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EB-5 Investments in Distressed Properties

While the typical EB-5 real estate project involves the construction of new commercial property, distressed properties can also be purchased as part of an EB-5 project. Such properties can be enticing due to low acquisition costs (as low as 25% of former value) and substantial profits through rental income and resale.

Whether investing in new construction or an existing property, however, the primary requirement of the EB-5 program remains job creation. So, as long as a distressed property can be used in such a way that the necessary number of jobs are created, such an investment is feasible.

Selecting the Right EB-5 Investment Property

For every EB-5 investor involved in a project, 10 permanent, full-time U.S. jobs must be created, and so the best properties will be vacant since they have the highest potential for creating jobs where none exist.

Properties with tenants may work for an EB-5 investment if the property has enough vacant space to accommodate the necessary job creation. Also, an investor may be able to count existing jobs if the investment is in a troubled business and prevents jobs from being lost—but proving such circumstances to the United States Citizenship and Immigration Services (USCIS) is difficult.

In general, vacant industrial, office, and retail spaces selling at one third to one quarter their previously assessed values make the best candidates.

EB-5 Investments in Targeted Employment Areas (TEAs)

While the property itself is important, the location of the property is also important. This EB-5 investment model is most commonly implemented in a targeted employment area (TEA), which means the area is either rural or is experiencing higher-than-average unemployment rates. The reason for this is that the minimum investment amount for an EB-5 investment in a TEA area is only $900,000 per investor, compared with $1.8 million for EB-5 investments in non-TEA areas.

Creating a Suitable EB-5 Business Plan

Aside from gaining permanent resident status for each EB-5 investor involved, the basic goal of this type of EB-5 investment is to purchase inexpensive property, draw in new tenants, and then make substantial profits through rent collection and resale within five years.

Unlike the construction projects more typical of the EB-5 program, a project that involves the purchase of a distressed property poses certain challenges for creating a business plan since the property is being paid for, at least in part, by EB-5 capital. This is problematic because the capital necessary for purchasing the distressed property is unavailable until the business plan is approved by the USCIS, but the business plan and support documentation (e.g., economic report) must be specific to the property.

The solution is to submit a sample real project to the USCIS that fits the kind of distressed properties being considered. Once approved, EB-5 financing will be available, and any changes to the business plan based on the specific property being purchased can be incorporated (after the project has been completed) into the investor’s I-829 filing to prove that the 10 required jobs were actually created. The key here is that the USCIS recognizes that project details can change during the development/implementation phase, and so as long as the required 10 jobs per investor have been met at the I-829 stage, the investor’s I-829 petition will be approved.