Florida ranked fourth among states in 2013 for direct investment from the EB-5 immigrant visa program with $150.5 million, up from eighth in 2012, according to a new annual report released in May from Invest In The USA (IIUSA), a trade association for certified EB-5 advisors around the country.
While Greater Orlando still accounts for a fraction of the investment major metro areas like New York, Los Angeles and Miami have drawn, local business owners and developers are more actively pursuing inclusion in the EB-5 program, according to the latest 2013 data.
"EB-5 is not a place for amateurs, so if a (business owner or project developer) doesn't already have access to foreign investors or an agent who can introduce them, they should stay away from this program," said Marty Cummins Jr., president of Florida EB-5 Investments, one of 28 firms in the state certified to raise EB-5 funds for public and private development projects.
"But Orlando is definitely a growth market for this financing method, especially for projects and businesses tied to tourism," he added.
EB-5 is a federal program that allots about 10,000 permanent-residency visas annually to foreign investors and their immediate families, if they invest at least $500,000 in a U.S. enterprise that creates at least 10 permanent, full-time jobs.
For the developer, EB-5 loans offer a fixed rate for five years, with an interest rate on multimillion dollar loans ranging from 2 percent to 6.5 percent, attractive when compared to a commercial real estate mezzanine loan that often carries interest rates of 12 percent or more.
Local developer Intram Investments, parent company of Twistee Treat USA, has sourced about $6 million from EB-5 investors in recent years, and used the source to completely fund six new units last year alone, said president Corey Balzer.
Because a new Twistee Treat location costs roughly $500,000 to open, it's a perfect fit for one foreign investor. "Interest rates are low and there's no equity stake involved," Balzer said.
The challenge is getting verified by the U.S. Citizenship and Immigration Services (USCIS) as an approved business, a process currently taking at least 13 months, according to Cummins.
"Now that we're an approved EB-5 company, it moves much faster," said Balzer of Twistee Treat's parent company. "Our owner is in China right now trying to expand our EB-5 plans for a much bigger project. This wasn't even on our radar screen three years ago."
Florida trailed only California, New York and Texas in terms of EB-5 direct investment in 2013. The state ranked third in the U.S. for jobs supported by EB-5 investment (2,755), and fifth in contribution to GDP with $176.9 million.
IIUSA also breaks down EB-5 investment locally by congressional district. For 2013, Florida's 21st, 22nd and 23rd congressional districts -- all from the Greater Miami area -- ranked in the nation's top 25 for EB-5 direct investment. Together they totaled $136.2 million in direct investment.
The 7th and 10th congressional districts that cover parts of Metro Orlando ranked 98th and 77th, respectively, out of the country's top 100.
Nationwide, participants in the EB-5 program invested approximately $1.998 billion through EB-5 regional centers in 2013.
Nearly 75 percent of EB-5 investment capital – $1.47 billion – was invested in the construction of new commercial structures, per IIUSA. Other sectors that drew 2013 EB-5 investments included the motion picture and video industry ($94 million), construction of new healthcare structures ($93 million) and construction of new multi-family residential structures ($77 million).
Wallack Holdings will try to raise $175 million this year for its Skyplex entertainment complex on International Drive from Chinese investors through the EB-5 loan program, to cover part of the project's $460 million budget, the developer's EB-5 advisor told GrowthSpotter.
Xero Gravity Action Sports, developer of an extreme sports-themed resort on 75 acres in Osceola County, has a project budget of $309 million. CEO Larry Walshaw told GrowthSpotter in mid-May that the private equity portion of the ownership's capital stack will be around $62 million. The remainder will come from individual investments by the partners, mezzanine funding, construction debt and foreign-sourced EB-5 loans.
Developer David Townsend told The Orlando Sentinel in mid-May he'll pursue EB-5 loans for City Center West Orange, a $150-million community of shops, hotels and condos planned for 60 acres of lakeside property facing West Colonial Drive in Ocoee.
EB-5 investor funding represents one source of financing typically found in the capital stack of a development project. Other sources will include traditional construction loans, developer equity, tax credits and other sources of domestic investment.
But as traditional sources of funding remain more difficult to secure following the 2008 financial crisis, EB-5 has become a more important source of construction funding, in part because it's considered flexible and can take the form of equity or debt to fill gaps in the development finance package, per IIUSA.
It's tough to measure the average percentage that EB-5 loans account for in EB-5 capital stacks because readily available data is lacking on EB-5 project costs. But by surveying the portfolios of EB-5 agents around the country known as regional centers (like Cummins' Florida EB-5 Investments), IIUSA estimates that EB-5 funding accounted in 2013 for 34.5 percent of total project costs.