EB-5 Commentary

The Importance of a TEA for EB-5 Regional Center Projects

Posted by Phil Cohen on Thu, Jul 30, 2015 @ 06:38 AM

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 (Targeted 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 at a disadvantage, unless they are able to entice investors with other benefits.

New Legislation Proposed

It is worth noting that the proposed Leahy-Grassley bill could have an impact on how a TEA can be devised and its impacts on EB-5 investment. While the prevailing sentiment in the EB-5 industry is that the bill will not be passed in its current form, some or all of the proposed changes (or amended versions of them) could come into effect. These proposed changes include:

- A TEA would need to be an area consisting of a single census tract that has 150% of the national average unemployment rate (or a closed military base or a rural area).
-TEA designations would apply for two years instead of the current one.
-For TEAs based in a Metropolitan Statistical Area or Combined Statistical Area, at least 50% of a project's job creation must be within that Metropolitan Statistical Area or Combined Statistical Area to be counted.
-If a TEA is outside of a Metropolitan Statistical Area or Combined Statistical Area, then at least 50% of the jobs must be created within the county in which the TEA is located; if not, the total number of jobs will be reduced until the 50% threshold is met.
-The minimum investment amount for projects based in a TEA would increase to $800,000.

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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, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com). 

 

Download Your Free Paper:  9 Things to Know  Before Going Down  The EB-5 Road

Tags: Target Employment Area, EB-5 investors, EB-5, EB-5 Regional Center, EB-5 Regional Centre, EB5

Pros & Cons of Different EB-5 Business Plan Types

Posted by Phil Cohen on Mon, Jul 20, 2015 @ 11:42 AM

For those considering making an EB-5 investment, you will no doubt hear of three different kinds of EB-5 business plans: hypothetical, actual and exemplar. Each kind of business plan has different benefits and drawbacks from the investor's perspective. This article will provide a brief explanation of each type of business plan and what it means to investors.

Any kind of EB-5 business plan could be submitted alongside a regional center application, while a so-called 'direct' application requires the use of an exemplar EB-5 business plan.

Hypothetical

A hypothetical EB-5 business plan is a plan that provides an approximate overview of the project in question. The details required for a hypothetical plan are usually very high level and non-specific. Details in a hypothetical plan can include economic model inputs, feasibility study or information and general proposals and predictions. The benefit of using a hypothetical plan is that it allows the project owners to move more quickly in terms of getting their project financed, which adds to overall project stability. On the downside, however, investors should be aware that when a hypothetical plan is used, a more formal or exemplar plan would need to be submitted with the project's first investor (I-526) application. From the investor perspective, this means that the business plan is effectively being reviewed and approved by USCIS for the first time with the first investor's I-526. If an investor is among the first to apply for an I-526 under a given project which uses in an exemplar plan, the project would effectively be reviewed for the first time by USCIS at that time. Subsequent investors in a given project would likely benefit from USCIS giving deference to the project approval based on the first investor's approval.

Actual

An actual EB-5 business plan is a more or less complete plan although it may be missing some critical pieces such as offering documents. The pros and cons of an actual plan from the investor perspective are similar to those of a hypothetical plan, although presumably USCIS will review the information that is in front of them with regard to the plan itself. Although the project would not benefit from a formal USCIS approval, project developers would benefit from having feedback from USCIS on what was submitted. In effect, this means that the risk to the investor of the project itself not being approved at the I-526 stage is smaller than in the case of a hypothetical plan.

Exemplar

An exemplar plan is a complete plan, which includes offering documents, transactional documents and evidence that the project is shovel ready (i.e. ready to start right away). When USCIS accepts an exemplar plan, it is very unlikely that the plan itself would be challenged at the I-526 stage. This kind of approval provides investors with the least overall risk of USCIS refusing the project part of their application.

Does That Mean Exemplar Plans Are Best?

