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

Why an Increased Minimum Investment is Not Necessarily Bad for EB-5

Posted by Phil Cohen on Wed, May 20, 2015 @ 11:53 AM

As readers of this blog are likely aware by now, there is discussion takiEB 5 Investment Cost resized 600ng place which may result in the increasing of the minimum investment required for EB-5 investors from $500,000 to $750,000 (or possibly more) in a TEA (Target Employment Area) project.  As the EB-5 program continues to increase in popularity, the first concern among regional centers is whether or not this will reduce the size of the investor pool and therefore make raising capital more difficult in the program.

It is our opinion that this change would not severely affect the program for 3 main reasons:

  1. (China) EB-5 demand is likely to stay high: Some leading economists are suggesting China may be in for a difficult economic period in the coming years.  I will refrain from restating the analyses that lead to this conclusion, however, it is an important possibility.  In the event that this forecast comes to pass, it is suggested that many in China will perhaps have an increased sense of urgency with regard to developing the opportunity for US citizenship while they can.  Arguably tied to this point is the fact that many would also seek to make investments in other economies not facing similar difficulties.  Even in the event that this forecast does not turn out to be accurate, the implication would be a continued rise in Chinese prosperity thereby continuing to increase the number of individuals who would be capable of making an EB-5 investment.  Either way, in our opinion, we believe demand should remain high.

  2. Bigger impact of EB-5 marketing dollars:  EB-5 regional centers and/or project owners will have to recruit fewer investors in order to raise the same amount of money if the minimum is higher.  Less time spent overseas marketing projects and a quicker path to getting money in the door speaks for itself.

  3. Easier to meet job creation requirements:  With EB-5 regional centers and/or project owners able to raise more dollars per investor, the ultimate requirement for job creation will be reduced.  This means that regional centers will either have to create fewer jobs for the same amount of capital or in other cases they will be able to raise more capital for their projects because their project’s job creation capabilities will give them access to more capital from the same number of investors.

Ultimately, if this change comes to pass it is our opinion at Strategic Element that it will be a good thing for the EB-5 program and therefore a good thing for America.

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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: EB5 capital, Target Employment Area, EB-5 investors, EB-5, EB-5 Regional Center, job creation

Guest Expenditures in EB-5: A Double-edged Sword

Posted by Phil Cohen on Mon, Apr 27, 2015 @ 06:55 AM

On the February 26, 2014 stakeholder’s call EB-5 Investmentwith USCIS they clarified when indirect job creation could be attributed to guest expenditures.  This is good news primarily because guest expenditures were never allowed to be used before.  More specifically, USCIS stated that guest expenditures could be counted when a project:

  • is serving an unmet demand in its area
  • is providing a differentiated product (i.e. a
    product that is not otherwise available in the area) targeted to a specific
    market segment
  • is being developed in response to
    (and presumably to serve traffic resulting from) a new development in the community

On the surface, this appeared to be good news for the EB-5 community, as guest expenditures can have a significant impact on indirect job creation figures.

The Downside

There is a downside, however.  As many have documented in the case of tenant
occupancy, it often proved to be very difficult to know exactly how USCIS would interpret various attempts to meet the standards, given that they are not very specific.  With approval times as long as they are today, the unknown is whether or not USCIS would accept given justifications on a case-by-case basis. Since guest expenditures could arguably have an impact on job creation and therefore the amount of money that an EB-5 project could raise from EB-5 investors, this unknown could have an impact on the capital stack and project timing if there is a delay or considerable back-and-forth in dealing with USCIS.  

To the extent that a project can afford the time or can otherwise be flexible in terms of their capital stack, attempting to use guest expenditures can have a significant upside.  Most, however, would find that it would be very challenging to have to change an anticipated capital stack according to whether or not the use of guest expenditures would be allowed.

Over time, it is anticipated that more clarity will come both from USCIS in terms of policy memoranda and from the EB-5 community as we see what is accepted and what is not and the  reasons for those decisions.  In the meantime, however, many have seen significant pushback from USCIS when they have attempted to use guest expenditure.

Investors would also do well to try to recognize when guest expenditures are part of the plan, especially in a case where a hypothetical plan was submitted.  Until there is more clarity on what will be acceptable in the eyes of USCIS, guest expenditures can add some additional potential risk or delay in relation to the investor's approval at the I-526 stage.

 

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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, capital raise, EB-5 Regional Center Application Cost, EB5 capital, EB-5 investors, applications, USCIS, tenant occupancy, I-924, EB-5, EB-5 Regional Center, job creation

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

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

 

Tags: EB5 capital, EB-5 Project, EB-5 explained, EB-5 investors, I-526, EB-5 Business plan, EB-5 Regional Center, job creation, What is EB-5?

A Reminder About Bridge Financing in EB-5

Posted by Phil Cohen on Mon, Feb 09, 2015 @ 07:12 AM

bridge

The good news for those who would look to put bridge financing in place ahead of attaining EB-5 capital is that the bridge financing now only has to have been considered as temporary financing at the time that it is put in place (May 30th, 2013 USCIS Policy Memo), and the deal for that financing should somehow reflect the fact that it is short term or bridge financing. 

By definition then, anyone who is looking to get a deal going under the EB-5 program using bridge financing to get started more quickly, should be able to move forward to replace that bridge financing with EB-5 capital even if using EB-5 capital specifically was not the plan initially.  In turn, this means that EB-5 business plans can be developed with more definitive development schedules, and even better, that indirect jobs based on economic impact models that use investment dollars as an input can start to claim job creation even before investors are found.

It should also be noted, however, that commonly the farther back in time that one goes (i.e. the distance in time from the date that EB-5 funds are expected to be raised and used to relieve the use of funds from bridge financing), the more challenging it becomes to show sufficient 'nexus' (or the connection between how the EB-5 funds/ bridge funds lead to the creation of jobs).  If you are using bridge financing be sure to have an in-depth discussion with your attorney to make sure it is set up properly so that you will not have problems down the road.

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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, EB5 Regional center, bridge financing, EB-5 investors, USCIS, EB-5 Business plan

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

Can an EB-5 Loan be Paid Back Early to the New Commercial Enterprise?

Posted by Phil Cohen on Mon, Jan 05, 2015 @ 07:54 AM

On the USCIS |EB-5 Stakeholder's call on December 5th, 2014, a question was asked pertaining to an EB-5 investment made in to a New Commercial Enterprise, which is subsequently loaned to a separate Job Creating Enterprise.  The question asked was whether the investor's EB-5 capital still be considered to be “sustained” if the Job Creating Enterprise successfully creates the jobs and is then sold to another party before the I-829 stage. USCIS did not address this question directly, however, later on, another attendee commented that if the Job Creating Enterprise is sold or liquidated and loaned funds (i.e. EB-5 money) are paid back to the New Commercial Enterprise, those funds should be considered to be “sustained” (in the commentator’s opinion), as long as EB-5 investor redemption has not occurred.  

This is a position that we have heard before from members of the EB-5 community, but we invite readers of this blog to comment on whether they have seen this approach used successfully.  Please let us know if you or anyone you know has had any experience with this method.  

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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, New Commercial Enterprise, EB-5 Project, I-829, EB-5 investors, applications, USCIS