How the Interests of EB-5 Investors and CMBS Lenders Can Sometimes Be at Odds

Situations where a property changes hands or defaults may prove tricky for situations where an EB-5 project is financed by a CMBS lender.

A notable characteristic of the real estate capital markets over the last 20 years has been the ability to access non-traditional sources of capital for both debt and equity investment in U.S. commercial real estate. One such source is the EB-5 investment/visa program. Created by Congress in 1990, the EB-5 program creates a fast track for non-U.S. citizens toward a green card in return for capital investment in qualifying U.S. domestic businesses and projects. The EB-5 program has garnered its share of controversy for possible abuses, but can also lower the cost of equity capital for a developer.

An often overlooked issue is the interplay of EB-5 financing with the requirements of a CMBS lender, where the developer, EB-5 investor and CMBS lender have objectives that are in conflict, at least initially. In particular, the EB-5 investor may seek decision-making and investment accrual rights not acceptable to CMBS lenders.

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