On Tuesday, August 25, 2015 NES Financial’s Reid Thomas and Charles Hutton of Wright Johnson presented at the Bisnow Dallas Capital Markets Boom seminar on the use of EB-5 capital for real estate development. Several attendees had questions about the impact of the EB-5 timeline on funding their projects — for many developers, waiting up to sixteen months for funds to be released could have serious consequences for the timely completion of their project.
With more than 275 attendees, the seminar was a great success. Real estate developers were eager to learn how to integrate EB-5 funding into their projects’ capital raises. As processing times for EB-5 have lengthened, the industry has evolved to find solutions to these challenges.
Traditionally, funds would be held in the subscription escrow — known as “Hold Until Approval” — until all investor I-526s were approved. But as the EB-5 industry grew, new escrow strategies — known as Early-Release — were developed. Early-Release escrows can be structured a number of ways, each offering a different level of security for the EB-5 investor, while also working to accommodate the developer’s timeline.
The most risky approaches allow funds to be released as soon as an investor’s initial EB-5 petition is filed. More conservative approaches release funds after a predetermined amount of capital has been raised, holding a portion in reserve to return funds to any investors whose I-526 petitions are denied.
To minimize risk to the investor while still expediting the release of funds into the project, the best approach to the Early-Release EB-5 escrow holds funds until a minimum number of I-526 petitions are approved.
Requiring I-526 approval for at least a portion of the project’s investors reduces the risk that the project itself is deemed ineligible after funds have already been released. Because investors may still be denied for individual reasons, it remains a best practice to retain a portion of the funds until all of a project’s I-526 petitions have been adjudicated.
Many of the questions asked during Bisnow were regarding EB-5 projects using escrow structures. These projects, with less risk for investors, tend to have higher funding rates and are more likely to meet their target raise. In turn, these higher capital amounts improve a project’s chances of development success, allowing them to meet job creation requirements and generate returns for their investors.
By coordinating EB-5 specific solutions with established banking partners who understand the complex nature of EB-5, NES Financial’s Intelligent EB-5 Escrow Solutions simplify a potentially challenging process and provide the utmost in security, transparency, and compliance.
What is EB-5? Find out more by downloading our EB-5 Collateral.