Gorman & Company renovated the Brewhouse Inn & Suites in 
Milwaukee using $15 million from Chinese investors through the EB-5 
Gorman & Company renovated the Brewhouse Inn & Suites in Milwaukee using $15 million from Chinese investors through the EB-5 program.

Gary Gorman’s decision to hire a Chinese law student as an intern about six years ago is still paying off for him today.

Gorman, president of Oregon, Wis.–based developer Gorman & Co., was asked to speak in Madison, Wis. to a group of investors from Shanghai and the student was working as a translator.

Years later, Gorman still maintains his relationship with the student as he works in China to help the company secure millions of investment dollars for development deals.

“You have to have a partner on the ground in the target country where you’re trying to raise money,” Gorman says.

While he's been able to raise traditional cross-border investments, Gorman is also using a specialized program to help spark economic growth on American soil. The Immigrant Investor Program, also known as EB-5, is one option Gorman’s team has tapped into.

One of the earliest projects the company completed through the program was construction on an extended stay hotel, Gorman says. The 90-room hotel, located in downtown Milwaukee, utilized $15 million from Chinese investors through the EB-5 program.

Foreign investors, particularly from China, have become increasingly interested in the multifamily market.

Last year, Chinese investors pumped more than $68.7 million into American multifamily projects, according to data provided by the New York-based research firm, Real Capital Analytics. However, U.S. officials don’t keep a centralized list of how much EB-5 money goes into the multifamily sector in particular, a U.S. Citizenship and Immigration Services spokesperson says.

Gorman’s company recently closed on a multifamily deal in Milwaukee with $6 million from a Chinese investor. The project, which will include about 100 luxury units, was not an EB-5 investment. However, it’ll serve as a model for building relationships with foreign investors that could lead to more projects.

Ricardo Rivas, vice president of Houston-based Allied Realty, says his team is working on closing their first EB-5 deal for a midrise multifamily project in Houston.

The option to get the deal done with less debt was appealing to the Allied team, Rivas says. “It’s an option because the required rate of return for (the EB-5 investor) is not as high as an institutional investor,” he says. “You reduce your debt-to-equity ratio.”

Gorman says one of the more appealing parts of doing an EB-5 deal is because the interested investors offer low-cost money with flexible underwriting.

“It’s capital that’s available and that is willing to go into challenged neighborhoods,” Gorman says. “And it’s low-cost capital.”

Clearing the Hurdles
However, there are caveats to closing deals under the program.

An EB-5 project must satisfy criteria as outlined by U.S. Citizenship and Immigration Services. All projects being built with EB-5 investors must create or preserve 10 full-time jobs. Also, the jobs must be permanent, so the construction period work doesn’t count

Gorman says the key to making EB-5 deals work with multifamily developers may be found in mixed-use development plans.

“We’re modeling out multifamily projects that would have a mix of apartments and probable food and beverage establishments because that would meet the job creation (requirement),” he says.

Gorman believes the EB-5 program can gain steam as a viable investment option for new developments. However, after 11 trips to China, Gorman certainly recognizes the potential downside to working with the EB-5 program.

“It’s not a simple and quick process,” he says.

Gorman’s team began working on the EB-5 hotel project as they searched for alternative ways to close deals during the economic downturn.

“When you can borrow money from U.S. banks at below 4 percent, then it’s a real close call whether it’s worth it,” Gorman says. “But during the recession, when the banks were essentially out of business (for projects like these) we really needed to pursue alternative options.”

Rivas agrees that the program can help fill in the gaps where local investors may not want to play. The program was established by Congress in 1990 to help stimulate local economic growth.

“It makes some deals happen that otherwise would be hard to happen,” Rivas says. “It’s a win-win for everybody. They invest and they get a return on their money, which is a decent return and then in addition to that, they get their eligibility to be in the U.S. legally.”.

The minimum investment is $1 million, according to a federal website. However, if the investment is being made in an area the government deems as a “targeted employment area," the minimum can be $500,000. Those areas include rural areas or places with an unemployment rate of at least 150 percent of the national average.

“It’s intended also to spark growth in areas that aren’t necessarily attractive for these types of projects,” Rivas says.

Lindsay Machak is an Associate Editor for Multifamily Executive. Connect with her on Twitter @LMachak.