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Can I Apply EB-5 Capital to Multiple Companies Under a Single Project?

 

Not every EB-5 project is a giant, multimillion dollar development.  In fact, today we see more andEB 5 Multiple companies more so-called 'direct' or 'stand-alone' EB-5 projects in the market.

One question that is commonly asked is whether EB-5 funds can be applied to more than one business under the same project.  The short answer to this question is yes.  USCIS recently clarified that this approach is possible, however in the May 30, 2013 memo some additional clarity was provided.

As a result of this memo, in conjunction with previous guidance, it can now be taken that in a direct or stand-alone project, EB-5 capital can be applied to a group or a portfolio of subsidiary companies, provided that these companies are wholly owned by the project company.

In the case of an EB-5 regional center, EB-5 money can be applied to a group of unrelated companies.  This, of course, is a very high-level statement.  The mechanics of developing an EB-5 project in this manner should be reviewed in close consultation with a qualified and experienced EB-5 attorney.

Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

Do I Need a Feasibility Study for My EB-5 Regional Center Project?

 

Feasibility studies are becoming more and more commonplace in the EB-5 world to prove the feasibility and plausibility of a given EB-5 regional center project.  This isEB5 regional center application resized 600 especially true for larger projects but also for projects where feasibility studies are common, such as in the hotel business.

When things become common in EB-5, the community often starts to treat them as (essentially) expected by USCIS in order to be safe. Indeed, when it comes to increasing the professionalism of what is being presented for an EB-5 project, USCIS does follow suit as often as not. Indeed, some recent RFEs have asked for formal feasibility studies.

Using a feasibility study developed by a reputable source is the best form of market, competitive and overall plausibility analysis for the project in question, minimizing any reason for USCIS to respond with an RFE for these particular points. In our business we consider it a best practice and strongly recommend that our clients make the investment in these analysis reports where it is reasonable to do so.

Always seek to maximize your odds of success the first time when it comes to starting an EB-5 regional center and project application.  Follow the general rule of thumb for feasibility studies that if they are readily available or commonly used for a particular type of development then they should be attained for you project submission.  It can help to save processing time and money in the long run.  Of course, the added overall benefit is providing an extra element of credibility to your investors.

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Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

 

Flexible Adjudication Saves Time on EB-5 Regional Center Applications

 

As readers of this blog are likely aware by now, the rules flexible resized 600
and processes involved in the development of an EB-5 regional center application are relatively complex and often subject to interpretation by the lawyers involved and also by the adjudicators. 

As a result, in anything but the most straightforward of cases, there is often the issue of whether the question has been properly answered or whether certain rules apply in particular ways or in particular unusual circumstances.

When facing these kinds of unknowns, developers of EB-5 regional centers and EB-5 projects are often in the position of putting their best foot forward and hoping for the best when it comes to the adjudication of their I-924 application (or the project plan itself).  In these circumstances some project or regional center founders might find themselves in a dilemma in terms of whether to submit their business plans as "hypothetical" or as "actual”/"exemplar" plans.  The reason for the dilemma is that a hypothetical plan requires less detail to be approved but if one can have their plan approved as an actual/exemplar plan then they can benefit from deference to this approval when their investors submit their I-526 petitions.

When unsure, there is the possibility of trying to get the maximum benefit of an actual/exemplar approval without losing time should USCIS determine that there is insufficient information to approve the plan as an actual/exemplar.  The way to go about this is to make a written request when the project is being submitted so the plan be adjudicated as an actual/exemplar, but if this is not possible to adjudicate the plan as a hypothetical.

In most cases, this will not hold up the process and allow the entrepreneur to move ahead with the project as quickly as possible should they not be able to get actual/exemplar approval right away.  Saving the step of a re-submission can also save some of the costs involved in doing so.

Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

 

Download Your Free Paper: 9 Things to Know Before Going Down The EB\u002D5 Road

What Does An Ideal EB-5 Business Plan Look Like?

 

describe the imageThere are conflicting views among EB-5 professionals as to what constitutes an ideal EB-5 project business plan.

If you are a follower of this blog you are likely already aware of the "Matter of Ho" business plan requirements as well as other requirements that have been issued by USCIS via policy memoranda and other unofficial statements. The question comes in, however, as to what level of detail is sufficient for a qualifying business plan.

Some attorneys and advisors are of the mind that a shorter business plan is better as longer plans by definition (in their opinion) are inherently committing the entrepreneurs behind the business to doing more, or at least that's the concern.

On the other hand, there are those who believe that longer plans with more detail give USCIS very little wiggle room when it comes to questioning details and issuing RFEs. We count ourselves in the second group and we believe that our record with RFEs proves the point. When we develop our business plans, we are of the belief that more detail is better, while at the same time we are careful to minimize forward-looking statements which would bind any entrepreneur to doing more than they would be committed to doing if they were to submit a shorter plan.

