EB-5 Commentary

New Article Analyzes the Cost of Raising EB-5 Capital

Posted by Phil Cohen on Tue, Nov 01, 2016 @ 01:10 PM

 

In a new article by Strategic Element's Phil Cohen and attorney Rohit Kapuria of Arnstein & Lehr, LLP the cost of raising EB-5 is analyzed and discussed.  The article focuses on one of the most-often asked questions by those seeking to raise capital under the program, but which is rarely addressed in a comprehensive way.

What is the Cost of EB-5 Capital.jpg

Understanding the total cost of raising capital and the factors that can affect this cost is of critical importance to anyone looking to start a project and raise capital under the EB-5 program.

See the article published in the most recent issue of EB5Investors Magazine, online here, or in the hard copy publication.

 

Phil Cohen is the founder and president of Strategic Element Inc., a company focused on the development of EB-5 business plans, economic impact reports and feasibility studies. www.strategicelementconsulting.com

 

Tags: capital raise, EB5 capital, EB-5 Project, What is EB-5?, EB5, start EB-5, Cost of Capital

The Birth of The EB-5 Financier

Posted by Phil Cohen on Mon, Feb 22, 2016 @ 02:02 PM

New alternative ways to access EB-5 capital have been emerging 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.

There are now an increasing number of both experienced and new 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 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.

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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: capital raise, EB5 capital, Chinese Investors, EB-5 Project, EB-5 explained, bridge financing, EB-5 investors, USCIS, EB-5, EB-5 Regional Center

Strategic Element in the News; Join us in NYC!

Posted by Phil Cohen on Tue, Jan 26, 2016 @ 06:46 AM

A Busy Year for EB-5

It's been a busy year for the EB-5 industry and Strategic Element.  Two program deadlines under the threat of a change to the program saw a lot of projects moving up their efforts to file with USCIS.  Ultimately, the program did not change and was temporarily renewed with no changes until September 30th, 2016.

 

Speaking Engagements

On other fronts, Strategic Element has been in demand, with Phil Cohen invited to speak at:

  • The EB-5 Investors Conference (Los Angeles, August 2015)
  • Pincus EB-5 Investor Based Immigration Conference (Los Angeles, October 2015)
  • IIUSA EB-5 market Exchange (Dallas, October 2015)
  • EB-5 Investors Conference (Las Vegas, January 2016)

Phil's next speaking engagement will be at iGlobal Forum's "Raising EB-5 Capital for Real Estate" in New York on February 24th.  Join us!

 Conference link: http:Raising EB-5 Capital for Real Estate, New York City 

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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: EB5 capital, EB-5 Project, EB-5 investors

Heard About Flexible Adjudication to Save Time on EB-5 Projects?

Posted by Phil Cohen on Thu, Nov 05, 2015 @ 02:47 PM

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, an issue often arises around 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 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 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 that 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.

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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, EB5 Regional center, EB-5 Project, EB-5 explained, EB-5 investors, I-526, applications, EB-5 regional centers, I-924, EB-5, EB-5 Regional Center

Counting Construction Jobs for EB-5 Regional Center Job Creation

Posted by Phil Cohen on Wed, Oct 14, 2015 @ 02:05 PM

Do Construction Jobs Count?construction resized 600

When starting an EB-5 regional center many want to know if direct construction jobs can be counted.  The applicable rule for counting construction jobs in an EB-5 regional center project is that the construction time for the project must be two years in duration, from start to finish. If the project qualifies, direct construction jobs can be counted, but due to the nature of construction (teams work for relatively short time periods) these jobs must be calculated by an economist. Indirect construction jobs calculated by an economist are always allowable.

How is 2 Years Defined?

There is some question as to when the construction period starts; is it when demolition or digging begins or is it when concrete is poured (i.e. the beginning of vertical construction)?  USCIS does not have a definitive guideline on this point, however, we do try to encourage clients to try to focus on vertical construction in order to mitigate the risk that USCIS may not view demolition or digging as construction.

