EB-5 For Developers

EB-5 Project Suitability: Not all projects are suitable to be put forward as an EB-5 project. It is highly likely a developer could be told differing answers on this issue however, it is critical for the developer to understand the motivation behind each answer they are given in regards to suitability. The “EB-5 landscape” is littered with EB-5 projects that were either never able to raise capital or projects that failed because they were not suitable as an EB-5 investment either through a lack of job creation or they were too risky for the true needs of the typical EB-5 investor. A common theme you will read throughout this website is “understanding the goals of EB-5 investors” as the capital being sought by a developer of an EB-5 project is capital being invested by someone seeking immigration to the United States.

Investor goals are really simple:

• Investors are seeking permanent residence in the United States and the EB-5 Program requires new job creation in order for the EB-5 petitioner to be successful.
• Every EB-5 investor we have ever encountered wants to see a return of the capital they have invested. You may hear stories that investors do not care if they ever get their money back but do not fall for these tall tales as each EB-5 investor is seeking a return of their capital contribution as each investor has other plans for these monies once US permanent residence has been achieved.
• Some rate of return on the investment. This one is more involved than most people think. The EB-5 Program requires an investment into a “for profit” enterprise so return on investment is important to EB-5 eligibility. Return on investment (ROI) goes even further though as most EB-5 investors see return on investment as being a benchmark of a project’s performance. Is the project, the job creating entity (JCE), achieving its construction and operating projections and is it able to meet its financial obligations. EB-5 investors will look to this ROI as an indicator of how the JCE is doing now and how well it is likely to do in the future.
• Please take a few moments to read through all six sections of this page in order to understand what makes a project not only “suitable” for EB-5 but what makes a project one that EB-5 investors are likely to find suitable for their immigration needs.

EB-5 Program Requirements: Elsewhere in our website you will read about keeping things simple. At its inception, the EB-5 Program had three very simple expectations for EB-5 petitioners. (1) Invest the requisite amount of capital, (2) Sustain that investment throughout the period of conditional permanent residence and (3) Create or sustain no fewer than 10 qualified jobs per investment. Congress envisioned the EB-5 Program as a means of bolstering the US economy through foreign investment coupled with the creation of new jobs for US workers. It did not take long for this vision to be corrupted by fraud. There is no one single source for the corruption and fraud that has plagued parts of the EB-5 Program so to combat the perception of fraud, AIM's advice to every developer is to keep it simple. If there is no fraud, you want everything to be simple, easy to understand and transparent. Why obscure anything? Approach everything in as simple of a manner as possible so the USCIS can easily adjudicate all documents being submitted by the regional center and members of the New Commercial Enterprise (NCE) and so individual EB-5 investors can conduct a proper due diligence of each EB-5 investment opportunity they may be considering.

Now go back to those three requirements the EB-5 Program places on foreign investors:

• In the past it was common for Targeted Employment Data (TEA) to be manipulated in order to make a project region look as if it were in an area of high unemployment. Those that manipulated data normally did so in order to decrease the amount of investment that would be required. This was dangerous, foolish and fraudulent and it would be the EB-5 investor that would be paying the price for the misdeeds of others. History has proven that quality non-TEA EB-5 offerings can subscribe investors if the merits of such investment are properly identified and explained.
• In the early days of the EB-5 Program it was common for EB-5 petitioners to make a token investment into the NCE and to execute a promissory note for the remainder of the investment amount. In most cases, there was never any intention of redeeming the promissory note so no real project was ever being funded and no real job creation was occurring. The developers AIM works with have real projects that will be creating real jobs. These real jobs can easily be measured through direct jobs that will be created as well as the indirect and induced job creation impacts of these large projects. The developers AIM works with understand they will have obligations under a loan agreement related to the pooled funds of investors that are loaned by the NCE and that investors in the NCE are required to sustain their investment throughout the period of CPR. Again, there is no need to manipulate or obscure if the developer's project is real.
• The regional center program allows job creation to be measured through valid economic modeling tools such as IMPLAN and RIMS II. In simple terms, an input/output model is used such that money being spent in a developer’s project can be translated into direct, indirect and induced jobs that are being created by those capital expenditures. Not all spending translates into new job creation. A qualified economist is called upon to measure the job creating impacts of all expenditures related to a developer’s project.

Much of what is described here takes place outside of the control of the EB-5 petitioner. Congress and the USCIS understand this and steps have been taken to control any adverse impacts that may befall an EB-5 investor for acts beyond their control. Congress has recently implemented new legislation impacting EB-5 through the Reform and Integrity Act (RIA). The USCIS and Congress both recognize that material changes within an EB-5 investment may occur that are beyond the control of an EB-5 petitioner, and in certain circumstances those material changes are permitted and, alone, they will not automatically lead to a denial of the related petition. Rather, the EB-5 Program affords the petitioner the opportunity to correct any deficiencies and obtain the permanent residence that is being sought.

Capital Raising: The capital raised from an EB-5 offering is best suited as a replacement for mezzanine level financing or additional outside equity that may be needed for a developer’s project. There are a number of reasons for this but two of the main reasons have to do with job creation based upon the needs of the EB-5 investors as well as the costs of capital in comparison to one another.

The costs of capital comparison is likely an easy one for a developer to understand as mezzanine financing and outside equity are both high cost capital whereas the right development project should be able to attract EB-5 investment at a reasonable rate. The job creation needs of the EB-5 investor may be a little more difficult to follow. Too often developers think about direct employees working in the operations of a business whereas in EB-5 we like to look at direct, indirect and induced job creation that can be measured through input-output models such as IMPLAN or RIMS II. Simply stated, money being spent translates into jobs being created either directly or indirectly as well as what is known as induced job creation.

