The revamped EB-5 program is attracting hundreds of millions of dollars in Miami real estate investment
By Doreen Hemlock
When AirBnB guests check into the new 15-floor Nexo Residences rising in North Miami Beach, they can thank investors from Colombia, Chile, Peru, and Argentina for helping create the comfort of their furnished apartments and the tower’s modern swimming pool, gym, and yoga studio. Developers behind the $300 million Nexo project are getting part of their funding through a U.S. program that lets foreign investors move to the United States. Dozens of Latin Americans are putting $800,000 each into Nexo so their families can qualify for “green cards” for permanent U.S. residency.
Credit the Employment-Based visa program called EB-5, created to spur U.S. employment in new projects. Popular through the 2000s, then out of favor and temporarily halted, EB-5 is making a comeback in South Florida under new U.S. legislation passed in 2022.
Developers see the EB-5 program as a less costly source of funds now that U.S. interest rates have spiked. New rules give foreign investors greater security that they’ll earn returns and will be able to get permission to live and work quickly in the U.S., pending “green card” approval. Plus, wealthy Latin Americans are keener on U.S. residency nowadays amid a political shift to the left in their homelands.
“The economic and political environment is ripe for EB-5,” says Argentina-born developer Edgardo Defortuna, who leads the Miami-based Fortune International Group, partnering on Nexo Residences. “The program has changed, so you don’t have to wait years to get a visa waiver to stay and work in the U.S., even before your status as a permanent resident comes in. You can get a waiver in 90 days,” says Defortuna. That timing is “critical” to draw investors who lend at rates cheaper than other sources, he says.
From restaurants to hotels and apartment buildings, the list of South Florida ventures using EB-5 is growing fast. Celebrated chef Michelle Bernstein recently raised $2 million from EB-5 investors in Peru and India for her Sra. Martinez restaurant set to open this year in Coral Gables. Mister O1 Extraordinary Pizza obtained more than $2 million in EB-5 funds to expand to Texas and the Orlando area. And Miami-based Tap 42 Craft Kitchen and Bar raised $14.5 million through EB-5 and is starting to pay back early funders, says attorney Bennett Blachar, a principal with two boutique firms in Miami – EB-5 Restaurants and EB-5 for Florida Regional Center – both active with investors worldwide.
“As interest rates rise, EB-5 financing looks progressively more viable for restauranteurs and developers. And new rules in place through 2027 make the program more attractive for investors,” says Blachar, who is also raising $21 million for a Fairmont Hotel in Hendersonville, North Carolina. “EB-5 is a far better product now.”
Perhaps the biggest South Florida project turning to EB-5 is the luxury Legacy Hotel and Residences, the $550 million-plus tower in the Miami World Center in Downtown Miami, says Ronald R. Fieldstone of law firm Saul Ewing, a specialist in EB-5 since 2009. Also using the program: hotels near Miami, Fort Lauderdale, and Palm Beach international airports.
“We find developers coming out of the woodwork for EB-5 now – not only for projects in the Miami area but also in New York, Texas, and California,” says Fieldstone. Many use EB-5 to finance up to 30 percent of their venture, complementing the foreign investment with loans from other sources.
HOW EB-5 WORKS AND A BIT OF HISTORY
Congress created the EB-5 program in the 1990s to encourage foreign investment in the United States to increase jobs. The initial rules allowed investors – as well as their spouses and unmarried children to qualify for “green cards” for permanent U.S. residence once they pumped at least $500,000 into a high-unemployment area or $1 million into other areas and created 10 full-time jobs in qualified projects.
The program was set to expire in 2015, but was tweaked and extended in spurts through June 30, 2021. However, several complications surfaced in recent years that eroded significant use. For one, so many Chinese citizens applied that the backlog to approve their “green cards” grew to exceed 15 years under the U.S. government’s visa quota system. EB-5 investment from China froze, since applicants could not stay and work in the U.S. while their paperwork was being processed.
Investors from outside China also shied away, uncertain whether EB-5 would be renewed and under what conditions. What’s more, some unscrupulous U.S. groups exploited EB-5 and did not follow up on projects or back foreign investors, eroding investor trust in the visa program.
