Friday, October 23, 2009

Not All EB-5 Regional Centers are Created Equal

In the past few months, I've had the opportunity to meet with a lot of folks with approved Regional Centers.  In the process, I've asked a lot of questions and spoken to some of the most sophisticated real estate developers, portfolio managers, and financial minds in the country.  I've learned a few things and I think they might be of interest to those of you who are considering an investment in an EB-5 Regional Center, as well as those of you who represent such potential EB-5 investors in one capacity of another.


For the purposes of today's blog, I won't name names.  I have in the past and I most certainly will in the future.  In fact, the more I learn about EB-5 Regional Centers, the more comfortable I feel with some...and less so with others.  So while I'll expand and get more specific in the coming days and weeks -- and will not doubt make some folks really angry (hey, it's been awhile) -- let's start with a pasty and generic look at three fundamentals I've observed:


1- The Government has approved and is approving a LOT of EB-5 Regional Centers.  In the second half of 2009, the number of approved EB-5 Regional Centers has soared from 40-something to over 70...pretty staggering when you consider that it took about a decade and a half for the first 40-something to be approved.


2- The rapid approvals have caught many of the new EB-5 Regional Centers unprepared.  Whether this is a function of unexpectedly fast processing or simply slow-moving entrepreneurship, a very significant number of the newest centers have nothing specific to offer EB-5 Investors right now.  It works like this: once an EB-5 Regional Center is approved, then and only then can they start offering an investment and comply with all the disclosure requirements relating to securities laws.  These are not prepared overnight and, in an ideal world, the RC team is working on the initial legwork during the pendency of the USCIS adjudication.  My impression (and that's all it is because I have only explored a fraction of the new centers) is that a lot of these newer centers were caught off-guard and are now scrambling to put together projects.  (If you are an investor, would you want your investment team to be hurrying to throw something together?  Not me.)


3- The better newer EB-5 Regional Center models (and some of the veteran ones) are increasingly debt-based vs. equity-based.  This means that in the pooling of the investor funds, the debt-based models operate as lenders to specific projects. Because the loans are often linked to governmental or quasi-governmental borrowers, bond secured, and finite --these structures, although more conservative on returns than the equity-based models, are increasingly appealing to many prospective EB-5 investors.  But don't get me wrong - some of the most successful programs are equity-based).


I guess the most important thing for EB-5 Regional Centers to keep in mind as the momentum continues to build is the trinity of top considerations echoed consistently, in the same order of priority, by the dozens of prospective EB-5 Regional Center investors I've spoken to recently:



  1. Assurance of the approval of the permanent residency

  2. Security of the underlying $500,000 capital investment and

  3. Return on investment


Things are getting complicated and my impression is that very significant distinction exists not only between the fundamental structures of the new EB-5 Regional Centers, but between their underlying philosophical approach to how an EB-5 Regional Center should operate.  Those which understand the aforementioned trinity of priorities will inevitably lead the pack.






 



2 comments:

  1. hi José, what's an EB-5 Regional Center? I was forced to wikipedia it. still not sure

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  2. Helen, the EB-5 Immigrant Investor visa has been around for a long time and I used to rail against it on a regular basis because the early incarnations were lame. Things have changed and the visa category - which involves a foreign investor making a $1 million (or half million if in a Targeted Employment Area) and creating 10 new American jobs -- is about the best, most direct way to U.S. permanent residency to those who can afford it.
    The "Regional Centers" were created shortly after the initial EB-5 categories and here's how it works: developers, fund managers, etc. get together and come up with a concept for an investment vehicle for the EB-5. They apply to the US Gov't for approval of there plan as a "designated regional center". Once approved and the project is underway, they essentially pool the investments made by the foreign investors, create the necessary jobs, invest wisely (hopefully) and get the job done.
    Unlike individual EB-5 Investor visas, which require the investor to form and run a business day to day and create 10 direct jobs, the Regional Centers allow for hands-off investment and the indirect creation of jobs.
    Bottom line: today's EB-5 regional centers offer the ultimate quid pro quo which Congress had in mind when they first thought this up: jobs are created in the U.S. and investors get their green card...
    Hope that clarifies!!!

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