Not necessarily. As a general rule, investors may prefer the security that comes from an exemplar plan being used, however, it is worth noting that the team behind the project, experience with EB-5 and the team that does due diligence on the project can provide significant added value in terms of mitigating the risk or ensuring that the deal in question is a good one. If an investor's application is not accepted at the I-526 stage due to project deficiencies, with a good team this only means that there may be some delay in processing the I-526.

It is also worth noting that proposed changes to the EB-5 program (not yet approved), would not allow for the marketing of projects to investors without approval of an exemplar business plan, which is a departure from current rules, which allow for marketing once a hypothetical plan is filed.

The best advice for investors is to look for a quality project first and to ensure that whoever is representing the project is experienced in EB-5 and has done a significant amount of due diligence. Given the sea of choices in EB-5 today, investors should consider the quality as the top priority and worry less about delays, which can be common regardless of the kind of business plan being used.

 

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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, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com). 

 

Tags: EB-5 Team, Chinese Investors, EB-5 Project, EB-5 investors, I-526, USCIS, EB-5, EB-5 Regional Center

Join Us at the California EB-5 Conference in August

Posted by Phil Cohen on Mon, Jul 13, 2015 @ 07:39 AM

EB5 Investors Magazine and EB5Investors.com will host their 4th Annual California EB-5 Conference on August 2 - 3, 2015 at the Hyatt Regency Century Plaza in beautiful Los Angeles, California! Strategic Element Consulting is proud to announce that Phil Cohen has been elected to participate as a panelist in the event, designed for an array of attendees including anyone interested in EB-5 visa program information for project finance or immigration purposes. Whether you are a developer looking to raise EB-5 capital, an attorney with clients involved in the EB-5 program, or a USCIS designated regional center, the 2015 California EB-5 Conference will offer an exclusive industry networking experience.

This two-day EB-5 event will commence with a series of private networking mixers on Sunday, August 2, and the all-day informational conference will kick off on the morning of Monday, August 3. Congressman Bob Goodlatte (R-VA-6th) will return as keynote speaker to provide direct insight into developments on Capitol Hill, and to engage the audience of EB-5 stakeholders. Throughout the day, conference attendees will have access to both beginner and advanced panels on pertinent EB-5 program topics, ranging from regional center issues, to best practices, to EB-5 financing, all of which will be discussed in detail by expert industry speakers.

As sponsors, we are able to offer a special $150 discount to any friends or clients who would like to attend: Please click here if you would like to register using our discount code.

Full program details are available on the California EB-5 Conference website.

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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, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com). 

The Importance of Feasibility Studies for EB-5 Projects

Posted by Phil Cohen on Tue, Jul 07, 2015 @ 02:44 PM

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, but it is becoming more common for almost any EB-5 project.

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 seems to 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/or project application.  Feasibility studies can help to save processing time and money in the long run and are adding an extra layer of safety for those looking to get project approvals before the upcoming September 30, 2015 sunset (and expected renewal) date for the EB-5 program, and looking to stay ahead of the possibility of needing to comply with proposed changes to the program upon renewal that would result from the Grassley-Leahy bill, should it be passed in its current form.  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, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com). 

Download Your Free Paper:  9 Things to Know  Before Going Down  The EB-5 Road

Tags: EB-5 center I-924, EB-5 Regional Center Application Cost, EB5 Regional center, regional center EB5, EB-5 Team, regional center EB-5, hotel, EB-5 explained, EB-5 Regional center processing times, I-924, EB-5, EB-5 Regional Center, What is EB-5?

Funding Multiple Companies Under a Single Project With EB-5

Posted by Phil Cohen on Wed, Jul 01, 2015 @ 08:01 AM

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 and this trend is expected to increase as the EB-5 community digests proposed changes from the Leahy-Grassley bill introduced on June 3rd, 2015.

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.  In the May 30, 2013 memo some additional clarity was provided by USCIS with regard to this approach.

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.  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.

This approach offers obvious advantages to both project owners and investors, including making capital easier to raise for multi-phased or multi-part projects for developers and the ability to pool job creation from different initiatives, thereby giving investors additional certainty with regard to job creation. 

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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, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com).