Interest in rural EB-5 projects has expanded exponentially since the EB-5 Reform and Integrity Act created a rural Targeted Employment Area (TEA) set-aside category. For investors whose countries are retrogressed in the unreserved category, investing in a rural project offers a quicker path to a green card.

As with any EB-5 investment, rural investors have two main considerations – ensuring the project meets the requisite job creation requirements and receiving the return of their investment. Economic impact studies have proven that rural projects create jobs at a rate comparable to their urban counterparts. However, with rural projects being a recent phenomenon, there is not a significant sample size to indicate how successful rural projects will be at repaying EB-5 investors.

Projects typically repay their EB-5 loan through refinance or sale of the completed project. Refinancing an urban commercial real estate project is often considered easier than refinancing a rural project for several reasons:

  1. Market Demand: Urban areas typically have higher demand for commercial real estate due to population density, business activity, and accessibility. This demand makes urban properties more attractive to lenders.
  2. Property Value Stability: Properties in urban locations often experience more stable and increasing values, which can reduce lender risk. Rural properties may face more volatility in market value due to economic shifts or changes in local industries.
  3. Liquidity: Urban markets generally have a larger pool of potential buyers and investors, making it easier to refinance or sell a property if needed. Rural properties may have fewer interested parties, leading to lower liquidity.
  4. Access to Financing: Urban properties are more likely to attract a wider range of financing options and lenders, including institutional investors. In contrast, rural properties may rely on smaller, local lenders with more conservative underwriting standards.

While the refinance or sale of rural commercial real estate projects might be more difficult than their urban counterparts, it does not mean that rural projects will not be successful in repaying EB-5 investors. Along with traditional underwriting factors, potential investors may want to consider project size when selecting a rural project.

A rural project is more likely to seek refinancing from a regional bank, which often has less resources than larger national banks. In which case, bigger might not be better when it comes to rural EB-5 projects. 

A smaller or midsized EB-5 project might be more in line with a regional bank’s lending threshold and may provide a safer route for investors that prioritize repayment. Additionally, if a rural project is looking to sell in order to repay its investors there is often a smaller pool of buyers in the region that can afford to purchase a larger project. 

Related Posts