Monday, January 25, 2010

EB5 Piggybacking: an Option Worth Exploring

With this whole EB5 US Immigration foreign investment visa buzz, another target demographic has emerged for those of us who work with EB5 US investor visas: the US developers, development agencies, and assorted entrepreneurs who finally "get" the concept of infrastructure and project capitalization via foreign investment.  The events of the past few days and Wall Street's response to the Obama Administration's planned banking changes suggest that foreign direct investment capital will only get more attractive in the foreseeable future.

I used the marketing term "target demographic" because today I am specifically referring to the EB5 community as a whole...and to those who market to the various players.  Take, for example, immigration lawyers who are specifically looking for qualified foreign investors on behalf of a Regional Center they helped put together.  Their target demographic is the foreign investors they are able to identify.  In my own rather unconventional business structure, you could say that I really have dual target demographics: my primary target are the EB5 Regional Centers who hire me to help them market their enterprise.  My secondary target are the prospective investors themselves, whom I seek to identify on behalf of my paying clients.

The newest "target demographic" -- these folks and organizations who call us (members of the EB-5 legal community) up and express their interest in setting up a Regional Center -- may consist of some pretty sophisticated people, but I'm beginning to wonder if their needs are being represented in the best possible way. 

You see, there is a problem: the creation and USCIS approval of an EB5 Regional Center is not, as many think, the "finish line".  It is, in reality, the starting gun.  Because no matter how impressive the Regional Center's plan may sound, it doesn't really matter until the investors start investing.  Many of those who contact us to see about establishing an EB5 Regional Center have talked to other attorneys in our line of focus and have been assured that, yes, RC approval should work for them.  But as I see it, the attorney's job isn't simply to get their Regional Center approved while raking in the hefty fees for the admittedly complex process of USCIS certification; it is also to insure that they are giving the potential RC client the best possible counsel regarding the efficacy and marketability of their prospective project.

It is tempting, naturally, to take a deep-pocket client -- whether a sizable private developer, a public development agency, or even a private/public joint venture (as we occasionally see) -- and sell them what they want.  After all, the fees are big, and those of us who play in this part of the schoolyard are few in numbers.  And then there is the whole issue of client sophistication; how gingerly does an attorney have to handle a would-be regional center client who is armed to the teeth with bankers, investment counsel, tax counsel, and the barrage of professionals with whom they usually appear at our door?  We know from 2009, when the total number of approved EB5 Regional Centers more than doubled, that the USCIS is being fairly generous with adjudications...odds are good that a thoughtful EB5 RC filing will get approved.

So what's my problem with this?  It's simple: if I have a client who wants to invest $150,000 in what appears to me to be a dud investment and if that clients immigration future hinges upon that apparently dud investment proving successful, I will not hesitate to tell the client that the deal is not a good one.  (Not that clients necessarily want to hear the bad news; I still remember the client who got angry with me after I discovered that the $200,000 worth of restaurant furnishings and equipment in the overpriced restaurant he was about to purchase were not owned outright as the seller had claimed but, rather, all leased and delinquent!).

Sigh.  We lawyers can be real party poopers at times.

RC prospects are just like this and any other client: if I'm pretty sure that the project can be approved for Regional Center status but also fairly confident that in this crowded Regional Center market the odds of ramping up rapid sales for the particular project are remote, I have to express that to the client.

Which brings me back (if you are still reading after all my digressions) to the title and concept of my suggestion: piggybacking.  A simple concept upon which I will elaborate in the coming days...

If your project fits neatly into the periphery of an established, proven EB5 Regional Center, a strategic alliance may put more investors in your camp than a fresh start and an unproven reputation.



2 comments:

  1. You obviously make sense but I feel that many Regional Centers will not want to piggyback because they are seeking a more substantial investment. Beyond that, I don't think the choices are ultimately reputation based, but opportunity and interest based. Basically, if the investor likes what they see, the reputation of the Regional Center (or lack of one) will not be a deciding factor - in my opinion, of course.

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  2. I would admit though, that a regional center's statistics may come into play strongly in terms of an investor's decision. Numbers such as historical return on investment play a particularly strong role. And these are the kinds of stats that may help a company build a reputation, which may in turn attract other investors, ans so on. So perhaps the two are intertwined.

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