What Makes a Strong Rural EB-5 Project?

To many investors, rural projects are a bit of an enigma. But they don’t have to be.

The key points that make a good rural EB-5 project are the same points that make a

good high-unemployment Targeted Employment Area (HU TEA) project… or just a good project in general:

1. Is there bridge funding? In other words, can the project be completed if not all the EB-5

capital is raised?  Is there a completion guarantee, and does the person or entity

providing the guarantee have the balance sheet or wherewithal to see it through?

2. How are the jobs created?  If the project is relying only on construction jobs, that is

fairly safe, as long as they have bridge financing and a construction guarantee.  But

relying on operational jobs is riskier – what if the business fails, or just doesn’t achieve

expectations? The ideal rural project does not rely too heavily on these kinds of jobs,

because they are more difficult to project with as much certainty as construction jobs.

3. Is there a realistic exit strategy (i.e., refinancing) to ensure your funds are returned? 

How leveraged is the project? Who would refinance this project, and why? The project

needs to make good financial sense for all involved.

If the three components above are aligned, we have the framework of a good project, whether

rural or not. But what else do we need to look at when evaluating a rural project?

Rural Risk?

It should be obvious though that despite some similarities, there are also differences between

rural and non-rural projects, and here’s where you do need to be a bit more careful.

From our perspective, possibly the biggest concern with rural projects is that by their nature, many are related to the energy, agriculture, or mining industries, which have their own unique

challenges. These types of projects maybe more speculative than HU TEA projects, and there is

typically less third-party independent data support available than what we would expect for a

non-rural project. This often makes these types of projects more difficult to evaluate.

For example, the success of oil and gas projects depends largely on cost of oil, which is

obviously variable. Solar and mining projects tend to be very speculative, often requiring large

investment to even know whether the project is feasible. 

Furthermore, these types of projects often include lengthy permitting processes, which can create delays and additional expense. And on top of all that, these types of projects often lack good, useful comp sets or other verifiable market data to back up their revenue assumptions.  To be sure, these projects can be very successful, but there’s a reason rural projects may not be as popular with investors.

A Safer Option

So, stay away from rural projects, right? Not necessarily… rural areas need amenities like hotels

and restaurants, too. Rural hospitality projects often represent a “safer bet” for investors. The

fact is that the indicators of a good hospitality project in LA, NY, or Austin are the same

indicators used in a rural market, and this consistency can help minimize some of the

uncertainty that comes with rural projects. And a rural project in the right location can be every

bit as successful—if not more so—as metro-area projects.

Ultimately, the checklist for a good rural hospitality project looks much like any other

hospitality project:

1. Does the project have good demand generators?

2. Is there excess demand to absorb the new available rooms?

3. How many other rooms are coming online in the area?

4. Where is the market in its cycle, and what is the likelihood of refinance?

Location, Location, Location

With hospitality projects, demand is a strong predictor of success. Many investors assume that

demand for a hotel, resort, or restaurant would be lower in a rural area due to their low

populations. In some cases, this is true, but not always. The number of people within a rural

area near national parks, ski resorts, or other tourist attractions that can’t be found in large

metro areas, may be as much as 4X the stated population.

For example, the population of Jackson Hole, Wyoming is approximately 10,000, meaning it easily qualifies as a rural area. However, according to Jackson Hole Magazine, in July 2021, cell phone data showed an average of nearly 50,000 visitors in the area each day, and the busiest week of that month had about 381,000 people in the community. That may be a rural market, but it’s not a small one.

Why does this matter?

It reminds us that the population of an area doesn’t tell us the entire

story. It’s true that some projects in rural areas are riskier, but that’s not because they are

rural… it’s because of the project.

Conclusion

If you are considering investing in a rural project, you need to consider all the variables. It is

important to understand different types of rural projects, because not all are created equal.

Investors may shy away from rural projects, assuming that they will have a lower chance for

success… and in some cases, that ends up being true. But in our experience, if you pick the

right rural project, its chance of success can be every bit as high as a similar project in a high unemployment TEA.