Known as an “investor visa”, the EB-5 was not so popular in Brazil before the crisis. In 2015, at the beginning of the crisis, only 34 Brazilians received the American green card through the program. Since then, the number has soared — today it is ten times higher.
Much of this is attributed by analysts to the “desperation” factor. As the EB-5 guarantees the permanent right to live in the United States to invest, spouse and children, many people sought the program as an easy and quick way to escape from Brazil.
“But there are some risks, often ignored by this group of desperation, which can imply in not obtaining a visa or in the loss of invested capital.
The EB-5 requires a minimum investment of US$500,000 in a new business, which must demonstrate the creation of at least 10 new job openings.
In the most common modality, the investor does not invest in his own business, but in some enterprise designated by regional centers distributed throughout the United States. In general, they are projects located in underprivileged regions of the country.
A series of precautions must be taken when choosing these centers. If the project goes bankrupt, there is a risk of not proving the creation of 10 job vacancies and not obtaining a green card. In addition, there are cases of people who obtain a visa but lose the money invested.
“The investor needs to identify the “strategic exit” foreseen for that investment, assesses economic consultant Carlo Barbieri, director of the Oxford Group, who has been working with the EB-5 for three decades. That is, if the project is able to walk on its own legs and return the amount invested at the end of the term.
“Another factor is proportionality. “In the unsuccessful projects that we followed, they generally stated that 90% of the financing would come from EB-5, which is a very strong insecurity factor”, assesses the consultant.
A company in the hotel sector, which builds for brands such as Hilton and Sheraton, Driftwood uses the EB-5 to raise money when building a new hotel. Driftwood’s investment director, Andre Salles, explains that the company first commits its own capital and bank financing to guarantee the work, and then replaces part of this amount with what is raised via Eb-5.
“For us, it is a cheaper way of raising funds than through equity or financing. And for investors, it’s interesting because they get their money back, a return, and also the green card”, says Sallers.
“The company works with two types of capture through EB-5. A more conservative one, in which the investor receives the money back at the end of five years, in addition to a return of 2% per year. And another, with greater risk, in which the investor becomes a partner in the business, only receives the money back when the hotel is sold (usually at the end of seven years), but with greater profitability, which can reach 8.5% per year.