EB-5 Commentary

The Importance of a TEA for EB-5 Regional Center Projects

Posted by Phil Cohen on Thu, Jul 30, 2015 @ 06:38 AM

Why a TEA?TEA Target Employment Area resized 600

A question often asked of EB-5 professionals is, "why should I seek to have my EB-5 regional center in a TEA (Targeted Employment Area) if it only reduces the investment requirement for EB-5 regional center investors, meaning that I will need to find more investors to raise the same amount of money?"


Simply put, the answer is the saleability of your deal.  EB-5 regional center investors have to put their capital at risk for a period which is usually at least 5 years and for returns that are below market for a comparable level of risk.

For these key reasons, EB-5 regional center investors seek to invest the lowest possible amount in a given project.  As a result, most EB-5 regional center projects are put into TEAs and projects that are not at a disadvantage, unless they are able to entice investors with other benefits.

New Legislation Proposed

It is worth noting that the proposed Leahy-Grassley bill could have an impact on how a TEA can be devised and its impacts on EB-5 investment. While the prevailing sentiment in the EB-5 industry is that the bill will not be passed in its current form, some or all of the proposed changes (or amended versions of them) could come into effect. These proposed changes include:

- A TEA would need to be an area consisting of a single census tract that has 150% of the national average unemployment rate (or a closed military base or a rural area).
-TEA designations would apply for two years instead of the current one.
-For TEAs based in a Metropolitan Statistical Area or Combined Statistical Area, at least 50% of a project's job creation must be within that Metropolitan Statistical Area or Combined Statistical Area to be counted.
-If a TEA is outside of a Metropolitan Statistical Area or Combined Statistical Area, then at least 50% of the jobs must be created within the county in which the TEA is located; if not, the total number of jobs will be reduced until the 50% threshold is met.
-The minimum investment amount for projects based in a TEA would increase to $800,000.

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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: Target Employment Area, EB-5 investors, EB-5, EB-5 Regional Center, EB-5 Regional Centre, EB5

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