EB-5 Commentary

Why Use All-in-One Service Providers To Start EB-5 Regional Centers?

Posted by Phil Cohen on Mon, Feb 29, 2016 @ 11:26 AM

I often get calls from people who are new to EB-5 trying to understand the process and the details of starting an EB-5 regional center or project.EB 5 Service Providers resized 600

While the idea of calling around to industry experts appears to be commonplace, it may answer the initital questions but there are so many details and subtleties to the program that, inevitably, these new EB-5ers end up with more questions than when they started.

This is common and it speaks to the complexity of the program and how the rules shift for every specific situation. Calling around is not a bad idea to start, but be careful of taking it too far as differing opinions among professionals can end up in frustration for some.

Another approach for EB-5 newbies is to consider speaking to all-in-one service providers, who can bring the right set of seasoned experts to the table and spearhead the process of managing all the moving parts in a coordinated manner, typically at a price that is competitive with what one would get in trying to do it all themselves (without the benefit of project management that these providers offer).  All-in-one providers can identify problems and questions to be addressed, sooner rather than later.  They are also familiar with what is not available to most: the basis of various RFEs (requests for further evidence) from USCIS, from a long experience and history of researching what has occurred with other regional centers.

The cost to your overall development of getting an RFE or not getting it right the first time can far outweigh the cost savings one might get from trying to manage the project yourself. A good all-in-one shop will save most people considerable time and money in the long run, and will help put together a EB-5 project, business plan and application that not only minimizes the likelihood and/or severityof an RFE, but which can also help to avoid errors arising from (often subtle) issues that can hold up an entire project.  

The other key benefit of using an all-in-one provider is that they have a good view into the investor side of things as well, so not only will they help to devise a project and business plan (the heart of the application) with the strongest likelihood of approval, but they can also help you to structure details in such a way as to be as palatable as possible to investors. The fringe benefit is about 1,001 less headaches as well.

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Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com). 

 

 

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Tags: EB5 Regional center, EB-5 explained, EB-5 investors, USCIS, EB-5 Regional Center, EB5

On Using Borrowed Funds to Invest in EB-5 Projects

Posted by Phil Cohen on Mon, Nov 16, 2015 @ 05:59 AM

 

It is important to note that when an EB-5 investor uses borrowed funds, for example, from a home equity loan or from a company equity loan to invest in an EB-5 project, USCIS will likely ask for proof that the EB-5 investor can repay this loan.

For many investors, this may be easily achievable, yet for others it may not be so easy, which could be in part why they needed to borrow the funds in the first place.

An example of when this type of scenario can work occurs when an investor uses a home equity loan of $500,000 to attain the funds needed for the EB-5 investment.  If however, the investor's total debt on the home is, for example, $1 million on a $5 million home (after borrowing against the home to make the EB-5 investment), the investor could easily argue that they could liquidate the home and repay the loan.

It is a great advantage to investors to be able to use borrowed funds in this way, but all parties should be wary of the pitfalls in doing so.  For regional centers, investors' ability to pay back the loan should be vetted before the investor's I-526 is submitted, and assurances in writing should be asked from the investor to demonstrate that the status of their loan or their ability to pay it back will not change any time soon.

 

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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 Regional center, EB-5 investors, I-526, EB-5, EB-5 Regional Center, EB5

A Reminder About Industry and Geographic Restrictions and Amendments

Posted by Phil Cohen on Wed, Nov 11, 2015 @ 01:33 PM

Here is a reminder regarding amendments, which is worth noting...

In its EB-5 Policy Memorandum of May 30, 2013, USCIS put forward an important change to this requirement. Therefore, when an EB-5 regional center wishes to expand its industry codes, it may now do so with an investor's I-526 submission.  As a result, the formal amendment process (and the very significant wait time that it used to imply) is no longer required as a separate action by the regional center.  The result is a considerably higher degree of flexibility afforded to regional centers who may wish to expand their geographic or industry sphere of focus.

There is, however, still value, however, to the formal amendment process.  The main value is that investors can be more certain of the approval of the new areas of focus when a regional center has received approval of a formal amendment in advance of the investor submitting their I-526.

Ultimately, for the regional center, it is a judgment call whereby the 'saleability’ of a deal would need to be traded off against the delays involved in seeking a formal amendment.

USCIS has also provided some indication (although this appears not to be definitive in how it was presented) that a regional center’s geographic area of focus may also be expanded via an investor's I-526 petition.  In order to do so the geographic area must be contiguous with the existing regional center boundaries and would require a justification for expansion to the new boundaries.  Similar to what has been described above for expansion of industries of focus, investors will be taking a risk that the justification provided will be accepted 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). 

