Colin Behring of Behring Companies is widely known as the EB-5 developer who took on the U.S. government — twice — and won.
Behring said his Danville-based company launched lawsuits after the U.S. Citizenship and Immigration Services and Department of Homeland Security decided “randomly” to curtail the program, created in 1990, which allows foreign investors to get a green card if they invest a minimum of $800,000 towards a project that creates at least 10 full time jobs.
It was “a little nerve racking for our investor base and the entire EB-5 industry as a whole” as those cases navigated their way through the legal system, he said. But after the settlement it was clear that “EB-5 was back,” and as the plaintiff in the case, Behring was in a great position to capitalize on its newfound prominence.
“A lot of new investors that saw the program open again knew exactly who we were, because we were the reason the doors were open again,” the East Bay developer said. “Our program and our platform probably grew nearly 300 percent after that.”
Behring’s latest EB-5 project is 1900 Broadway in Uptown Oakland, a 39-story tower right above the 19th Street BART Station that recently began leasing.
In a conversation with TRD, Behring explains why he takes a long-term view on the Oakland market, why it’s perfect for remote workers and where EB-5 is heading in the future.
How is leasing going at 1900 Broadway? And how does demand compare to what you expected when you first started the project?
We’re about 25 percent full on 452 units after six weeks of effort, and rents are 15 to 20 percent off what we expected when we first started planning the project.
We originally got in and really started looking at this site in 2017, and the world was totally different. The surge of tech in San Francisco was spilling over to Oakland and the Oakland office market had the fastest growing rents in the world. Singapore, Tokyo, London, Hong Kong didn’t matter — Oakland was number one.
The world has changed since COVID, that’s easy to identify. However, we were the tail end of the cycle when we started construction at the end of 2019 and everything after us was effectively put on hold. There is nothing new coming. What you have is what you get, and once that’s filled up, supply and demand will push rents higher.
When you have certain products that are quick to build, quick to just prop up and quick to deploy, you can be a little more focused on trying to time the market. But we have a 39-story tower, near transit and BART stations and the timing of that investment is really thought of as generational. You are at a First and Main quality location. You have all the infrastructure you’ll ever want in perpetuity. The value of that building is going to accelerate over time. We would like to hang onto it forever. That doesn’t mean that we would ignore making intelligent financial decisions if someone tried to buy it from us, but we’ll face that problem when we get to it.
I think the whole market is actually going to see rent increases soon across the board. We are not building enough housing and there’s still economic growth.
When do you think we’ll see rent growth?
2025. I think that’s where you start seeing headlines about the supply crisis.
How much of the capital stack on this building was from EB-5 funding?
We have a mezzanine debt piece that’s limited to about 20 percent of the capital stack. Then above the 20 is all equity, and then we have a senior loan at 50 percent from Bank OZK.
We have 14 new properties in our portfolio and in our pipeline doing all kinds of different EB-5 financing. But it’s all focused on multifamily urban East Bay in Berkeley, Emeryville and Oakland. We opened it last August, and we’re about almost 30 percent full, which is pretty good because it’s a $128 million capital raise.
We never launch an EB-5 project that doesn’t have the ability to stand on its own. EB-5 helps you do it faster and definitely makes the equation a lot easier for other investors.
As traditional lending has become more difficult, has interest grown in EB-5?
Yes. The time that EB-5 became a household name was after the great financial crisis. All the financing doors were pretty much shut. EB-5 filled in a very needed source of financing and you’re seeing that again. We’re seeing a major uptick in inquiry about the program.
However, I wouldn’t say there’s actually a lot more projects that are initiating EB-5 financing or sourcing. But there’s definitely a massive amount of inquiry, and people wanting to learn about it because the EB-5 world has grown tremendously and matured. The barriers to entry have gone up significantly since the 2010-2011 post-financial crisis when it was very much the Wild West, where anybody could just show up and try to do EB-5.
Now, it’s hard to want to try somebody new when you have a group that has a track record like ours, and a whole portfolio of options to choose from on deals that are already fully baked, under construction, creating jobs.