We believe that this approach works, not only because we rarely see RFEs for our business plan work, but also because we believe that preventative efforts to minimize RFEs go a long way for our clients in terms of helping them to avoid extra time and/or expense in getting their EB-5 projects approved.  Indeed, when we are asked to fix business plans written by others because of RFEs, we commonly see plans that skimped on details, leaving room for questions to form in the mind of an adjudicator.  

Thinking things through in detail is a way of forcing oneself to answer questions that others may have as well.  Similarly, a good business plan developer will provide that detail without over-committing the business to specific actions where it is not necessary to do so; rather, they will use the detail to make the business concept more convincing and to demonstrate that the entrepreneurs behind the business are very serious about what they are doing and are considering all the things that matter in order to be successful.

The other reason that we err on the side of developing more detailed business plans, is that we are providing investors, who also see the plan, with enough backup information to give them comfort about the project and a level of security relating to their investment, making it an easier 'sell' for the entrepreneur.

True, longer plans do typically cost more, however, the incremental amount of investment for addressing this step thoroughly is minimal in the context of other professional costs and the cost of the whole process and the value of the benefits it can provide to the entrepreneurs and ultimately to the investors represents a considerable ROI in the long run.

The trick, from our perspective, is to assume that many readers are not likely to read every single detail of the business plan, so we structure the plan in such a way as to make it easy for the reader to find what they are looking for, and also to easily find any supporting detail, should they wish to dig deeper.

We suggest speaking to several service providers before making any decisions on your EB-5 team, however, given that a business plan is one of the least expensive (and key) parts of the process, we encourage anyone considering going down the EB-5 road to consider not just the price but the financial and timing impact of the product before making a final decision.  

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Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

Why Bother with a TEA for my EB-5 Regional Center Project?

 

Why a TEA?TEA Target Employment Area resized 600

A question often asked of EB-5 professionals is, "why should I seek to have my EB-5 regional center in a TEA (Target Employment Area) if it only reduces the investment requirement for EB-5 regional center investors, meaning that I will need to find more investors to raise the same amount of money?".


Simply put, the answer is the saleability of your deal.  EB-5 regional center investors have to put their capital at risk for a period which is usually at least 5 years and for returns that are below market for a comparable level of risk.

For these key reasons, EB-5 regional center investors seek to invest the lowest-possible amount in a given project.  As a result, most EB-5 regional center projects are put into TEAs and projects that are not are at a disadvantage, unless they are able to entice investors with other benefits.

Find out more about starting an EB-5 regional center at starteb5.com

Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

Download Your Free Paper: 9 Things to Know Before Going Down The EB\u002D5 Road

The Importance of Escrow to the Success of EB-5 Regional Centers

 

describe the imageMany EB-5 regional center projects these days no longer wait for approval of their actual or hypothetical project business plans before releasing EB-5 investors' funds to a qualifying project.  This approach may work for some, but when starting an EB-5 regional center or project it is recommended to think twice first.

Avoiding escrow represents an additional element of risk as far as investors are concerned because the investor does not get the benefit of knowing whether there might be an RFE issued by USCIS for this particular EB-5 project, before their funds are committed (and accordingly, what the nature of that RFE might be).  Typically, the best recommendation from the investor's perspective is for new EB-5 projects or regional centers to make use of escrow so that the funds may be held in trust while USCIS's review of the project business plan is pending.  Over time, as the EB-5 regional center and/or project manager builds its reputation for delivering for EB-5 investors, it might make more sense to ask investors to take this 'leap of trust', although these projects will always be up against other choices that do make use of escrow.

Some EB-5 regional centers might make use of other options.  For example, one option is to release a portion of the funds immediately to the project and another portion later, when the investor's I-526 application is approved.  This approach mitigates some risks for both sides but also poses some risk for both sides.  For example, if an investor is denied their I-526 application they will have committed half their funds to the project already by this point. Depending on the terms of the agreement, the funds that have been committed may not be refundable to the investor which would obviously be a concern for them.  This is not ideal for the investor, but at least in this scenario the risks are shared by both parties.

It is always a bit of a balancing act for EB-5 regional center and project founders to come up with a deal that allows them access to capital without having to wait nine months or longer, while the regional center's I-924 or exemplar, actual or hypothetical I-526, is reviewed by USCIS.  In this time other project fundamentals may change, resulting in new challenges to the project's overall success.  At the same time if investors perceive too high a level of risk, they may simply look elsewhere.

To compound this challenge, the ground is constantly shifting within the EB-5 world itself, with long processing times, changing policies or directives from USCIS and a rising number of established and reputable regional centers developing proven track records.