 

 

Tags: amendment application, EB5 Regional center, EB-5 explained, I-526, EB-5 Business plan

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

Still Opportunities in the Crowded EB-5 Market for Great Deals

Posted by Phil Cohen on Fri, Oct 30, 2015 @ 07:22 AM

Many ChoicesBad EB 5 Deals resized 600

Over the last 3 years, the EB-5 program's popularity has exploded.  With the recent rush leading up to the September 30th, 2015 program deadline and a second 'mini' rush expected leading up to the temporary extension of the program to December 11th, the market is flooded with deals at the moment.  And yet, there is still opportunity for the strongest deals to succeed.

What Makes a Good Deal?

There are many factors that make up a good deal.  Investors are first concerned with getting their green card, which in turn means that the business has to create the jobs successfully.   Depending on which economic model is used and whether direct and/or indirect jobs are being claimed by the regional center project, investors may have to look at different factors to determine the likelihood of job creation, as presented by the project in their EB-5 business plan and economic impact report.

Because investors are also concerned about the preservation of their initial investment capital, it helps considerably to either have a deal with a strong collateral base or a very strong likelihood of the business's success (which is preferred over collateral).

Another key element to a good deal is not only the number of jobs to be created (with a sufficient buffer over the required amount) but also the likelihood that the project will be able to create those jobs. One great example of this comes in the form of bridge financing. Bridge capital can be used to move a project forward before EB-5 investors come in, which enables a project to show the development that is already underway, which in turn gives investors additional confidence.  More importantly, bridge financing allows a project to spend money (that is used as an input in the economic model) before investors come on board, which effectively means that job creation has effectively been fulfilled (to the degree that the money spent comprises the input in the model) before EB-5 investors come into the deal.

It is also helpful if there is an opportunity to have backup exit financing in place for a deal ahead of time that will help a project to relieve EB-5 capital at the time of the investor's exit.

There are a multitude of factors that come into play in defining what comprises a good deal. Many of these factors would be sought by any investor, let alone an EB-5 investor, however, there are  unique deal elements sought solely by EB-5 investors.  Many of these factors play off against each other, making for a relatively complex dynamic which must be balanced by any regional center or project owner wishing to raise capital successfully.

It is also worth noting that the program's allowance of job creation via 'tenant occupancy' or 'troubled business' designations affords additional opportunities for job creation, however, these approaches have proven to be difficult to get approved.  Because these are technically difficult for a project we, and many others in the industry, tend to advise clients to avoid them.  Simpler is better.

How to Strike a Balance That Sells

The best way to establish a deal that will sell to investors is to make oneself aware of the various possible permutations that can be considered in terms of structuring a deal and finding a combination that fits the deal and also suits investors.  Players who are newer to the game will have to offer more favorable terms to investors compared with regional centers or project owners who are more established and can offer deals that may not be as strong but will still be preferred by investors simply because of the reputation of the regional center or the project team.

Those wishing to start an EB-5 regional center or EB-5 project would be well advised to check with their advisors regarding what kinds of additional factors play well with investors in order to develop the right mix.

Why go to the trouble and expense of setting up an EB-5 regional center and project if your deal will not resonate with EB-5 investors?  Take the appropriate steps to ensure that you are not one of the many EB-5 regional centers who end up being inactive.

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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 Regional center, regional center EB5, regional center EB-5, EB-5 explained, EB-5 investors, 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

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

The Importance of Feasibility Studies for EB-5 Projects

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

Feasibility studies are becoming more and more commonplace in the EB-5 world to prove the feasibility and plausibility of a given EB-5 regional center project.  This isEB5 regional center application resized 600 especially true for larger projects but also for projects where feasibility studies are common, such as in the hotel business, but it is becoming more common for almost any EB-5 project.

When things become common in EB-5, the community often starts to treat them as (essentially) expected by USCIS in order to be safe. Indeed, when it comes to increasing the professionalism of what is being presented for an EB-5 project, USCIS seems to follow suit as often as not. Indeed, some recent RFEs have asked for formal feasibility studies.

Using a feasibility study developed by a reputable source is the best form of market, competitive and overall plausibility analysis for the project in question, minimizing any reason for USCIS to respond with an RFE for these particular points. In our business we consider it a best practice and strongly recommend that our clients make the investment in these analysis reports where it is reasonable to do so.

Always seek to maximize your odds of success the first time when it comes to starting an EB-5 regional center and/or project application.  Feasibility studies can help to save processing time and money in the long run and are adding an extra layer of safety for those looking to get project approvals before the upcoming September 30, 2015 sunset (and expected renewal) date for the EB-5 program, and looking to stay ahead of the possibility of needing to comply with proposed changes to the program upon renewal that would result from the Grassley-Leahy bill, should it be passed in its current form.  Of course, the added overall benefit is providing an extra element of credibility to your investors.

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Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com). 

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

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

Many Flavors of Escrow for EB-5 Regional Centers (Updated)

Posted by Phil Cohen on Fri, Jun 19, 2015 @ 07:38 AM

As the EB-5 space continues to grow and mature, so do many aspects of putting aescrow eb5 regional center regional center together continue to change.

