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

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). 

 

 

 

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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

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). 

 

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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). 

 

 

 

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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 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?

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). 

 

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

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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

(Updated) The Cost of Raising Money via EB-5

Posted by Phil Cohen on Mon, Mar 23, 2015 @ 08:11 AM

describe the imageIf you are an entrepreneur looking to attract investors to your project, becoming an EB-5 regional center can create a very compelling reason for foreign investors to provide you with financing.

Many people, however, don’t fully understand the complexities of the EB-5 regional center application process, or the costs involved.  One can apply to become an approved EB-5 regional center through the U.S. Citizenship and Immigration Services (USCIS) using form I-924.

The filing cost of form I-924 is $6,230. However, many entrepreneurs don’t account for the other costs of a successful regional center proposal which include:

  • The services of an economist to provide the detailed economic impact analysis required by USCIS
  • The services of immigration, securities and business attorneys to develop and thoroughly vet the documents associated with the proposal
  • A detailed business plan outlining capital mix, return forecasts, exit strategy and other investment metrics
  • Possibly the services of a firm who will spearhead the management and coordination of your application
  • The services of an experienced EB-5 project manager are strongly recommended, especially for those new to the process
  • We also suggest that the regional center's website be up and running prior to the submission of an I-924

As a general rule of thumb, we encourage clients to anticipate a budget between $125,000 and $175,000 to get a full regional center application prepared and submitted, including the first 'exemplar' project plan. This cost can vary mostly according to the costs of the various professionals involved.

If a client wants to work with an existing regional center and not form their own, we would recommend budgeting between $70,000 and $150,000, in addition to the cost charged by the regional center (regional center charges and deal structures (as well as included services such as marketing) for taking on a project vary quite considerably.

Once approved, or at least once marketing starts, there are other costs to consider as well:

  • Agency fees for each successful investor (this is mostly the case for China, although agents can be found in other countries)
  • Marketing costs (including brochures, travel, DVDs, information packets, Powerpoint presentation, translation of materials, etc.)
  • Escrow fees, as appropriate
  • Insurance costs
  • Administrative costs for tracking and reporting to investors and USCIS
  • Interest to investors

Clearly there is much to consider when evaluating the ROI on EB-5, however, this is where an experienced team provides value in terms of saving unnecessary costs and avoiding pitfalls.

Understanding the Application Process

While the filing fee for form I-924 is a fixed cost, these other costs may vary depending on the size and complexity of your project and business plan. It’s important to understand the full scope of the application process to determine the costs involved.

Becoming an EB-5 regional center can be a powerful attractor for foreign investment, in units of $500,000 or $1,000,000.  The regional center designation can attract high net-worth investors that would otherwise not target your enterprise as an investment opportunity. However, the process of achieving this designation is not easy, and requires your full understanding to ensure success.

To fully unlock the potential of the EB-5 program, you need to arm yourself with the right information; ill-informed entrepreneurs can waste thousands of dollars and many hours trying to navigate the I-924 process.  Gain a full understanding of the EB-5 program with the EB-5 Definitive Guide.

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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 Regional Center Application Cost, EB5 Regional center, regional center EB5, EB-5 Team, EB-5 investors, EB-5 Business plan, EB-5 Regional Center, EB5