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.
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).