Monday, August 29, 2011

New EB-5 Regional Center vs. Strategic Alliances for FVC

With USCIS’ announcement on August 2 that "within 30 days" some form of “premium processing” will be announced for EB-5 Regional Center applications, our sector is abuzz with speculation.  Those 30 days toll this week, and we are hopeful that Mr. Mayorkas will deliver as promised.  That news – plus USCIS’ affirmation that a EB-5 Regional Center may be indeed owned by non-U.S. persons -- has generated a burst of inquiries and requests for EB-5 Regional Center formations.  Simultaneously eliminating any speculative market for the resale of existing, approved EB-5 Regional Centers AND acceding to the President’s initiative to stimulate foreign capital investment in the U.S. by creating a more “investor-friendly” climate, the rush of activity – most of it driven by capital-hungry U.S. projects and investment-hungry Chinese investors – creates a fertile climate for new flavors of scams and hustles.  So let’s refresh ourselves on the basics.  Most EB-5 Regional Center began their existence in one of two capacities:


1-     As a project-specific Regional Renter, created to fund one pre-identified venture and nothing else OR


2-     As an "umbrella" Regional Center, envisioned to serve as a Foreign Venture Capital (“FVC") conduit for multiple projects.


Attorneys with “EB-5 – heavy” practices – myself included -- have been delighted with the surge of interest by both US projects and foreign investors suddenly in a hurry to form an EB-5 Regional Center, now that “premium processing” has been sort-of, kind-of, promised.  But just because everyone suddenly WANTS their own Regional Center doesn't mean it is their best solution!  Sadly, with the circa $100,000 price tag associated with forming a new RC, it is proving difficult for a number of my colleagues to "unsell" the idea that a new RC is to every project manager what an Ipad is to every teen.  It may be cool...but is really necessary?


Here's the problem: just as a significant number of investors arriving at my door (or, more accurately, my Skype, my email, my phone) have been thoroughly convinced by someone that the EB-5 is their absolute best option when it isn't (and they are better served by another less costly, more direct green card alternative), a lot of folks inquiring about the formation of a new EB-5 Regional Center really should not be dropping the $100K to secure one. They just don't need it!


Now, don't get me wrong...I love forming new RCs.  When I'm approached by a serial entrepreneur or governmental entity indicating that they want to form a Regional Center for the purpose of funding multiple projects, I'm thrilled.  I can honestly say that there is no more rewarding (or, for that matter, complex)  legal undertaking for me than the formation of a new EB-5 Regional Center...weaving together the business model, creating the structures which will insure maximum probability of job creation, hammering away at the marketing and online presence of the venture with Alejandro Barrere (my partner in Private Placement Partners).  When I believe in the deal and I know I can help the client access foreign funding they might otherwise never see, it is a blast.  Many a Sunday afternoon have I spent at the dining room table with Alejandro, jousting over the best way to convey the distinguishing features of the project and arguing over my cheesy taste in stock photos as we watch his sons run amok with my dogs alongside the Miami River.


There are worse ways to spend a Sunday, you know.


But it's a different matter altogether when I'm approached to form a new Regional Center by principals in a cash-strapped private venture project which has, IMHO, little “EB-5 Appeal”.  New commercial construction in an urban zombie wasteland?  Hmmm.  Don't think I can sell that to a guy like John Jiang. (-:  Seriously: I tell them to save their money and create a strategic alliance with a reputable, established EB-5 Regional Center whose umbrella they can use to raise FVC.  Why drop $100K when you don't need to?


While several of the strongest EB-5 Regional Centers have established “serial” investment patterns involving their own sequential projects, and while ONE of them -- CMB -- has delivered both the green card and return of investment funds --  the notion of a Regional Center specifically designed to serve as an “umbrella” entity through which other independent investment projects can access EB-5 FVC is a relatively recent phenomenon…but often the smartest option for a principal with one specific project to fund.


Tomorrow I’ll tell you about one of my project-specific EB-5 Regional Centers with an unusual storyline…and its current mutation into an “umbrella” model serving other projects.


 



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