Raising EB5 Capital from a Developer’s Perspective with Robert (Bob) Friedman – Episode 8
An important part of the EB5 program is to raise money for projects that create jobs.
How does EB5 capital look from a developer’s perspective?
Join us for a discussion with Robert (Bob) Friedman on how it has worked, and continues to work for him.
Raising the financial capital for an EB-5 project can be a complicated process. Because of the relative security real estate development and related projects continue to be the most popular EB-5 investments; the physicality of a brick and mortar project lets investors see that their investment is moving forward as proposed in the marketing material and early meetings with investors. Unfortunately, the real estate industry is at the “risk of cycles” – projects are started in one market and sold in another. Though frustrating for any investor this can be particularly problematic for EB-5 investors; while investors will still get their green card, they may have to wait before they get the return on their investment. Investors have options beyond real estate though. Some projects offer more flexibility than others and all need to be evaluated individually to ensure that the investor is comfortable before moving forward.
Host Mona Shah and co-host Mark Deal talk to Robert Friedman of Penmark Reality, a third generation New York City real estate firm, who has extensive experience working with EB-5 projects. They will discuss not only real estate projects but other options as well, some of which may prove to be more financially flexible and lucrative than more common real estate and new construction projects.
The Friedman family has been involved in owning and developing property throughout the city since the 1930s. Developer Robert Friedman and his brother were among the first developers in New York City to see the potential of EB-5 projects and the development programs.
Mona and Bob discuss the EB-5 Project –Time Square Hotel at 400 W 42nd Street. Construction for the project (nearly 40-stories high and over 215,000 sq. ft.) is nearly complete and the hotel is on track to open in the first quarter of 2017.
The project did experience a delay as a result of an enhancement to the project. In order to expand the buildings footprint an adjacent building was purchased. While the legal formalities involved in the purchase created a delay, it ultimately created a better project.
955 of EB-5 project are in real estate because they are generally viewed as being the most stable. While many investors are drawn to the tangible “brick and mortar” aspects of real estate, the projects are not created equally.
There are cycles in the economy, especially in the real estate world; developments are involved in normal risk cycles because of the amount of time it can take to complete a project. It’s normal for an investor to invest in one type of market and sell in another. Because of market volatility, an investor who get the timing right is a genius.
Mona reiterates that there are “no crystal balls” and no guarantees in the real estate market. Good management and good developers are essential to the success of a project. While working with someone who is a first time developers doesn’t mean a project will fail, they do not have the knowledge an experienced developer has.
In order to survive slow markets:
• it is necessary to have the capital to cover costs and finance the project
• patience to wait for the market to improve
• to creatively approach alternative financing to bridge the gap to when the market improves
many investors feel that EB-5 investments and development have a five year cycle. While real estate has the potential to keep the investment safe, there is no guarantee that an investor will back their money back in a set time period – a downturn would mean having to wait until the market improves.
Non-real estate EB-5 project are discussed
Bob discussed his Skyplex rollercoaster project in Orlando, Florida. At 600 ft. the Skyplex will be the world’s tallest roller coaster. Orlando experience 62 million visitors – for business and leisure – annually and the project is taking full advantage of the huger number of visitors. The Skyplex is an excellent example of an EB-5 project because of the number of both direct and indirect jobs it creates.
Mona asked Bob if the rollercoaster is a good project in financial terms – will the investors get their money back in the same way they would if it was a real estate project? Even during recessions, when the real estate market slows down, the leisure industry still performs well; there is less risk involved than other projects.
What type of return can an investor in the leisure industry expect to see? Bob explains how important it is for an investor to examine the likelihood of success. Bob explains that the traffic study for Skyplex predicts 4.4 million annual visitors (making it the third most popular attraction, after Disney and Orlando). The Skyplex business plan and financials were based on 2 million annual visits and the projections are incredible.
It is important to remember that the exit strategy will be different for an investor in this type of project; monetizing an experience, like an amusement park or roller coaster, is different than real estate or other physical holding.
Bob explains how long-term, stable ownership are part of the attraction to EB-5s.
This is achievable through flexibility in projects and financing. This takes pressure off of the banks, and the economy in general, to complete projects. In turn, this flexibility enables banks to get a steady, predictable return because they have security and a higher likelihood of getting repaid because they aren’t necessarily leading the entire amount of the loan.
Bob discusses his feelings on the possible increase in the minimum EB-5 investment (from $500,000 to $800,000). He doesn’t necessarily see it as a problem – an investor will not see it as an impediment if they are interested in a project and has the capital.