Introduction
Peter Calabrese (00:06)
Hello, welcome. This is Peter Calabrese. I’m CEO of CanAm Investor Services. CanAm Investor Services is the FINRA registered broker-dealer affiliate of CanAm Enterprises, one of the largest and certainly most successful regional centers in the history of the EB-5 program.
I have the great pleasure to be joined once again by Ms. Jen Hermansky. Jen is a shareholder at Greenberg Traurig. She is the National EB-5 Committee Chair for AILA—that’s the American Immigration Lawyers Association. She has structured over $3 billion in EB-5 capital raises for borrowers and for NCEs. She’s also guided thousands of families through their own EB-5 process, working directly with families.
It’s a great pleasure to have her. She brings a wealth of knowledge to this discussion. Jen, welcome. Thank you for joining us.
Jennifer Hermansky (00:52)
Thank you so much for having me today.
Topic Introduction
Peter Calabrese (00:55)
It’s a pleasure. Today we’re going to talk about a subject that hasn’t really been mentioned much. We really try to provide good, relevant educational materials for people who are joining us for these discussions. What we wanted to speak on today was the characteristics of an infrastructure set-aside project.
The infrastructure set-aside project is a little-used set-aside in the EB-5 program. It was part of the Reform and Integrity Act to establish this as one of the set-aside categories, but it is a small one. However, it is one that has definitely been growing in notoriety and visibility, and something that we thought could be helpful to speak on today.
Jen, maybe if you could start us off talking a little bit about the definitions and the characteristics of an infrastructure set-aside project.
Defining Infrastructure Set-Aside Projects
Jennifer Hermansky (01:47)
Sure. When Congress passed the EB-5 Reform and Integrity Act in 2022, they created three set-aside categories: the rural area projects, the high unemployment area projects—which everyone is familiar with—and the infrastructure project set-aside, which as you noted is lesser used certainly than the other two.
This was included in the law to try to encourage some governmental entities to utilize EB-5, because in the past we certainly had some government-sponsored projects, but they’re not as prevalent as the private, big development projects that are out there and commonly used in EB-5. So this was an incentive put in the law to try to facilitate these types of public works projects. They made a set-aside specifically for these government infrastructure projects.
In the law, it says that in order to qualify as an infrastructure project, the project itself has to be administered by a governmental entity. In the law, it says this can be a federal, state, or local agency or authority. So any type of governmental authority can qualify here. It could be at a city level, or a state level, or even at the federal government level. That’s good. It can be used by a wide variety of government agencies.
The law also says that this governmental agency—the job-creating entity—must be contracting with a regional center or a new commercial enterprise to receive the EB-5 capital investments. In that definition, we see USCIS is saying that it has to be the governmental entity that is going to accept the EB-5 money from the new commercial enterprise, acting as the borrower under a loan or receiving some form of equity investment of EB-5 monies, and then using that for a public works project.
I would say there are actually two parts to the infrastructure project qualification. The first is the JCE being a governmental agency or authority, and second, having this be a public works project. This is what is spurring some investment into getting this money back into our communities and doing things that help the local communities.
Differentiating Infrastructure Projects
Peter Calabrese (04:47)
Yeah, I mean, which makes a ton of sense. Everyone, whenever you look at the EB-5 program, you see the economic benefit that comes from it. This is just another great example of the ways that it can be used.
But I always think it’s interesting because when I describe to people—I’ll have a conversation about lowercase infrastructure. There are definitely things that are helping what anyone would consider to be infrastructure in a community. And then there’s the capitalized Infrastructure, which is the infrastructure set-aside.
We’ve had projects that we’ve worked on in the past that have definitely fit that first type of definition—train lines, public works that definitely would seemingly be adding to the infrastructure. But when it comes down to it, it’s meeting that actual definition. It’s a public-private partnership where a private entity is the actual borrower, the actual JCE, so it wouldn’t qualify for the set-aside.
Qualifying for the actual set-aside is different and it’s difficult. Finding things that actually meet those criteria can be difficult.
Jennifer Hermansky (05:59)
That’s true. A number of times we’ve asked the agency actually if a partnership could work as an infrastructure project. And USCIS has not given any guidance as to whether that would be acceptable.
It’s not clear if a public-private partnership could work where maybe there’s some part of a project that is infrastructure-related and some part of the project is private. We don’t have any confirmation from USCIS that that would be acceptable.