3rd Party Verification

Of course, as soon as this construction allowance was declared, there were many who started to say, "we can make it last two years."  Unfortunately it's not that easy.  USCIS has taken steps to prevent people from exaggerating construction timelines by asking for third party verification of estimated construction times from independent experts. 

Doing it Right

The ability to count construction jobs is a huge benefit to the EB-5 program, because they are easy to document and they are relatively easy to fulfill.  Be sure, however, that if your regional center is planning to count construction jobs that it does so in a calculated and realistic way.  Remember too that if you are calculating construction jobs based on expenditure estimates, you should be careful about using conservative expenditure estimates.  While conservative estimates are desirable at most any other time, if your estimates are guessing high on expenses, and you come in under budget, the applicable construction job calculation for your investors at the I-829 stage (when they are seeking to get conditions removed from their green card) will be based on the actual funds expended.  This point is true of course for all expenditure-based job creation estimations.

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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: Construction, EB-5 Project, EB-5, EB-5 Regional Center, job creation

Are Jobs Created by Tenants Eligible for EB-5 Job Creation?

Posted by Phil Cohen on Tue, Oct 06, 2015 @ 02:48 PM

Tenant occupancy job creation in an EB-5 business plan

I am often asked about whether an EB-5 project can count jobs that are created by tenants of a particular development.  For example, if someone is developing an EB-5 project or business plan to build a shopping mall and each individual shop is leased out to third parties who will operate their own retail businesses, can all the jobs created by the tenants be counted towards qualifying EB-5 job creation?

The short answer to this question is yes, it is possible, however, where this was once an easier task to accomplish, USCIS has since issued guidance that must be adhered to in order to qualify these positions.

The following is the guidance language issued by USCIS on the matter, however, as is often the case there is a question of interpretation on several points.  We have added our own comments to the text (in bold) but please recall that we are not lawyers and our interpretations are based solely on the language we see.  Many of these will likely require change as adjudications clarify the policy.

From USCIS December 20th, 2012

"December 20, 2012 GM-602-0001
Guidance Memorandum

SUBJECT: Operational Guidance for EB-5 Cases Involving Tenant-Occupancy


Purpose

This guidance memorandum (GM) is intended to facilitate adjudication of cases involving issues related to the "tenant-occupancy" methodology for establishing job creation in EB-5 cases. The guidance has been formulated following careful internal deliberation, consultation with sister government agencies, and review of responses to requests for evidence (RFEs) issued in February 2012 to a number of outstanding Regional Center applicants who relied on the tenant-occupancy methodology. This guidance will be applied to pending cases and cases filed on or after the date of this guidance that rely on the tenant-occupancy methodology. This guidance does not rescind or supersede other EB-5 guidance.

Scope

Unless specifically exempted herein, this GM applies to and binds all U.S. Citizenship and Immigration Services (USCIS) employees.

Background

Among the issues raised in the February 2012 RFEs, USCIS sought evidence that the projected jobs attributable to prospective tenants (which would occupy the commercial space created by the EB-5 capital) would represent newly created jobs, and not jobs that the tenant had merely relocated from another location. This determination is necessary to assess whether there is a reasonable causal link between the EB-5 enterprise and the job creation that would allow for the attribution of the tenant jobs to the EB-5 enterprise. These RFEs suggested the types of evidence applicants could submit to make this showing.

Implementation

Prior to issuing the February 2012 RFEs, USCIS determined that the tenant-occupancy methodology can satisfy the EB-5 program requirement of presenting a "reasonable methodology" that is "supported by economically or statistically valid forecasting tools," if the applicant presents in "verifiable detail" information sufficient to establish by a preponderance of the evidence that the tenant jobs have resulted from the EB-5 enterprise (i.e., that the creation of tenant jobs were facilitated by the EB-5 enterprise, for example through a showing of constraint on the supply of appropriate commercial space or of excess demand for such space)."

Our interpretation: have to show excess demand or constraints on supply

"In regional center cases that rely on tenant occupancy models, as in any other regional center
cases, USCIS requires evidence that the claimed jobs result, directly or indirectly, from the
economic activity of the EB-5 commercial enterprise. Jobs that are merely re-located rather than created do not count. With respect to indirect job creation, the task for the applicants and
petitioners is to project the number of newly created jobs that would not have been created but for the economic activity of the EB-5 commercial enterprise. In making that projection, they are to use economically and statistically valid forecasting tools."

