Following a recent trip to China, executives from Kuafu Properties have started bringing in foreign financing through the EB-5 visa program for their $340 million East 86th Street mixed-use development, the developers told Commercial Observer.
Kuafu and two outside partners have thus far taken in $1.5 million from three investors through the federal program, which allows foreigners to invest in new United States businesses that create jobs in exchange for a path to U.S. citizenship. The objective is to bring in $49.5 million from 99 investors paying $500,000 a piece toward the $340 million project, according to Christopher Sameth, the head of acquisitions for Kuafu Properties.
Kuafu, Ceruzzi Properties and Stillman Development International are bringing a new 210-foot, 21-story HOK-designed mixed-use development to 147 East 86th Street, as CO previously reported. The site, located at the corner of East 86th Street and Lexington Avenue, will have a 27,000-square-foot retail component and 150,000 square feet of residences and residential amenities, Mr. Ceruzzi said.
The project is being financed through one-third equity and two-thirds traditional debt financing, Mr. Samereth said. The developers will get “a traditional construction loan to develop the project, and then a conventional loan at moderate leverage to round out the development.” While the team is “starting that process,” it’s in the early stages.
“Given timing variability with raising EB-5 funds, we believe it is most prudent to plan for a development project using EB-5 funding as a substitute to the higher cost of capital already within a project capitalization,” Mr. Sameth said. “For this reason, raising funds is not a requirement for our 86th Street project to move forward in a timely manner, we view it as an accretive component to the overall project.”
Lou Ceruzzi of Ceruzzi Properties, a partner in the deal, added: “This is simply a debt investment without a very high rate of interest.”
On Dec. 23, 2013, the developers secured a $33.1 million 99-year ground-lease at 147 East 86th Street from the heirs of Sol Goldman, property records indicate. The trio then bought 151 East 86th Street from Town Sports International Holdings, the owner and operator of gym chain New York Sports Clubs, for $85.5 million on Sept. 12, 2014.
The minimum qualifying investment in the U.S. through the EB-5 program is $1 million, according to the United States Citizenship and Immigration Services website. In a high unemployment or rural area, called a targeted employment area (TEA), that amount is $500,000. The East 86th Street project falls within a TEA.
According to a May 7 letter from the New York State Department of Economic Development, the New York State Department of Labor determined that the area where the building is “meets the minimum threshold of unemployment to qualify as a Targeted Employment Area.”
Daniel Dwyer, a partner of the real estate department at Dai & Associates and counsel for the project, explained that the building qualified for a TEA because when you look at a larger economic zone, the project will add jobs to the area.
Kuafu is involved in the entire East 86th Street project with particular responsibility for the EB-5 money; Stillman is leading the residential efforts and Ceruzzi is involved in the overall financing of the project and the retail component, Mr. Ceruzzi said.
Development is on schedule, with construction beginning in March.
“The whole project is absolutely on track, nothing is delayed and everything is going according to the budget and timeline,” Shang Dai, the chief executive officer and co-founder of Kuafu, told CO in July.
Additional reporting provided by Danielle Balbi.