The way that the law is written is—it says that the JCE has to be a governmental entity, not just a JCE. Maybe I’m splitting hairs and that’s the lawyer in me, but it seems like they wanted the project itself to be fully administered by some level of government agency. Also, that government agency is the one actually creating the jobs, acting as the job-creating entity for the deal, and also contracting with the NCE and the regional center to receive the funds.
I think it’s important for people to understand that this category seems—the way that it’s written in the law—to be limited to these sorts of governmental projects that are going to benefit the local community where the project is being done.
Peter Calabrese (07:36)
Yeah, and I don’t think that’s splitting hairs either. I mean, that’s just good advice. It’s not the sort of thing that you walk out, wait and see, and find out. For us, we’ve seen these sorts of deals presented, and we always—I mean, we need to go by the strictest definition of these sorts of things. If we’re going to contemplate something like this, we want to make sure that we are meeting all of the definitions that are being put forward.
Types of Qualifying Projects
Peter Calabrese (08:25)
Jen, we talk about the government—they need to be the borrower. Obviously, I think we’re pretty clear on that. And there needs to be a public benefit that comes along with it. What types of potential projects then could potentially meet this definition, or would generally seem to be considered good candidates, assuming those other criteria are being met?
Jennifer Hermansky (08:32)
Sure. The RIA says that this type of project has to be for maintaining, improving, or constructing a public works project.
There’s no definition in the law about what a public works project is for infrastructure purposes, but generally I think that means it’s something that will benefit the community and sort of put things into the community for everyone to use. Certainly making more green spaces, parks, things like that. Putting down things that we think are more traditional infrastructure—roads, highways, things like this. Setting up spaces that will then be used as beneficial places for the public. I think all of those sorts of things could count.
So redevelopment of areas of cities and taking something that was previously not used and then making that into a better use for people in that community where the project is going to be located—I think all of those types of things can qualify. It’s not just a highway or a bridge. It’s taking some space and then doing something to it to elevate it for better public use.
Peter Calabrese (10:00)
Yeah, no, which makes perfect sense. I mean, there are definite criteria that you’re looking at that are a little bit more defined or that you would need to be a little more careful on. But public benefit could have a wide-ranging stretch to it. I think if you do have—if you meet that main criteria of having that government entity, city, state, or local, being the actual JCE, being the actual administrator of the project itself—public use can be a little bit more malleable. There are plenty of things that could definitely meet that definition.
Comparing Set-Aside Categories
Peter Calabrese (10:29)
Because we jumped into this conversation talking about the infrastructure set-aside, I think generally most people do know the different set-aside categories that there are. But how does an infrastructure project then differ versus a high unemployment area project or a rural area project, which are a lot more prevalent in the market? Both are very popular, especially in the last year or so. Especially rural area projects have gained a lot of popularity. But what are some of the differences from an infrastructure project to those set-asides?
Jennifer Hermansky (11:11)
Sure. There are two main benefits, of course, to being an infrastructure project.
The first is that, like the other types of set-aside categories—the high unemployment and also the rural—these investors get the benefit of the $800,000 investment, not the $1,050,000 investment. So this is a favored type of investment under the RIA, and the minimum investment amount will be $800,000 U.S. dollars into this type of project. Obviously, that’s a major benefit.
The second benefit is that there are visa set-asides for this, like we discussed before, where there are a certain amount of visas available for rural and a certain amount of visas available for high unemployment types of projects. An infrastructure project also has a set-aside. The law explicitly says that 2% of the annual EB-5 visas available will be allocated to this type of project.
We have generally 10,000 EB-5 visas available each year. So 2% of that—or 200—are earmarked for infrastructure projects.
As we were talking about before, this seems like a lesser-used category. There really haven’t been that many infrastructure projects out there. It doesn’t look like many I-526E petitions have been filed in this category, unlike the other two set-aside categories where there are many thousands of those applications being filed.
So one real benefit for this type of project is visas being available and not many of these projects out there in the market to use up many years’ worth of this visa allotment to this category.
Visa Availability and Retrogression
Peter Calabrese (13:15)
Yeah, and I think that was perfectly said. I mean, it is a set-aside. It’s a very small one. Two percent is a limited part of the overall visa category. Now, like the other visas, visas that don’t get used in those set-asides for a year do roll over to the next year. So there is that, and that’s a benefit for all of those set-aside categories.