Our comment: This can be done by an economist, above and beyond the normal economic impact report

"Whether an applicant or petitioner has demonstrated that an EB-5 enterprise caused the creation of indirect tenant jobs will require determinations on a case-by-case basis and will generally require an evaluation of the verifiable detail provided and the overall reasonableness of the methodology as presented. To claim credit for tenant jobs, applicants and petitioners may  present evidence backed by reasonable methods that map a specific amount of direct, imputed, or subsidized investment to such new jobs."

Our Comment: things such as tenant improvements and, rent abatements MAY qualify as a form of investment.

"However, for applicants and petitioners that instead seek to utilize a facilitation-based approach, USCIS will not require an equity or direct financial connection between the EB-5 capital investment and the employees of prospective tenants."

Our interpretation: if we are facilitating the development of a new business (e.g. setting up a building geared to restaurants with a kitchen, etc.), then USCIS does not need to see an overt nexus between money and jobs.

"Rather, facilitation-based tenant job credit will depend on the extent to which applicants or petitioners can demonstrate that the economic benefits provided by a specific space project will remove a significant market-based constraint. One way applicants and petitioners can make this showing is to indicate how a specific space project will correct market imperfections and generate net new labor demand and income that will result in a specified prospective number of tenant jobs that will locate in that space.

Our Interpretation: creating new demand for business by creating that business in the first place, will in effect create new job demand.

Continuing below: investing in a specific market category in a high unemployment area the project need only show that they are filling an 'investment void' to generate new demand.

"In high unemployment areas in which new projects are not likely to significantly displace other income or labor, applicants and petitioners should generally indicate how a specific project will fill an existing investment void in that area to generate new demand for the tenant business. Prospective tenant jobs demonstrated by reasonable methods and supported by verifiable evidence pursuant to the above approaches may be used as direct inputs into appropriate regional growth models to generate the number of indirect and induced jobs that result from the credited tenant jobs."

"Where applications for regional centers are approved based on their use of tenant-occupancy
projections, the approval notices should contain appropriate language regarding the assumptions underlying the approval, which if not borne out may impact related adjudications at the I-526 or I-829 stages. 1  For example, a Form I-924 with I-526 exemplar may be approved where no specific tenant has been identified to occupy space but where the applicant or petitioner reasonably projects that a restaurant will eventually lease the premises.2  If, after approval of the I-924, the space is leased to a different type of tenant (i.e., a type of restaurant that yields different expected employment or a non-restaurant), or fails to achieve previously projected occupancy rates, such a change alone will not generally constitute a material change that triggers the elimination of deference in an actual Form I-526 or negates any possibility of individual investors removing their conditions at the Form I-829 stage."

Our Interpretation: an I-526 exemplar based on tenant occupancy may be approved based on the projection that a certain type of tenant will lease the space. 

"3  However, while such modified tenancy arrangement(s) may be permissible under EB-5 program rules, they could nevertheless impact the project’s ultimate job creation numbers. Therefore, the approval notice should caution that the approved job creation estimates are based on a restaurant occupying that space, and that if no tenant or a different type of tenant eventually occupies the space, the economic impact analysis and ultimate job creation numbers will be revisited in future adjudications that relate to that project.

USCIS will issue separate guidance on crediting jobs in a situation where more than one EB-5 entity may be seeking credit for the identical job position. In the interim, where only one case filed with USCIS has sought credit for a specific job position, that case should be credited with the job, provided that all program requirements have been satisfied.

Adjudication of cases involving tenant-occupancy should proceed based on these principles.

Use
This GM is intended solely for the guidance of USCIS personnel in the performance of their official duties. It is not intended to, does not, and may not be relied upon to create any right or benefit, substantive or procedural, enforceable at law or by any individual or other party in
removal proceedings, in litigation with the United States, or in any other form or manner."