We advise our clients who are starting EB-5 regional centers to consider reputation first.  Earlier deals, if more favorable to investors, may pose more challenges to the regional center or the project, but if investors are won over and returns and exits are delivered according to plan, the regional center will be able to leverage the investor community's earned reputation of that particular regional center or project operator.  As a result, future investors might have more faith when they must trust the regional center to deliver on issues of good faith, such as whether escrow will be used and to what degree.

Phil Cohen is founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

What Is the Best Way to Start an EB-5 Regional Center: Build or Buy?

 

 starting an eb-5 regional centerWhen looking to start an EB-5 regional center one can launch a new regional center from scratch, or alternatively, if the stars are aligned, one can look to purchase an existing regional center (likely one that is inactive).

The risks of starting a new regional center from scratch generally include the time and expense of doing so.  However, if starting a new regional center then the regional center's founder is assured of a clean slate and of having a regional center that exactly suits their needs.

On the other hand, if one wants to buy an already-existing regional center, one may do so if the right opportunity is available.  The right opportunity should generally mean that the regional center in question does not have a tarnished reputation, that they are approved for the industries (i.e. NAICS codes) in which the founder would like to operate and that the regional center is approved for the appropriate geographic area of focus.  It is worth noting that the recent policy memo issued by USCIS now states that geographic area can be amended at the I-526 stage (when the investor submits their petition), although this means that investors will be left uncertain as to whether this might actually happen until their application is adjudicated and the details of this poilicy change remain unclear. Another important note regarding buying a regional center is that while the entity itself can be purchased, a formal amendment would be required to allow the new owners to operate the regional center in question.

If one wants to start an EB-5 regional center by purchasing an already-existing entity, they should look first for the right territory (or a regional center that borders on the territory to which they would like to expand).  One way that this can be done is to research approved EB-5 regional centers on the USCIS website.  The website will indicate in what state that EB-5 regional center is operating.

Alternatively, to determine the specific geographic area and the industries of focus, one approach is to make contact with the regional center itself.  As a first step, one might explore the prospective regional center's website (if there is one) to see if they have posted their initial approval letter, which will outline the geographic area of focus and the approved industries. In the event that any changes to geographic area of focus or approved industries would be required in advance of submitting any I-526s, the regional center would need to file an amendment application with USCIS.  Filing an amendment may be a little simpler than filing for a new regional center, although the time it takes USCIS to approve an amendment may be just as long as filing for the regional center in the first place.

If a prospective EB-5 regional center has been identified, the next step would be to contact the regional center to discuss with them how active they are and whether they might be interested in selling the entity.

The biggest challenge overall in purchasing a regional center is assessing the reputation of the regional center itself and whether they have had any issues in relation to a bad history with investors or a past reputation that was somehow negative.  If one has the resources to do this, purchasing a pre-existing regional center may be a viable alternative that can save potentially months of time that it might otherwise take to develop and file a properly composed EB-5 regional center I-924 application.

In another blog article I discuss the notion of using an existing regional center as a sponsor of a project, sometimes called 'renting' a regional center.

Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.



Coming Changes to the Canadian Immigrant Investor Program

 

Many have expected that the recent cancellation of the Canadian Immigrant Investor programrenew resized 600 would be a boon to the EB-5 industry, that would bring in many new investors, originally destined for Canada into the EB-5 program. While this may in fact be true, the industry should also be aware that the Canadian government is working on a replacement for the program.

Given the history of government action in this sphere it may be possible that it would still be a while before a new program would be launched, however, the government also has a penchant for announcing new programs without warning.

To keep readers of this blog informed, I will release any updates that I become aware of in relation to the development of a replacement program in Canada.

The following news release was posted on the government of Canada website on June 6, 2014: "Industry Minister James Moore today hosted a round-table discussion with business leaders in Vancouver on key elements of a new Immigrant Investor Venture Capital (IIVC) pilot program. They discussed angel investors, seed-stage venture funds and business accelerators to determine where the real need is in the small business and entrepreneurial ecosystem and to ensure that the pilot program will truly drive entrepreneur success in Canada.

The Government of Canada is working with the IIVC pilot program expert panel to help build an entrepreneurial culture in Canada, complement public funds that support the development of early-stage companies and showcase Canada as an attractive destination for risk capital investment.

The expert panel members include Dr. Ajay Agrawal, Mr. Barry Gekiere, Mr. Grant J. Kook, Ms. Senia Rapisarda and Mr. John Stokes, who serves as chair.

This meeting concludes a series of consultations that were led by the expert panel and took place in cities across the country. The IIVC pilot program is led by the Minister of Industry in collaboration with the Minister of Citizenship and Immigration."

Here's the link to the full release: http://news.gc.ca/web/article-en.do?nid=854639.

Phil Cohen Is the President of Strategic Element Consulting, a a firm that specializes in the development of EB-5 regional centers and projects. See our guide, The EB-5 Definitive Guide, at www.StartEB-5.com.