Unlike most senior loans from a bank, an EB-5 loan to a developer is the product of a securities offering to prospective EB-5 investors. This means the underlying development project needs to be more than just an idea. The project needs to be able to satisfy defined underwriting criteria such as:

• Sources and uses of capital are clear
• When spending in the project will occur is clear
• Assurances that construction will be completed on time and on budget such that the job creation needs of the EB-5 investors will be satisfied.

The suitability of a project goes well beyond this however the readiness and the quality of the underlying project play heavily into how easily EB-5 capital can be raised for a developer’s project.

Please take a few moments to read through all six sections of this page  in order to understand what makes a project not only “suitable” for EB-5 but what makes a project one that EB-5 investors are likely to find suitable for their immigration needs.

Job Creation: The most practical approach to job creation in an EB-5 investment may seem confusing at first. The following explanations should make things much clearer. All too often developers think about job creation that will occur once their project reaches the operations phase; however, it may not be wise to place the immigration needs of the EB-5 investors above the operational needs of the project when it comes to counting jobs. Wouldn’t it be better to satisfy the job creation needs of investors during the construction phase of the project that way once the project reaches operations it can balance employees against the operational needs of the business rather than the immigration needs of the investors that provided the EB-5 capital?

An economic methodology such as IMPLAN or RIMS II can measure the job creating power of the capital expenditures associated with the construction activities in a developer’s project. Money being spent translates into jobs being created. The EB-5 investors are able to calculate job creation based upon the entire amount of qualified expenditures associated with the project. (Not all expenditures have a job creation component associated with them. An economist will be able to divide expenditures into categories and a job creation analysis of a developer’s project will determine the total job creation which then translates into the maximum amount of capital that could be raised. It is important to understand that buffers need to be created within these numbers in the event changes occur within the project that would result in a reduced amount of job creation.)

Too often developers want to size the EB-5 loan to best fit their needs as compared to sizing the EB-5 loan to mitigate immigration risks to the EB-5 petitioners. Remember EB-5 investors are primarily focused upon receiving the immigration benefit associated with their EB-5 investment. A well-structured project that clearly demonstrates how sufficient jobs will be created in the requisite period of time is what prospective EB-5 investors are looking for.

Please take a few moments to read through all six sections of this page in order to understand what makes a project not only “suitable” for EB-5 but what makes a project one that EB-5 investors are likely to find suitable for their immigration needs.

Loan vs Equity or Debt vs Equity: Once again we need to look at this question from the perspective of nearly all prospective EB-5 investors. EB-5 investors are seeking green cards, a return of capital and a rate of return on their investment. They also want to understand when and how each one of these will be achieved as well as what will occur if one or more of these is not achieved. (If you have already read Job Creation and how that translates into green cards you should understand the basics of how the primary objective is answered so we are going to focus upon these other two objectives.) A loan agreement between the lender and the borrower outlines information that EB-5 investors will be focused upon.

The loan agreement will identify the borrower of the pooled capital of the EB-5 investors. The loan agreement will have a maturity date (when repayment to the lender is to occur), an interest rate, the collateral and provisions in the agreement associated with a default by the borrower. An equity investment may offer a greater potential for return on investment (ROI) however ROI is a distant 3^rd when it comes to what is most important to nearly every EB-5 investor. Immigration success is the ROI that EB-5 investors are seeking. Green Cards and money back are the key concerns and doing this as quickly as possible and with as little risk as possible is what is being sought. The overwhelming majority of EB-5 investment capital that is being raised is being raised associated with a securities offering where a loan agreement exists between a lender and a borrower. EB-5 investors will be making an equity investment into a New Commercial Enterprise (NCE) and this NCE is capable of making a loan to a borrower where the proceeds of the loan fund expenditures of the developer’s project.

Please take a few moments to read through all six sections on this page in order to understand what makes a project not only “suitable” for EB-5 but what makes a project one that EB-5 investors are likely to find suitable for their immigration needs.

Exit Strategy: EB-5 investors want green cards but they also want their money back. Nearly every EB-5 investor we have spoken with has a specific plan for those funds once a return of capital occurs. Many times the money is slated to be used for a home or more often it is targeted to be used for college tuition of a child or the children of the EB-5 investor. Keeping this one simple thought in mind is important as the funds being loaned to a developer have a direct connection to real people seeking a better life here in the United States.

A developer needs to identify one or more exit strategies associated with any project seeking funding by way of EB-5. Exit strategies can include a refinance of the EB-5 loan however, such a refinance must be permissible under any senior debt that may be involved so just saying the project will be refinanced will not suffice. Agreements between lenders are likely to be required this way; all parties know exactly where they stand in regards to a security interest in a developer’s project.

In many cases a sale of the underlying project can trigger repayment of the EB-5 loan. The regional center will be seeking information on past projects of a developer as well as information specific to the project seeking EB-5 funding. Feel free to contact us as we can provide you with an outline of the types of information that will be sought. A simple way to look at this though is to think about what a senior lender will be seeking as a regional center will be seeking those same types of information.

Please take a few moments to read through all six sections of this page in order to understand what makes a project not only “suitable” for EB-5 but what makes a project one that EB-5 investors are likely to find suitable for their immigration needs.