 

Final Word

Ultimately, the rules set some guidelines but we have seen considerable push back from USCIS in terms of how these guidelines have been interpreted in some cases.  Those wishing to include tenant occupancy job creation in their EB-5 business plans, should try to work with counsel who is experienced in the area and in particular who has been able to study some related RFEs.  Because of the pushback we have seen on the issue, we tell our clients to carefully consider how important it might be for them to be able to count tenant occupancy jobs, and that if they want to pursue this course, they should be prepared to jump through some hoops.

From a marketing perspective, due to the likelihood of a project getting RFEs in relation to tenant occupancy job claims, one should assume that the investor and agency community might be less enamored by a business plan showing tenant occupancy jobs, especially if it has not yet been approved by USCIS.

 

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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, EB5 Regional center, EB-5 Project, EB-5 investors, I-526, tenant occupancy, EB-5 regional centers, EB-5, EB-5 Regional Center, job creation

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

The Risks and Rewards of EB-5 Investment

Posted by Phil Cohen on Thu, Jun 04, 2015 @ 10:46 AM

Risk and Reward

While EB-5 capital is commonly used for mezzanine capital by the companies raising funds, the investors essentially face a venture capital-level risk profile. When considered in this way, the return in dollars to an EB-5 investor is considerably below market for this risk profile.  This is no secret and it is the model that the industry has settled into, for the most part.  This model appears to make sense for all concerned since the investors get the added benefit of a path to US citizenship if the businesses create the requisite jobs, giving them enormous perceived value for their investment, while at the same time the project developer faces additional risk, time and cost in setting up a project to fit the EB-5 program.

With this view in mind, one should remember that venture investment is inherently risky, ask any venture capitalist.  Even better, have a look at venture capital funding lists to see the kinds of businesses that get funded every day by seasoned investors, some very odd and seemingly risky businesses indeed.  According to a September 2012 Washington Post article, “About three-quarters of venture-backed firms in the U.S. don't return investors' capital, according to recent research by Shikhar Ghosh, a senior lecturer at Harvard Business School”.  By comparison projects that I’ve seen available via the EB-5 program today would seem to be far less risky than that, on the whole.

This is not to say that some deals in the EB-5 marketplace do not, in some cases, put forward overly aggressive projections and/or assumptions, but this is true of many businesses seeking funding, whether they are seeking EB-5 capital or not. Like for any business investment, investors must thoroughly investigate the EB-5 project's business plan, claims being made, the team and even the companies who are representing the deals.  This can be done in part by feasibility studies or by other consultants who specialize in project reviews, feasibility studies or the like.

Managing Risk

Are there people with bad intentions in EB-5?  There is no doubt that there are people out there who might come to think that investors will be blinded by the possibility of attaining a green card and will fall for a bad deal without looking at it too closely.  While this is not true for the great majority of EB-5 deals that this author has seen, nobody can say that it hasn't happened.

Should an investor be careful in making an EB-5 investment? 100% and unequivocally yes! Investors must investigate any project that they are looking at investing their hard-earned dollars into and this cannot be stressed enough.  Every deal has pros and cons and good and bad elements and the investor should weed out all the risks for themselves (or get a knowledgeable consultant who can help them) so that they can make a decision that they are comfortable with.   Will there be deals out there that don’t succeed? Likely so; it is a free market after all and the statistics for failures of new businesses in America show relatively high numbers. It would be safest for investors to assume that EB-5 deals would not be different on the whole, although EB-5 deals are often brought to market by experienced teams and the author does not believe that EB-5 business failures are even in the same ballpark as published statistics on the whole.

There are many deals for EB-5 investors to choose from today and investors must choose the project and risk profile that suits them best, and again, they absolutely must investigate any business deal, EB-5 or not.  I have seen investors willing to take undue risk in their EB-5 investments in their eagerness to move themselves toward the opportunity to participate in the American dream.  Spending more time to check out every detail, however, will help to ensure that the investor can choose an investment leads the desired result with the least amount of risk.  So EB-5 investors don't rush, investigate everything and then make the choice that you are most comfortable with.