 

The Birth of The EB-5 Financier

 

Well it has finally happened and will  likely prove to be a welcome development for those who eb-5 financiers can help to raise capitalwant to find new sources of capital for their development projects without wishing to navigate the often-choppy waters of EB-5.

Strategic Element has become aware of a few experienced financiers who are adding EB-5 capital to their lineup of options for raising capital for their developer clients.  These financiers will essentially take care of everything EB-5 for their clients, while offering them the opportunity to access capital from EB-5 investors.  These EB-5 financiers will make capital available to their clients in a manner that is akin to financing models that adhere to common industry standards.

A New Twist

EB-5 financiers have already been in existence in a de-facto sort of way in the form of already-approved EB-5 regional centers who make their centers available to project developers for a fee, saving them the need to set up their own regional center. These EB-5 regional centers will offer varying levels of service ranging from simply offering developers a regional center ‘shell’ to work under, all the way to complete project management of the application process and getting the investors.  This approach, however, still leaves developers with a considerable amount of work and challenge in that they must often manage the approval of the project itself and it often leaves the developers to go and find their own investors overseas.  This might work for some, but others might prefer to have everything managed by another party in a way that is consistent, reliable and readily available for all projects.

Considerations when looking to submit a project under an existing regional center:

  • The developer has to find the ‘right’ regional center with the right approvals for industry and geography

  • The developer must do their due diligence on the regional center and its operators

  • Developers are still subject to the potential reputation impact on the regional center should another of their ‘sponsored’ projects fail

  • Each deal must be negotiated on a case-by-case basis, with each regional center manager wanting to approach things in a different way and offering differing levels of service

  • The main advantage is maintaining a certain amount of control of the fundraising process while removing the need (and time and expense) of attaining a regional center approval

Benefits of the EB-5 financier approach:

  • Bypassing the management of the often-tricky I-924 process

  • Developers can work with experienced financiers, who will properly vet projects according to industry standards

  • Developers can work with a financing model familiar to them

  • Developers benefit from not having to raise their own funds from individuals overseas (arguably the hardest part), instead relying upon the financier's already-existing network with overseas investors

When considering starting an EB-5 regional center, developers who do not wish to be distracted by the process may do well to consider this new option.

If you have a regional center that you would like to make available to investors, call or email me to let me know, so I can add you to my list. Similarly, if you are a project developer looking for an EB-5 financier or just a regional center to work under call or email me to let me know.

Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

Download Your Free Paper: 9 Things to Know Before Going Down The EB\u002D5 Road

Knowing the Cost of an RFE to Your EB-5 Regional Center

 

Cost of RFE to EB5 Regional Centers resized 600What is an RFE?

An RFE is a request for further evidence.  RFEs are issued by USCIS when EB-5 regional center (or investor) applicants have not adequately presented sufficient information when applying to form an EB-5 regional center or an associated project, or if the information presented requires more clarity (the submission application is called the I-924).

Avoiding RFEs

The best way to avoid an RFE is to ensure that you have a good team in place and that you have had your I-924 package reviewed by qualified, experienced experts.  There can be no guarantees that an RFE can be avoided, since USCIS has made significant policy shifts without warning and in some cases, has appeared to issue RFEs that did not make sense to the applicant or their team of professionals.  However, this does not mean that one should not make every effort to avoid getting an RFE.  On the contrary, the rule of thumb that we follow is to present things at a higher level than necessary; more is better than less, as long as it is clearly documented and professionally presented so that an adjudicator will not miss it.

The Real Cost of an RFE

RFEs can be very costly, and can even sink a project.  Why? Depending on the actual substance of the RFE, an EB-5 regional center applicant may need to re-engage some of their team of experts, spend time addressing the RFE and preparing a response, which must then be submitted to USCIS for review. In some cases the RFE may even lead to a need for the applicant to shift an element of the business plan or strategy from what was originally intended, which can impact the project in unexpected ways.  In addition to the time it took to get the first application ready, submitted and reviewed (up to 12 months or more to get reviewed by USCIS alone, once submitted) an RFE could mean many more months of waiting, which can put certain kinds of projects at risk of failure.  The total cost will vary in each case, but in most cases it is safe to assume that an RFE could cost thousands of dollars and several months of additional waiting time.

If prospective EB-5 investors ask if you ever had an RFE and you are new to EB-5, not disclosing this would be untruthful and disclosing it can create the impression of wrongdoing to the investor even if this is not actually the case.  The long term effects of an RFE can mean lost opportunities with EB-5 investors.

The boy scouts say, "Always be prepared."  We couldn't agree more.  Find a good resource or guide to refer to and most importantly to enable you to ask the right questions of your team as you move forward.  Any real expert should not be saying things like, "that should be enough," they should be thinking about what more they can do to reduce the likelihood of being challenged.

Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans and custom 'direct' EB-5 projects for its clients.

 

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