New EB-5 legislation approved in March 2022 aims to address those concerns. The latest law is valid for until Sept. 30, 2027 and tightens regulations on U.S. developer groups to boost security for investors. Among other changes, says Fieldstone, it also lets Chinese citizens “jump the line” for approvals on new green card applications when they fund projects in long overlooked rural areas.
The new law also ups the financial ante. Foreigners must now invest at least $800,000 in high-unemployment or rural areas, or $1.05 million elsewhere, and create a minimum of 10 jobs in an approved project in order to qualify for a green card. In return, they can get permission to stay and work in the U.S. temporarily in as little as three months while they await approval of their “card.”
“EB-5 now should see a substantial expansion given pent-up demand, greater certainty, and developers facing higher interest rates from other sources of financing,” says Fieldstone.
WHY NEXO RESIDENCES TURNED TO EB-5
All that explains why Defortuna and his partners turned to EB-5 to help fund Nexo Residences. Fortuna says he never considered the program years back, perhaps erroneously perceiving EB-5 as a funding source only for developers unable to raise money elsewhere. But now, he says, long-time customers from Latin America have been reaching out to him about EB-5, looking for a way to move to the U.S.
Today, Nexo has a pipeline of 50-plus investors looking to plunk down $800,000 each in the project, most of them from South America, including Brazil. His group is working with law firm Greenberg Traurig on the paperwork, aiming to get up to 55 approved and raise perhaps $44 million for the residences.
“It’s an expensive and long process,” admits Defortuna. “The program is not for everybody. It’s worth it if the project makes financial sense both for investors and developers and if you have scalability.”
Defortuna estimates the interest rate on EB-5 financing these days at roughly three to four percent per year, versus six to seven percent for bank loans and at least eight to 10 percent for financing from equity groups. “So, other sources are two or three times the cost of EB-5 funding,” says Defortuna.
A CAUTIONARY TALE: HIGH ADMINISTRATIVE, EMOTIONAL COSTS
Still, the burden of EB-5 paperwork and the costs attendant to individual investors turn off some developers. Rodrigo Azpurua, president of Riviera Point Development Group, used EB-5 to finance about $60 million of some $150 million in six projects he completed in Florida in the 2010s: an office building and four hotels, including the Radisson Red by Miami International Airport. The investment came largely from Latin America, including Azpurua’s homeland of Venezuela.
“While big developers were fighting for the Chinese market [at that time], I created my niche in South America,” Azpurua says. “It was very useful when the capital markets dried up after the 2008 financial crisis.”
But these days, Azpurua is no longer looking to EB-5 for funds, partly because of the time required to support individual foreign investors through the process. “The EB-5 client demands a lot of attention because of the emotional load around starting a new life for their family,” says Azpurua. “Our company has grown to a level that I have other sources of capital that are more rational and less emotional.”
Azpurua warns small companies that the burden of EB-5 compliance can overwhelm an organization. His advice: “Don’t drive your decision to use EB-5 for the cost of the capital. Because maybe you don’t see it up front, but through the period of your business plan, the administrative costs and time will add up,” he says. “And be sure you follow the letter of the law to spend the money in the correct time frame to create the jobs as required for your client to obtain their permanent residency.”
Still, for larger ventures and developers with lots of overseas customers, EB-5 may be just the option. Defortuna takes pride in having helped Latin Americans invest in South Florida real estate for more than 30 years. His group, now employing more than 1,000 people, developed the luxury Jade towers in Greater Miami, the Ritz-Carlton Residences in Sunny Isles and Pompano Beach, and is launching the St. Regis Residences in Sunny Isles, with many of those condo units purchased by Latin American buyers.
At Nexo, he’s partnering with Blue Road in a less-developed neighborhood that will allow short-term apartment rentals through platforms like AirBnB. Sales of the 254-units at the 13899 Biscayne Boulevard tower start at $500,000 each. Separate from EB-5, he sees many Latin Americans buying the Nexo units as second homes, with the option of renting them out short-term. Says Defortuna: “That combination is a perfect solution for them and for us.”
