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Obtaining EB-5 Financing for Your Business or Project
Since 1990, EB-5 financing has become an increasingly popular way to fund commercial enterprises and real estate projects at competitive rates. If you are interested in seeking EB-5 financing for your commercial enterprise or project, here are a few things you should know:
What is EB-5 financing? The term “EB-5” refers to the fifth employment-based visa preference category under the Immigration and Nationality Act of 1990 (“INA”). Under this provision of law, foreign nationals may obtain a green card by investing $1,000,000 in a new commercial enterprise in the United States or $500,000 in a new commercial enterprise located in a rural area or an area of high unemployment in the United States. The investment must create at least 10 full-time jobs for qualified United States workers.
Regional Centers: EB-5 investment funds may be pooled together by public or private entities that receive approval by U.S. Citizenship and Immigration Services (USCIS) to invest in industry-specific projects that promote economic growth in specific geographic areas. Such entities are called “regional centers”. Regional centers market the E-B5 visa program to foreign investors, assist the foreign investors with E-B5 visa applications and invest the foreign investors’ pooled funds in appropriate projects. Foreign investors that invest through such regional centers are subject to relaxed job creation requirements for their investment (i.e. indirectly created and induced jobs may be counted within the 10 job requirement).
Obtaining Financing from a Regional Center: If you wish to obtain financing from a regional center, you must find a regional center that operates in your project’s geographic area that is (1) designated to fund projects in your industry or (2) willing to seek an amendment to its industry designation to fund your project. You should endeavor to work with a regional center that is experienced in doing the marketing and sales activities required to solicit EB-5 investors and that is able to maintain compliance with USCIS reporting requirements. You can also establish your own regional center to fund your project; however, you should be aware that this is a time consuming and expensive process.
Regional Center Funding Process: To fund your project, a regional center will typically create a new limited liability partnership and will solicit foreign nationals to purchase partnership interests through a sponsorship offering. The limited liability partnership will then use the proceeds from the offering to fund your project, typically through a loan or preferred equity.
EB-5 Financing Terms: Loans from regional centers typically carry interest rates of 4-7% and terms of 5-7 years. Typically, the regional center will commit to provide you with an agreed upon amount of funding, contingent on the receipt of the E-B5 visas from USCIS. Once the EB-5 visas have been granted, the lender will provide the funds to you and require collateral to guarantee repayment.
Uses of EB-5 funds: The full amount of the E-B5 funds must be used in a job creating enterprise and should not be held in in your business or project reserves. E-B5 funds can be used to repay a bridge loan if it’s clear in the loan documentation that the bridge loan was made in contemplation of the EB-5 financing.
If you are considering E-B5 financing for your business or project, feel free to contact us for assistance.
Tips for Buying an SRO Building in New York
If you’re thinking about buying a building that has a single residency occupancy (SRO) designation in New York, there are a few things you should know:
SROs are multiple dwellings with units consisting of one or two rooms for occupancy by one or two people in New York. Such multiple dwellings can be permanent residences or temporary housing (e.g. hotels). If designated as an SRO, these dwellings are subject to legislatively imposed restrictions on alterations and tenants have unique rights, including regulated rent for most SRO units.
Tip #1: Be certain to double-check whether the building has SRO status before you enter negotiations. You can confirm the SRO designation using the New York Department of Building’s BIS site and the New York Department of Housing Preservation and Development’s HPDonline site.
Tip #2: To receive a permit to make any structural changes to an SRO building, you must possess a Certificate of No Harassment. A Certificate of No Harassment is issued by the New York Department of Housing and Development (HPD). Upon receiving an application for the Certificate of No Harassment, the HPD will conduct an investigation to determine whether the owner of the SRO building has harassed lawful tenants of the SRO unit within the past three years with the intent or effect of causing the tenant to vacate the unit. The HPD’s investigation can last six months to a year and the Certificate of No Harassment is effective for three years, so you should be certain to consider these time constraints as you determine whether to purchase and rehabilitate an SRO building.
Tip #3: You should endeavor to include a provision in your contract of sale requiring the current owner to provide a Certificate of No Harassment or provide assistance to you in obtaining it. If the owner is unwilling or unable to acquire the certificate, you should proceed with caution! If you decide to proceed anyway, be certain that your contract of sale has appropriate indemnification provisions and that your sale price has been adjusted for the risk of allegations of historical harassment by tenants.
Tip #4: If there are SRO tenants in the building, you must be aware that these tenants have unique rights. For example, unlike typical apartment tenants, SRO tenants can remain in occupancy whether or not the building owner provides a renewal lease. Tenants in temporary housing are also granted permanent tenancy in SRO units simply by remaining in occupancy for six months or requesting a lease of six months or more. Additionally, certain services that the tenants currently receive (e.g. customary hotel services in SRO hotels, laundry and maintenance in permanent dwellings) may be required by law to be maintained by the new owner and rents cannot be increased above legislative guidelines.
If you have additional questions about buying an SRO building in New York feel free to contact us.
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