EB-5 Commentary

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

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

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). 

 

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

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

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

EB-5 Processing Times Changing Again

Posted by Phil Cohen on Wed, Jan 28, 2015 @ 07:59 AM

EB-5 Processing timesIt has been just 7 weeks since the December 5th USCIS Stakeholder call and processing times are on the move again.  It is interesting to note that as of January 20th, the posted processing times on the USCIS website have improved (just barely) for I-526 processing, and have increased significantly for both I-924 and I-829 processing.

Here are the latest statistics:

  • I-526 processing: 13.8 months, down from the 14.3 months announced on the call
  • I-829 processing: 10.5 months, up considerably from the 6.8 months announced on the call
  • I-924 processing: 10.3 months, up from the 8.5 months announced on the call

Overall the increase in processing times does not bode well for the industry.  On the bright side, however, those who are already marketing to investors or who are launching ‘direct’ projects are seeing a slight improvement of about 2 weeks in processing time, which is obviously helpful in terms of getting money on the door to move projects forward.

USCIS wants to improve these times and we hope that they will, but for those starting EB-5 projects, they would be well advised to plan for the worst and expect these times to get longer before they start improving.  Bridge financing or later project starts are the best ways to plan for these delays.  And remember that bridge financing is a great thing when it comes to claiming indirect job creation if investment dollars were used as the economic model input.  If that financing is to be replaced by EB-5 money and is already being deployed, it’s like creating jobs before the investors are fully signed up.

We hope to be bringing better news next time around!

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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 center I-924, EB5 capital, I-829, I-526, USCIS, EB-5 regional centers, I-924, EB-5

Good News From USCIS Regarding EB-5 RFE Analysis (and Prevention)

Posted by Phil Cohen on Wed, Jan 14, 2015 @ 07:10 AM

analysis resized 600Good news! On the USCIS call engagement of December 5th, 2014, USCIS indicated that they will try and analyze EB-5 project and regional center RFE trends in order to narrow down some of the “pain points” and educate the community on those issues.

When this initiative is carried out we think this will have the preventative effect of reducing the number of RFEs and will enhance the EB-5 program overall, including clarity regarding the development of Business Plans, beyond the somewhat dated (and not always relevant) Matter of Ho guidance. This will give additional comfort to EB-5 investors and the EB-5 community overall as they start on the development of EB-5 initiatives and business plans.

 

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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 Project, EB-5 investors, I-526, USCIS, EB-5 regional centers, I-924, EB-5, EB-5 Business plan

Franchises can be the Best Path to EB-5 for Many Investors

Posted by Phil Cohen on Wed, Dec 10, 2014 @ 02:20 PM

The ChallengeFranchise can be great EB-5 Opportunities

As a young man, I went to Taiwan to teach English for several months.  Almost immediately, I was struck about how challenging it was to do the simplest of things such as walking down the street to browse some shops or buying some toothpaste.  English was taught in schools, but very few people would speak it in the street and all the signs were in Chinese and so on.  Sooner or later I learned a little Mandarin and became fascinated with Chinese culture, but still, the more I learned the less I understood.

Remembering this experience helps me to understand, in part, some of the challenges faced by overseas investors, particularly those who do not speak English very well or who are not familiar with how we do business.  Of course, when it comes to investing in EB-5 projects we are talking about far more than buying a tube of toothpaste and that merely adds to the complexities they face.

There are many strong EB-5 investments out there, but there are arguably many EB-5 opportunities that are far less so.  Add to this some of the program's high-profile failures (few as they may be) and one can see why some investors may be hesitant to trust some regional centers, even those that appear to be the 'real deal'.

The Direct Alternative

For the reasons stated above, we are seeing an upswing in interest among investors in investing in 'direct' EB-5 projects (projects outside of regional centers), commonly because there is a far more direct relationship between the investor and the business owner and the business in question is usually smaller and easier to grasp and assess.  The other main reason is that EB-5 investors can also start their own qualifying businesses which they can control, thereby minimizing the risk (in the investor's opinion) of not achieving the required job creation or of failure of the project overall.

How then, does the foreign investor whose English may not be so good or who does not know our business customs get the best of all worlds?  One way is to find the 'right' small or mid-sized business that is being run by a trustworthy individual.  Another opportunity can come in the form of starting a franchise operation.

Why a Franchise?

Franchises work for EB-5 investors for several reasons:

  1. Franchises have proven business models.

  2. Franchise companies can help with top-notch market research.

  3. Franchises (mostly) have very specific operational guides which take the mysetry out of day-to-day operations for the uninitiated.

  4. Franchises can be put together with experienced and successful operators so that the EB-5 investor's involvement can be limited to setting policy, high-level strategy and management decision making, thereby making the day-to-day operation more of a turnkey situation.

The above list is one of the reasons that Strategic Element has developed a new offering helping EB-5 investors to find the right franchise and to get the operation up and running with experienced operators.

Navigating the waters of a new country and culture can be difficult indeed, however, depending on one's preferences and investment parameters, there are always different ways to carve out opportunity.  Ultimately, the first step is to decide what kind of investment one is 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 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: EB5 capital, EB-5 Project, EB-5 explained, EB-5 investors, EB-5 regional centers, job creation