Chinese, EB-5 and American Builders

choi

Eliot Brown, Funding US Builders: Visa Seekers. Wall Street Journal, Dec 10, 2014.
www.msn.com/en-us/money/realesta ... -seekers/ar-BBgyx6B

Quote:

(a) "The giant trucks pumping concrete in Hudson Yards, New York’s biggest real-estate project in a generation, are being financed by an unlikely source: about 1,200 Chinese families in search of US visas.

"Developer Related Cos. says it has raised roughly $600 million from the families to build the foundation for three skyscrapers at the West Side project, a 17-million-square-foot colossus of office, retail and residential space set to open over the next decade.

"To finance the concrete-steel platform, Related tapped a little-known and at times controversial federal visa program known as EB-5, which offers green cards to foreign families who invest at least $500,000 in U.S. projects that create at least 10 jobs per investor.

(b) “More than four-fifths of applicants typically win approval and become eligible for a temporary visa, the data show

(c) "Developers are embracing the program [EB-5] largely because it provides low-cost capital. Money borrowed through the EB-5 program carries much lower interest rates, sometimes half of what companies typically pay, executives said. That is because investors are primarily seeking green cards, not a profit, and generally are willing to accept low returns, EB-5 advisers said. * * * Durst lawyer Gary Rosenberg said the EB-5 loans generally carried an annual interest rate of 5% to 8% paid by the developer to the investors. Such loans are considered mezzanine, a riskier form of debt; traditional mezzanine financing would have had an interest rate seven or eight percentage points higher, he said.

Note:
(a) The report appears in today's WSJ, carrying a photo, a bar chart (since 2006; showing EB-5 applications have skyrocketed in recent years), and an illustration. For the last, see

Eliot Brown, Need Financing to Build US Property? Try Chinese Visa Seekers. China Real Time, Dec 10, 2014.
blogs.wsj.com/chinarealtime/2014/12/10/need-financing-to-build-u-s-property-try-chinese-visa-seekers/
(b) $600 million from 1,200 Chinese families. That works out half a million dollars for a family.

(c) Regarding "mezzanine."
(i) The word ordinarily is used in architecture.

mezzanine (n; French, via Italian from Latin (adjective masculine] medianus middle, median [also 'central,' acording to wiktionary])
www.merriam-webster.com/dictionary/mezzanine
(ii) What is it in financing?

Mezzanine Financing. Investopedia, undated.
www.investopedia.com/terms/m/mezzaninefinancing.asp
(iii) But why is it called mezzanine in financial terms?

Mezzanine Debt. Divestopedia, undated
www.divestopedia.com/definition/785/mezzanine-debt
("Mezzanine debt is the middle layer of capital that falls between secured senior debt and equity. This type of capital is usually not secured by assets, and is lent strictly based on a company's ability to repay the debt from free cash flow. It is usually a great way for growing businesses to bridge the gap between what conventional banks will lend against assets, and the total value of a new project or acquisition. A company owner should consider mezzanine debt instead of equity [stocks, owned by a shareholder] when the business is producing stable free cash flow, since this allows him/her to obtain financing without issuing equity and diluting the ownership of the business")
(c) Corry Silbernagel and Davis Vaitkunas, Mezzanine Finance. Bond Capital, Aug 7, 2011
pages.stern.nyu.edu/~igiddy/articles/Mezzanine_Finance_Explained.pdf
("Mezzanine debt has been around for over 30 years")

choi

Eliot Brown, Towers Rise on EB-5 Funds; Developers turn to visa programs to help finance buildings. Wall Street Journal, May 28, 2013.
www.wsj.com/articles/SB10001424127887324125504578509382446057460

Quote:

"Durst, like many other developers, has turned to it because of its difficulty in finding other forms of construction financing.

"The EB-5 program—so named because it is the fifth category of employment-related immigration visas

"Of course, the program has risks, particularly for investors. Should a project stall or otherwise fail to create the needed jobs, investors lose their money and a shot at a green card.

"The EB-5 program was started in the 1990s, but it only took off during the downturn, when banks and other lenders pulled back on making loans to construction projects.

"With the growing demand, it has morphed from being used largely by developers of small and mid-size hotel and mixed-use projects to builders of prominent towers.

"Durst is working with a Florida-based private company, US Immigration Fund LLC, to raise the EB-5 financing. The company typically finds investors in China, Mr Rosenberg says. * * * A brochure from the US Immigration Fund says Durst projects rents will be as high as $8,300 a month for a two-bedroom.

My comment: There is no need to read the rest of this report.