB-5 regional centers that have hung a shingle in Colorado and are looking for deals that could be a good fit. But there are a few hurdles to overcome.

Although the EB-5 cap was reached before summer’s end in 2014 – the first year it’s been maxed out in history – it tends to be a last resort for many investors, as it can take up to two years to process the paperwork.

Rep. Jared Polis is pushing to streamline the process and make the program permanent – it is set to expire on Sept. 30, 2015. He has introduced legislation designed to reduce the processing time and increase the cap.

“Essentially, if someone wants to invest in our country, there should be an opportunity for them to do that,” says Polis. “We are working on improving the program significantly with our bill. Sometimes the opportunity is gone once the application is approved.”

Polis says the local impact could be pronounced. “It’s a lower cost of capital for low-risk projects. It could lead to a development boom in Colorado.”

Waveland Ventures, with offices in Denver, Austin and Milwaukee and an EB-5 regional center for the state of Colorado, raised $80 million of convertible debt from EB-5 investors to build Solaris Residences in Vail. The $380 million project was completed in 2012, but the financing was in the works in the midst of the 2008 fiscal crisis.

“At that time, the world was coming to an end, at least financially,” says Waveland CEO Rick Hayes. “There weren’t other sources of financing available. It put stress on the project.”

While the $330 million Empire Outlet Mall and adjacent hotel Waveland is currently financing on Staten Island, N.Y., includes $175 million of EB-5 money, Hayes says the program is usually a last resort for developers and financiers – as is the case right now. “The value proposition of EB-5 is certainly not as strong as when rates are higher or when capital is not readily available,” he says.

The biggest issue is the lag between application and approval. “The processing times have gotten so long,” Hayes says. “It may be 18 months to two years. There are very few projects that have that long of a fuse.”

He says Waveland has passed on several EB-5 deals for hotel projects in Colorado because of the lag time.

But there is an upside. EB-5 investors “are not return-driven – they’re return-agnostic,” he says. “From that standpoint, it’s a cheap source of capital for developers.”

For Waveland, the sweet spot is a project with a budget of $150 million or more. “For a middle-of-the-fairway project, you can get bank financing,” Hayes says.

“It has particular value in rural areas,” he adds, because small rural banks can’t handle huge projects. Waveland has financed seafood-processing facilities and broadband networks in remote areas in Alaska and cheese factories in rural Wisconsin. Nonetheless, two years to approval is still much too long for these projects.

Hayes says Polis’ draft legislation “would solve most of the problems with the program. It would make it a lot more efficient and make it a much better tool for a variety of projects.”

Andrew Klein, managing partner of Invest America EB-5 Regional Center in Greenwood Village, says he pursued EB-5 money for the redevelopment of the Aspen Club and Spa in 2010 because other financing was “difficult to obtain.” The $100 million project in Aspen was financed roughly equally by EB-5 investors, traditional capital and equity investors.

“The credit markets are volatile,” says Klein, who launched Invest America with his fellow principals at Westside Investment Partners. “In 2005, it was easy to obtain financing for any project that worked well on paper. In 2010, it was impossible to obtain financing for almost any project.”

Beyond the Aspen Club, “We’re looking at a number of other [EB-5] deals as well,” adds Klein, highlighting an office building in the Fitzsimons area and the redevelopment of a mall. “One of the benefits of EB-5 is job creation. It can’t be existing jobs, and redevelopments are great job creators.”

Dallas-based Civitas Capital Group has opened up a regional center focused on the Front Range, one of 19 operated by the company. It has raised $330 million in EB-5 money to date, primarily in Texas, creating about 6,000 jobs.

“We have 600-plus families who have invested with us,” says Jim Crigler, Civitas’ managing director. “They’re sending their kids to good schools and subject to taxes.”

While the company hasn’t yet started any projects in Colorado, Civitas helped kick start development in Oak Cliff in Dallas with the 266-unit Zang Triangle building, the neighborhood’s first new multifamily development in 20 years. Apartment buildings totaling 1,500 units followed.

“We’ve developed a good business model for this in Dallas, and we like Houston and Austin,” Crigler says. “The Denver market is similar.”

Crigler says the company has “seven or eight Denver deals in the pipeline,” including multifamily residential, office and medical projects. “The sweet spot is $20 million,” he says of budgets.

CAPITAL IDEA

The program has plenty of fans in Colorado’s business community. “I obviously love any visa that gets high-quality people into our country,” says Kimbal Musk, the South African-born, Boulder-based serial entrepreneur behind The Kitchen restaurants.

“That’s how we build our country,” Musk says. “If somebody wants to build a company in Colorado, you’d be crazy to turn them away. You can’t start a business without capital.”

As an early investor in his older brother Elon’s former venture, PayPal, and board member of his current companies, Tesla Motors and SpaceX, Musk’s perspective as a foreign-born entrepreneur is unique, especially considering that the brothers were undocumented at the time of the PayPal launch.

Musk says it’s all about catalyzing innovation. “We need more of it,” he says. “A real entrepreneur is going to create jobs. Why would we turn down someone from outside the country?”

And, regardless of the project that gets investors in the door, the processing issues make for a lost opportunity, Hayes adds.

“People who are investing $500,000 is just the tip of the iceberg,” Hayes says. The median net worth of the EB-5 investors Waveland has worked with is “north of $10 million, and it could be as high as $200 million,” he adds. “They typically invest a multiple of EB-5 money once they have their residency.”

The critiques are centered on a few high-profile abuses and the fairness of the program. The EB-5 is inherently one of the most golden of rules, but it’s hard to turn away willing investors.

“It’s hard to come up with what the negatives are,” Hayes says. “From a political standpoint, I’m always confused. There has been a ridiculous amount of wealth generated in China in the last two decades. There are a lot of programs in other countries, but they’d rather put it in the U.S. if they could. People bringing money to Colorado – it’s hard to see a lot of bad news there.”