Redeployment of EB-5 capital has certainly become one of the primary concerns for both current and potential EB-5 investors. CanAm’s article, “EB-5 Capital Redeployment: Putting Investors First!” explained why EB-5 capital redeployment is necessary and described the current requirements. To complement this introduction, CanAm is pleased to introduce its EB-5 capital redeployment solutions and present the options that CanAm offers to EB-5 investors.
When investors first choose an EB-5 investment and file an I-526 Petition, most focus on the project’s feasibility and its ability to create the required number of jobs. For EB-5 investors whose projects have already created the necessary jobs and repaid the EB-5 loan, if they are in a visa backlog and must redeploy their EB-5 capital to maintain their investment “at risk” until they are eligible to file an I-829 petition, they now have several other options. Without a doubt, the two primary concerns on their minds are:
- How do I know that the redeployment investment will comply with USCIS requirements, so as not to jeopardize my I-829 Petition?
- How can I ensure my capital is preserved until I am eligible for repayment?
With China, Vietnam, and India currently facing EB-5 visa backlogs of varying durations, and several other countries expected to face retrogression before the end of the current federal fiscal year, each investor within any EB-5 limited partnership has a unique redeployment timeframe, liquidity need, and risk tolerance. For that reason, it makes no sense for a Regional Center to offer only a single redeployment option that might not fit all of its investors. That is why CanAm’s redeployment solutions seek to create multiple choices to meet the specific needs of investors.
How do I know that the redeployment investment will comply with USCIS requirements, so as not to jeopardize my I-829 Petition?
While the current USCIS Policy Manual provides sparse guidance on the types of investments that will meet the agency’s criteria for redeployment, it does mention two specific examples of acceptable redeployment investments—namely, redeployment into another construction project or newly issued municipal bonds, such as for infrastructure spending. Although the EB-5 stakeholder community is currently calling on USCIS to confirm that the scope of permitted redeployment forms is broader than these two examples (e.g., including any investment in marketable securities), USCIS has yet to do so. Therefore, at this time, CanAm has decided that its current redeployment options will be as follows, subject to market availability:
- Municipal bonds for infrastructure-related spending;
- Mezzanine loans to qualified real estate developers; and/or
- Long-term preferred equity investments in real estate projects
While it is important to understand which types of investments will meet USCIS redeployment requirements, it is equally important to know what USCIS does not require. Within the EB-5 community, there has been much debate over whether investors’ funds must be redeployed into another EB-5 project to satisfy USCIS requirements. In fact, USCIS does not require repaid capital to be deployed into another EB-5 project, and in any case, CanAm will not introduce EB-5 projects to its investors as redeployment investments. According to CanAm, our investors whose EB-5 projects have already met the job creation requirement but need to redeploy capital should be introduced to market investment projects that offer high returns but lower risk than their original EB-5 investment.
Introducing CanAm’s EB-5 Redeployment Solutions: An Investor-First Approach
CanAm recognizes that the decision to redeploy is a significant one. CanAm’s philosophy, throughout its more than 30-year history of structuring and promoting immigration-related investments, has always remained the same: ensuring that investors achieve their immigration goals and preserve their investment capital. CanAm’s position over 15 years of financing EB-5 projects clearly demonstrates our commitment to maintaining reasonable EB-5 loan terms and predictable maturity dates without locking investors into longer-term commitments and/or multi-year extensions with higher risk, nor tending to favor the developer.
It is this “investor-first” mindset that has guided CanAm’s approach in developing a redeployment strategy, not limited to a single redeployment option for all its investors, but instead offering different investment options tailored to the needs of specific investors, depending on the duration of their respective redeployment periods, liquidity needs, desired capital returns, and risk tolerance.
Municipal Bonds
Municipal bonds are issued by local governments, territories, or their agencies. They are typically used to finance public projects, including schools, airports, roads, utilities, and other infrastructure repairs. Revenue generated from municipal bonds is generally exempt from federal taxes. Municipal bonds typically offer lower yields compared to traditional real estate investments; however, they also tend to carry less economic risk and are often more liquid because they can be easily sold to investors in the secondary market.
Who might choose municipal bonds as an EB-5 redeployment option?
Investors seeking low risk and those willing to accept relatively lower returns in exchange for being able to liquidate immediately after meeting all immigration requirements. This option is typically suitable for investors who only need to redeploy for a short period, potentially less than 2 years.
Mezzanine loans to qualified real estate developers
CanAm’s redeployment solution expects to offer opportunities to invest in mezzanine loans to qualified real estate developers seeking short-to-medium-term capital (approximately 3-5 years) in addition to their senior debt and equity. In a real estate development capital structure, a mezzanine loan is subordinate to the senior construction loan in the order of payment priority (meaning, once the developer has paid operating costs and senior debt, revenue must be used to pay the mezzanine loan before equity investors can receive any profit distribution).
Who might choose a mezzanine loan as their EB-5 redeployment option?
Mezzanine loans can be a suitable redeployment choice for investors facing a medium-to-long-term redeployment period and who have a moderate risk tolerance. The primary advantages of investing in mezzanine loans are that the investment can generate periodic cash interest throughout the investment term, has a fixed term, and the investment amount is typically secured by an equity pledge in a special purpose entity that owns the project.
Preferred Equity Real Estate (PERE) Investment
The majority of PERE investments are in commercial real estate assets—offices, industrial parks, retail, multi-family, and specialized assets such as hotels. Depending on the asset type and investment strategy, PERE projects can generate attractive returns; however, high return rates come with inherent risks. PERE investments generally require a long-term capital commitment (5-7 years) with very little liquidity throughout the investment term. Investors must accept the illiquidity of the asset as a trade-off for higher expected returns. While there may be small cash distributions during the investment phase once the project is operational, the investment principal plus the majority of the returns will be distributed to investors upon exit, usually through the sale or refinancing of the asset. CanAm’s PERE projects offer attractive risk-adjusted returns, focusing on geographies and assets where CanAm has informational, operational, and other competitive advantages.
Who should choose preferred equity real estate as an EB-5 capital redeployment option?
PERE investment can be a suitable redeployment choice for investors seeking higher returns and/or needing to redeploy for more than 5 years and who do not require liquidity. This vehicle can serve investors who want to further invest their EB-5 capital to generate additional income in the United States. PERE investment plays an important role in an investor’s portfolio by providing diversification, reducing volatility, and potentially offering higher after-tax returns.
As a leading Regional Center, CanAm has developed an investor-focused EB-5 redeployment platform that prioritizes the specific financial and immigration needs and goals of each investor. CanAm recognizes that each investor has different objectives regarding redeployment timeframes, expected returns, and risk tolerance—and ultimately, it must be the investor’s decision. CanAm expects to offer 2-3 investment options to each investor needing to redeploy capital and will require each investor to select one of the introduced redeployment investment options. And for those investors who decide they no longer wish to pursue a green card, CanAm will offer investors the opportunity to withdraw their application and receive a return of capital.
“CanAm Enterprises always puts investors first, and this philosophy also applies to our redeployment methodology. CanAm will always provide redeployment options that comply with USCIS requirements and preserve redeployed capital to the highest extent possible,” according to Mr. Tom Rosenfeld, President & CEO of CanAm Enterprises.
Disclaimer: All content in this article is information of a general nature and does not address the circumstances of any specific individual or entity. Nothing in this article constitutes professional, legal, investment, and/or financial advice, nor does any information herein constitute a comprehensive or complete statement of the matters discussed or the relevant law.
