Many developers/sponsors look for private equity to plug gaps in their capital stacks. It is not uncommon to see private equity finance anywhere from 20-40% of a project’s cost. Depending on the type of project and the developer/sponsor’s experience, EB-5 financing may be a better alternative to traditional private equity, keeping in mind that EB-5 financing is private equity, albeit, non-traditional.
There seems, however, to be a belief that it is easier to obtain traditional private equity than EB-5 money. Generally, that may be correct if a developer/sponsor is not working with an experienced EB-5 group. Often, however, an experienced EB-5 group, through its network, is able to obtain capital relatively quickly, and in some cases, within the same period of time as traditional private equity. It is surprising how even the most experienced developers/sponsors believe that obtaining traditional equity takes significantly less time and effort. That may be true for the few developers/sponsors who have a go-to source. The problem is that (because of the common and widely-held misconceptions) many developers looking for private equity do not even attempt to pursue EB-5 financing.
There are those experienced developers/sponsors that either replace a significant part of, or all, traditional private equity with EB-5 financing. The main difference between EB-5 versus traditional private equity is the cost of funds. EB-5 investors are generally not yield investors, whereas, traditional private equity are all about the yield. EB-5 investors generally have two primary objectives, obtaining a green card, and the return of capital; otherwise, any return on capital would be advantageous. However, obtaining a green card is the main return on capital sought.
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