As a national lender that has – seen it all – one of the first questions that we ask a potential borrower (for an income producing project) is: “help us understand why you believe that there is strong and sustainable local demand for your project.”
If the developer is convinced (and we like industry and national trends) then we may commission a third party market study with them. If the study proves that demand does exist, we move to the next step. Bottom line, we will not evaluate a loan or investment opportunity unless we are convinced of the need or strong demand for a project. How do we get convinced? Most often with a Market Study.
What is a Market Study? It is a study prepared by professionals who can astutely assess how all the competitors are doing in the local area. For example, it we were to finance an Assisted Living Facility or an Apartment complex, we would need to see the occupancy rates for the competing properties above 93%. That occupancy rate may enable our new project to succeed without eroding prices or occupancy rates. An occupancy rate below 93% get’s an automatic “no interest” from us. Why? because the market is too soft.
All EB-5 projects can (and should) provide similar market ratio or demand rating. Those ratings determine the initial “go” or “no go” for a lender. Therefore, every EB-5 investor should make a similar market demand assessment. If the local market demand is not VERY strong NOW, walk away from the project… fast.
This is #1 in a series of information on whether an investment in an EB-5 project is: safe, secure and predictable.