EB-5 Commentary

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

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

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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). 

 

 

 

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

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). 

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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?

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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Tags: EB-5 center I-924, EB-5 Regional Center Application Cost, EB5 Regional center, regional center EB5, regional center EB-5, EB-5 explained, EB-5 Regional center processing times, EB-5 Regional Center, EB5

Notes on Economic Impact Reports for EB-5 Regional Center Projects

Posted by Phil Cohen on Wed, Jan 21, 2015 @ 09:18 AM

Economic models and economic impact analyses which employ these models are the basis uponeconomic model for EB-5 regional center projects which indirect jobs are claimed for an EB-5 regional center project.  I am often asked which model is best-suited for this purpose.  The following information may be helpful for those who are exploring EB-5 and speaking to economists.

  • The 3 most commonly used economic models in EB-5 regional center business plans to date are RIMS II and IMPLAN and REDYN.  New to the scene is IMPLAN's I-RIMS model which is being offered by IMPLAN as an alternative to RIMS II.
  • Commonly, RIMS II and IMPLAN models are used for simpler projects, while multi-faceted projects might benefit from the REDYN model.  The I-RIMS model may find traction in EB-5 as things move forward.

Ultimately, any EB5 regional center project developer should have a long conversation with their economist to discuss the benefits and/or drawbacks inherent in using each model and when one model might be preferable over another.

Another important consideration is understanding how the inputs that you and your economist choose to develop the model can impact the job creation estimates but also the level of safety that it offers investors in terms of likelihood of job creation.

For example, if an EB-5 deal is claiming indirect job creation then the economist must choose what investment 'inputs' they will be using to develop their economic impact model which calculates the indirect job creation. These inputs can be revenues or investment dollars or profits (among others). If they choose investment dollars as the input then the model will show less indirect job creation as a result, but because it is based on investment dollars only, it is much easier for the project to 'create' these jobs because they must only show that they invested the money they said they would invest in order to be able to claim that they created the projected indirect jobs; in other words this approach is better for an investor but less appealing for the entrepreneur because they will not be able to show as much job creation and therefore they will not be able to raise as much money from EB-5 investors.

Conversely, on the other hand, if they use the company's estimated revenues as the input to the economic model, they will usually show higher indirect job creation, but this job creation has more risk behind it and the indirect jobs cannot be claimed in full if the business does not achieve the revenue targets that they used for the model. This could potentially pose some additional risk to investors for this reason. For this reason we would normally assign less indirect job creation risk to a model that uses investment dollars as the input instead of using projected revenues as the input.

Similarly, following on to the first example, if the investment dollars were used as the input to the economic model, a project that has arranged for bridge financing or which is already underway, offers even less risk to an investor, because if they have found a way to already invest the dollars then the indirect jobs that are tied to that investment are effectively already created in the eyes of USCIS.

The most important take-away from this post is for developers and EB-5 entrepreneurs to ensure that the economist they choose is adept at using all three models, and the pros and cons of the different choices for model inputs so that they can properly guide you to the best choice.

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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 Regional center, regional center EB-5, EB-5, EB-5 Regional Center, EB5