But it comes down to ultimately availability. Because it is difficult for groups to find projects that meet this set-aside standard, projects that come into it are looking at a situation where—ultimately there could be retrogression. There’s very likely going to be retrogression. That’s just a matter of the demand making its way through.
But yeah, to your point, I haven’t seen—I’ve seen very few projects in the market that meet that criteria or at least have been marketed as such. From a data standpoint—USCIS data can be somewhat limited—but from some of the data I have seen, I think from the last FOIA request I saw last year, there were no adjudications of infrastructure area projects. I don’t think there were actual receipt notes from them either.
So there are limited numbers that are available, but those should remain current for a longer period of time just from the lack of products that are going in. If there does end up being retrogression, if you’re investing at this point in the program, you’re likely at least being in some of the first rotations of people to go through. Definitely something to consider as people look at their ultimate benefits and their ultimate ability to get to the green cards that they’re looking for.
Jennifer Hermansky (15:07)
I think that’s right. There has not been a high demand at all for this type of project, and there’s just not that much of a supply of this type of project out there in the market for investors.
Investor Considerations
Peter Calabrese (15:20)
No, I agree. When you advise an individual client—because you advise both borrowers looking to raise capital and individuals—if you’re talking to an individual investor, would you give them any sort of different advice in terms of what to look for if they were looking at an infrastructure project compared to one of the other set-asides?
Jennifer Hermansky (15:43)
Sure. I would say that it’s important to look in the offering documents about how the project is structured. Understanding, number one, how is the EB-5 money flowing to the project? If it is a loan, is the borrower entity of the loan one of those government entities—a federal, state, or local government agency or authority? Those would qualify.
I also think it’s important to look at who is the job-creating entity. Looking at how the jobs are created and what entity is creating those jobs is important for the set-aside and the visa availability.
Peter Calabrese (16:25)
Awesome. Similarly, for us, when we contemplate deals, there are certain fundamentals that you have to have in place. There are certain underwriting standards that we stay true to.
When evaluating an infrastructure deal, obviously that very strict definition that we talked about before is paramount, because every one of these deals, we’re looking to make sure that we are able to achieve investors’ full immigration status and their repayment of funds.
The definition from high unemployment and rural—it’s a little bit more commonplace. We’ve just done dozens and dozens of all those types of deals. That part of it—it’s not simple, but at least establishing which set-aside it is is relatively simple compared to this.
But yeah, making sure that the job creation is more than sufficient—that there is enough job creation, that there is a buffer of job creation, and then just to make sure that there are strong underwriting standards for conservatively protecting capital. That there’s good collateral, that there’s good safety in terms of our investors’ priority in the capital stack, that there is a reasonable time frame and a reasonable exit strategy for it.
Because even though it’s an infrastructure project and it is a government entity that is going to ultimately be the JCE, it doesn’t mean it’s guaranteed. Your at-risk provision is still very much a part of an infrastructure EB-5 project. So making sure that while it can’t be guaranteed, good strong fundamentals are there to make sure for capital preservation and safety of the return of funds for investors is a big part of how we would contemplate a deal like this.
Final Thoughts
Jennifer Hermansky (18:11)
I think all of that sounds right. Assuming all of those things come together, it’s a good category to invest in. A lot of times when people think about EB-5, it’s going towards our communities—it’s foreign direct investment in the U.S., it’s job-creating, it’s elevating spaces to a better, more productive use for an entire community. It’s exactly what is intended by the EB-5 law, and it’s hitting all of those points.
It’s been little-used, as we keep talking about. So it seems that there are almost a full amount—if not the full amount—of visas still available per the government’s own statistics.
Peter Calabrese (19:00)
It’s a hidden little gem in the overall visa set-aside category. When done right, I think that there are definitely a lot of great potential outcomes for working through this set-aside.
Jennifer Hermansky (19:14)
Great.
Closing
Peter Calabrese (19:14)
Jen, unless you have anything else to add for people—I know you’re busy and we greatly appreciate your time. Thank you so much. I always appreciate your insights. This is really, really helpful for me. I think it’ll be helpful for the rest of the people who are listening to this. Have a great rest of your day. Thank you.
Jennifer Hermansky (19:33)
Thanks so much for having me.