Escrow and EB-5

For a time, most all regional center deals involved an element of escrow for the investors.  In this case, escrow meant that the EB-5 investor commits to the investment in writing (subject to certain conditions, including approval of their I-526 petition) and while their I-526 was being reviewed, their investment sat in trust with an escrow company, who would release the funds to the project upon the investor's I-526 approval (or otherwise back to the investor, subject to certain conditions, if the approval was not attained).

Changes Afoot

Today, this is starting to change.  Some regional center deals forego escrow altogether, while others still might use escrow more creatively.  On the whole, we recommend to new regional centers to make use of escrow in the traditional sense as outlined above, at least while they establish their reputation and trustworthiness in the market.  The exception to this rule occurs where a regional center or project team can offer investors other reasons to develop a feeling of trust, such as a proven track record of the company and team that is behind the project. On the other hand, it is understood that waiting for I-526 approvals can take so long that it can threaten the viability of a project.

Different Approaches

EB-5 investors are often nervous, particularly around untested EB-5 entities, but if trust is established then some of the other options in escrow can be explored.  Among these options are the use of holdbacks, or the use of reasonable trigger mechanisms.

The holdback approach to escrow means that a certain amount of the funds among a pool of investors can be released to the project at a certain point.  For example, every time the regional center gets commitments from 10 investors it might release half of the funds it takes in to the project, holding back the other half to allow for failed I-526s or other allowable refunds.

The trigger mechanism approach could occur where a regional center, for example, releases escrow funds to a project upon the approval of one (or any reasonable number) of I-526 petitions for a given project, which would indicate that the project portion of the I-526 is being approved by USCIS and that denials, if any, would be due to a deficient investor application.  Others still, might offer to release escrowed funds the moment the I-526 is filed providing there is a legally-binding developer's guarantee in place.

Get Creative

Building trust should always be the first priority of a regional center in terms of how it positions itself to investors, largely conveyed via the EB-5 business plan.  With a good reputation a regional center's long term prospects can be very bright indeed.  As trust is built and earned among the investor community a regional center can start to look to other options in relation to its escrow structure and its deal structure generally, whereby investors might feel comfortable taking on certain risks which will ultimately enable a higher degree of both project and regional center stability.  Like any investor, EB-5 or not, the bottom line is that the more risk an investor has to take the more secure the investor needs to feel about the rest of your project or the companies behind it.

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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, regional center EB5, escrow, EB-5 investors, I-526, EB-5 Regional center processing times, EB-5, EB-5 Regional Center, EB5

Knowing the Cost of an RFE to Your EB-5 Regional Center

Posted by Phil Cohen on Sun, Apr 05, 2015 @ 02:59 PM

Cost of RFE to EB5 Regional Centers resized 600What is an RFE?

An RFE is a request for further evidence.  RFEs are issued by USCIS when EB-5 regional center (or investor) applicants have not adequately presented sufficient information when applying to form an EB-5 regional center or an associated project, or if the information presented requires more clarity (the submission application is called the I-924).

Avoiding RFEs

The best way to avoid an RFE is to ensure that you have a good team in place and that you have had your I-924 package reviewed by qualified, experienced experts.  There can be no guarantees that an RFE can be avoided, since USCIS has made significant policy shifts without warning and in some cases, has appeared to issue RFEs that did not make sense to the applicant or their team of professionals.  However, this does not mean that one should not make every effort to avoid getting an RFE.  On the contrary, the rule of thumb that we follow is to present things at a higher level than necessary; more is better than less, as long as it is clearly documented and professionally presented so that an adjudicator will not miss it.

The Real Cost of an RFE

RFEs can be very costly, and can even sink a project.  Why? Depending on the actual substance of the RFE, an EB-5 regional center applicant may need to re-engage some of their team of experts, spend time addressing the RFE and preparing a response, which must then be submitted to USCIS for review. In some cases the RFE may even lead to a need for the applicant to shift an element of the business plan or strategy from what was originally intended, which can impact the project in unexpected ways.  In addition to the time it took to get the first application ready, submitted and reviewed (up to 12 months or more to get reviewed by USCIS alone, once submitted) an RFE could mean many more months of waiting, which can put certain kinds of projects at risk of failure.  The total cost will vary in each case, but in most cases it is safe to assume that an RFE could cost thousands of dollars and several months of additional waiting time.

If prospective EB-5 investors ask if you ever had an RFE and you are new to EB-5, not disclosing this would be untruthful and disclosing it can create the impression of wrongdoing to the investor even if this is not actually the case.  The long term effects of an RFE can mean lost opportunities with EB-5 investors.

Bear this in mind when choosing your EB-5 business plan writer,legal team and economist in particular.

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Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com). 

 

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