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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: capital raise, EB-5 Team, EB-5 Project, EB-5 explained, EB-5 investors, EB-5 regional centers, EB-5, job creation

Chinese EB-5 Visa Retrogression Shouldn't be Stopping You

Posted by Phil Cohen on Mon, Mar 09, 2015 @ 08:50 AM
describe the image

As a follow up to a blog article posted here on September 9th, 2014 (Some Deeper Implications of Chinese EB-5 Visa Retrogression), I want to reiterate what many in the industry are already saying in order to help quell some fears associated with Chinese visa retrogression and to help make sure that those who are new to the EB-5 community understand that retrogression is not the death knell of EB-5.

Retrogression does not mean that investors cannot have their I-526 petitions processed and approved. It only means that they won't get their green cards right away upon I-526 approval.

Retrogression probably does not mean that Chinese investors will lose interest in EB-5 any time soon, perhaps even the contrary.  If anything, the Canadian program demonstrated the propensity for Chinese investors to wait in line.  When the Canadian program was cancelled, there were over 60,000 investors in line, willing to wait up to seven years to be processed. Arguably, the EB-5 program might be slightly less of a draw because of the 'at risk' requirement, but being the only North American game in town worth mentioning these days in addition to the still-increasing base of HNW individuals in China I would suggest that there may well be a rush to get in line over the next 2 to 3 years.

Retrogression does not mean that projects should stop marketing in China, the source of 85% of EB-5 investors today.  For the reasons stated above Chinese demand is not expected to abate.  For the medium and longer term, however, those who expect to be involved in EB-5 for the forseeable future should expand their marketing horizons.  Bear this in mind, when developing your EB-5 business plan.

Retrogression does not mean that projects will be delayed in getting money into their projects (yet).  Funds can be released to a project upon I-526 approval and because there will be no additional delay in processing of I-526 petitions from Chinese applicants once retrogression kicks in, funds can be released on schedule.  Over time, this may change as the backlog grows.

 

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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: capital raise, EB5 capital, Chinese Investors, EB-5 Project, EB-5 investors, I-526, USCIS, EB-5, EB-5 Business plan

The Importance of a Buffer in EB-5 Job Creation

Posted by Phil Cohen on Mon, Feb 23, 2015 @ 06:17 AM

This a re-post of an earlier blog article, but because of its importance to investors, we felt it was worth mentioning it again.

When starting an EB-5 regional center or EB-5 project, many look to the regulations as the Start EB 5 Buffer resized 600guideline to what is required to have a successful EB-5 offering.  The guidelines, however, are only the beginning.  Starting an EB-5 project requires thinking that will not only get USCIS approval but which will also win over investors.  To this end, it is wise to consider the job creation component with the inclusion of a buffer of extra jobs.

Why Have a Buffer at All?

Creating a buffer of more jobs than are actually required by the program has the benefit of added security to investors, which in turn means added security for the project in terms of its ability to win investor interest in the first place and ultimately to maintain a reputation for successfully delivering job creation to investors, the core measure of success to all future investors.

Having a buffer of more jobs than are required by the program means that if things don't go to plan and not all the direct jobs that were originally planned can be created, investors will not lose the opportunity to have the conditions removed from their green cards at the I-829 stage.

Where indirect jobs are concerned, job creation counts will be dependent on fulfilling the inputs that the economist had used to develop the indirect job creation calculation.  Most business people will take a conservative approach to planning their businesses, which means guessing high on costs and guessing low on revenues.  If costs are over-estimated, however, and these costs were counted as the input of investment used by the economist in his or her calculation, this conservative approach can backfire.  While coming in under budget is certainly a respectable and desirable outcome in almost any business scenario, a lower investment input to the project can mean that the originally-calculated number of indirect jobs may have to be revised downward to match the revised input, thereby meaning less jobs to go around for EB-5 investors.

How Much is Enough?

A good rule of thumb for a job creation buffer is to plan to create 20% more jobs than needed, or a total of 12 jobs per investor.  This is not a hard and fast rule but certainly 15%-20% is  recommended for those newer to the space as a minimum in order to be competitive.  With proven experience and track record, more leeway can be taken in the fullness of time.  Bear this in mind when developing your EB-5 business plan and financial projections.

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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

 

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