How did you get into EB-5?
I was living in China in 2010 and a lot of family, friends, people, partners, were coming to us with EB-5 options, asking me, “Which one do I choose?” We would look at it, and from an investment standpoint none of them were even remotely institutional quality. So after enough of those projects not being able to help anybody, and enough people asking us, “Can we just invest in your stuff in the U.S. and can you make it eligible for EB-5?” Eventually we ended up creating the regional center [to promote the program]. And then, 10 years later, here we are.
But we were already developers. We were exactly who you would want us to be. A lot of the individuals that were running these other regional centers, if you look at the principals, the founders and a lot of the staff, they’re people that are closer to the investor than they are a project. It’s an individual that happens to be from a certain country where they’re an immigration attorney, or an accountant, or a consultant of some sort that has access to the money. They put themselves in between projects and investors and that’s how they add value.
What countries are most interested in EB-5?
China, India, Vietnam, and even Brazil used to be the big four or five countries. Today, you’re seeing a good split between India, China, Korea and then a whole plethora of other countries with a very small representation.
There are also international students that find us locally. They’re down the street at Stanford, Berkeley, UCSF. Then there’s the H-1B world, whether they happen to work for Google, Apple, Facebook and the like or they work for small startups. So we have people from all over.
Can a typical engineer at one of those tech companies come up with $800,000?
There are different ways to actually start the program with less than $800,000. You can invest in stages and our company has an affiliate that lends money for EB-5 investment if they need it.
$800,000 is a lot of money for anybody. So, having access to installments and loan options lowers that ticket price and still allows them to participate in the program.
It’s not an easy program because of that $800,000 mark, but that’s really the level of financing that you need in order to have an impact economically. The program doesn’t work for everyone, but there’s a good amount of the population that does figure out ways to get to it.
How much of a cost savings is it to go through EB-5 rather than a traditional lender?
It changes, but I would probably say it’s a 50 percent discount to other mezzanine debt sources that you can find.
It’s a popular choice for mezzanine debt because you’re not really going to be cost competitive against a senior loan, and that was especially true before 2022, when interest rates were low. If you could get a senior construction loan that was up to 5 percent, there’s no way you’re able to compete because the cost of running the program is just too expensive.
When you’re looking at it today, where WSJ Prime is 8.5, then all of a sudden, EB-5 could be competitive against a senior loan. But senior loans are also easy to get, if you’re qualified and have a good project. It takes two to three months of negotiation, and you have access to 50 to 60 percent of your capital stack. With EB-5, you’re not sure when or if you’re able to raise all the capital. So, locking in a senior lender to solve for the initial 50 to 60 of your capital stack is an easy, conservative and smart decision.
Wait – did you say it’s easy to get debt on multifamily construction?
Well, it’s relative. You can get senior debt. Was it the senior debt that you wanted? That’s different. Is it a 30 percent loan and the rates are too high? You could get it. You just didn’t want it.
When somebody says it’s really hard to get debt, it’s really hard to get the debt they want.
Where do you see EB-5 funding going in the future?
The program is up and roaring and had a couple of good fixes from the new policy that was passed in 2022. The future of the EB-5 program, and its ability to contribute job creation and capital for future deals, is going to accelerate tremendously because of the next round of legislative policy that comes after 2027.
Before 2022, there was always talk of EB-5, and the things that were wrong with it. People made assumptions like, “Oh, there’s too much fraud,” or the program wasn’t creating the jobs we said it was. But in the end, all of that stuff ended up being false.
There was a government office of accountability report that came out that said less than 1 percent of any EB-5 petition was involved in any kind of fraud or problem. That’s a better transaction record than almost every other securities or finance-related industry. Job creation wise, we’ve created over 140,000 full-time jobs as an industry at a faster pace than almost any other federal government economic program in history.
So now the discussion on what’s wrong has disappeared.
When Congress looks at this program again in 2027, they’re most likely going to want to just let it run and accelerate, and just let it proliferate rather than try to kill it. So hopefully, there’s policy that supports a lot more EB-5 investment and capital and job creation rather than hindering it.