EB-5 Commentary

Using Escrow in EB-5 Projects

Posted by Phil Cohen on Tue, Sep 15, 2015 @ 02:30 PM

describe the imageMany EB-5 regional center projects these days no longer wait for approval of their exemplar 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 in order to be able to make use of the EB-5 program in the future.  As one's reputation becomes established and re-proven, the time to win over investors will very likely be shorter in the future as the market comes to consider a given team as a known quantity with demonstrable results.

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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). 

 

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Tags: EB-5 center I-924, capital raise, EB-5 Regional Center Application Cost, regional center EB5, EB-5 explained, program, EB-5 investors, EB-5 regional centers, EB-5 Regional center processing times, EB-5, EB-5 Regional Center, EB-5 Regional Centre, EB5

Building, Buying or 'Renting' an EB-5 Regional Center: Which is Best?

Posted by Phil Cohen on Thu, Sep 10, 2015 @ 07:14 AM

starting an eb-5 regional centerWhen looking to start an EB-5 regional center one can launch a new regional center from scratch, make a deal to use an existing one 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 in which the project 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 policy 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.

 

 

 

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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: amendment application, EB-5 center I-924, EB-5 Regional Center Application Cost, EB5 Regional center, regional center EB5, EB-5 explained, EB-5 investors, USCIS, EB-5 regional centers, EB-5 Regional center processing times, I-924, EB-5, EB-5 Regional Center, What is EB-5?, EB5

Grassley-Leahy EB-5 Bill: Not Passed But Affecting The Market

Posted by Phil Cohen on Fri, Sep 04, 2015 @ 07:07 AM

proposed eb-5 bill grassley leahyAs anyone in the EB-5 space is likely aware by now, Senators Charles Grassley and Patrick Leahy have introduced a bi-partisan bill to amend the EB-5 Immigrant Investor Program.

While the prevailing sentiment in the industry is that the bill will not be passed in its existing form, there is some debate as to whether or not some of the proposed program changes in the bill may be passed and whether the program may be temporarily extended for a shorter time while additional changes are considered.

In light of this, it is worth noting what impact the bill is having on the marketplace. At the time of the last renewal date three years ago, there was some degree of rush to get applications in across the industry, but there were few who doubted that the program would be renewed and there were no proposed changes to the program that anybody was aware of at the time. In addition, at that time, there were far fewer approved regional centers and projects in the marketplace (209 approved regional centers at the end of the 2012 fiscal year versus 949 approved regional centers today). The overall result two years ago was largely that things were business as usual.

This time around, things are a bit different. Because of all the unknowns surrounding the bill, professionals in the industry are largely overwhelmed with the demand to get projects in under the deadline. This activity is currently nearing a peak. Many projects that were closer to being ready have been sped up and already launched into the marketplace.

We are already hearing that many Chinese agents who might normally take on just two or three projects at any given time are now four and five projects deep, some commanding larger fees than usual because of the abundance of offerings. As the industry overall appears to be working hard on getting many other projects to market, we are anticipating that there may be a glut of projects coming up. Marketing activity is expected to reach a frenetic pace in the coming months as agents and other marketers jockey for position and mind share of investors.

On the flip side, this author anticipates that there will be a bit of a lull in the launch of new EB-5 projects into the marketplace following September 30th, as those projects that did not get started in time will be waiting on the sidelines to see what, if anything, changes on the 30th and whether the program will be only temporarily renewed (with only some or no changes), setting a new deadline for the next rush before a second wave of changes comes along.

2016 may prove to be a roller coaster year for EB-5.

 

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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: regional center EB5, Chinese Investors, EB-5 investors, applications, USCIS, EB-5 regional centers, EB-5, EB-5 Regional Center