Thursday, October 13, 2011

T Minus 3 Days: On Trust and EB-5 Marketing in China

Just finished a chat with my still-jet-lagged partner Sharon Shi, who is somewhere West of Shanghai with a serious case of insomnia and EB-5-itis.  Sharon left Monday, arrived Tuesday, and will be meeting me in Beijing next week to begin what is turning into a rather grueling seminar schedule.  When you're gearing up for a 3 week, nonstop road show in China and Vietnam, melatonin doesn't cut it.  And, as you can imagine, getting ready for this kind of road trip is no minor event and I have been scrambling to get things in order before I leave this weekend.  In reality, between Skype, email, and cell phones, the biggest challenge is the time difference.  Hard to be perky for a conference call when it's 9 am for the immigration broker and 9 pm here.


We are off to a tremendous start with investor placements as a result of Sharon's trusted relationships with some mid-size and smaller brokers...and time's have certainly changed.  A year and half ago, if I wanted to propose a project to a registered Chinese immigration agent, it was very difficult even if you got on the plane; in the past six months, Sharon and I have been visited at our Chicago and Miami offices by a half dozen agencies ranging in size from medium to very large. If you had told me last year that THEY would be flying to speak with ME at MY office, I would've laughed.


But it isn't wanderlust that's sending them our way.  The better Chinese agencies have long been aware that all that glitters isn't gold.  Considering the recent catastrophe involving  Missouri's Mamtek Regional Center, it's easy to see why smart China agents are doing their homework as far their U.S. partners.  As 15 very unlucky Chinese investors are just learning now, their $7.5 million investment in Mamtek -- along with the state of Missouri's $17.6 million in direct assistance and $39 Million in industrial bonds issued by the City of Moberly -- have evaporated.  Gone. The $65 Million deal which was proposed to create over 600 jobs has fired its four employees, left the job site, shut down its website...and now refuses to meet with lenders or return phone calls.


This recent mess led to yet another spirited debate this morning with my friend Michael Gibson, EB-5 Due Diligence maven and publisher of the best EB-5 Resource on the Web.  We emailed back and forth about the question of "due diligence" and how to protect investors from this  kind of mess. He asked me how I evaluate prospective EB-5 investments and my reply was simple:  I don't.   The handful of EB-5 centers and projects I am willing to put my name on are selected as good GREEN CARD vehicles, not "investments".  I select private offerings into which (hopefully) you can park your money, get a dinky rate of return, be confident that you'll get your permanent residency (remember: conditional residency and I-526 approval is based on projections; I-829 approval depends on results), have a clear exit strategy with a timeline...and, through intelligent risk control, have a pretty good chance of getting your capital back at the end of the game.


As I asked him to make my point: is ANY EB-5 project really a "good investment"?  Who on earth would buy into an EB-5 Limited Partnership to maximize their return on investment (ROI)?  Find me one American (or anyone else who doesn't want U.S. permanent residency) who is willing to accept a 2% ROI on a capital venture project with no recourse!   So that's the deal: I am not an investment advisor  -and, believe me, I have the portfolio history to document that thoroughly (-;.  What I AM is a grizzled old investment-based immigration veteran with a militant sense of fair dealing.   I select the projects Sharon and I market in the Far East, Latin America, and the Middle East by looking at the people behind the deal, the structure, the REAL job creation potential, and the exit strategy.  Interest rates and investment returns are of absolutely no interest to me...OR to the vast majority of EB-5 investors entrusting EB-5 projects with their capital! Ask 'em!  So if you are looking for a good EB-5 project through which you can get permanent U.S. residency with as controlled a risk as possible, I'm your man.  If, on the other hand, you are looking for a good "investment"...talk to my good friends at JP Morgan, because what I've got for you is definitely not the best place to park your hard-earned money.


Due diligence is indeed critical, but once a project passes muster, DD doesn't do a thing stop dishonest people.   I know of several megaproject Regional Centers getting I-526s approved whose mind-boggling job numbers will never fly at the I-829 level, yet sales remain brisk; on my desk I have three I-829 denials from yet another huge Regional Center whose website to this DAY boasts of a "100%" record of approval.  While Missouri's Mamtek exploded, there are others which will quietly implode via exaggerated job projections, unreported material changes, and all kinds of other stuff.  Like Mamtek, each of these invariably will have scores of politital big wigs, senators, governors, etc., all of whom gushed about the wonderful project before it went kaput, and just as the unfortunate citizens of Missouri and their suddenly-downgraded bond rating will be cleaning up their mess for years to come, so will the citizens of other cities and states where EB-5 projects fail. 


I learned a long time ago that a person's handshake matters infinitely more than what the pile of contracts may say. I've come to understand these past few years that the people behind any EB-5 venture matter far more than how the prospectus reads.  Here's how the process works for us:



  • I get approached on a deal and meet the people looking for capital.  If there is anything more to the deal than the quid pro quo of "low interest EB-5 loan in exchange for a ferocious commitment to the needed job creation and capital return within a reasonable period of time", I'm outta there.  Not interested.  (I've yet to see a single equity-based EB-5 project return capital to their investors so I won't build one that way and with ONE exception to date, I won't market them either.)  After reviewing 20-30 projects in a month, I'll usually find one deal I like for whatever reasons, but it hinges on one element: I've come to trust the people behind the deal.

  • Once that happens, I need to sell Sharon on it.  Sharon's no pushover, because she has to answer to her Asian agents.  Most times I can persuade her, thought, because she trusts my judgment and experience, and knows that while I am capable of making mistakes,  I am incapable of ever endorsing an EB-5 project I myself would not invest in if I was the EB-5 investor.

  • Next, with Sharon on board, it's time to talk to the Chinese immigration agents...agents who have placed dozens of investors through Sharon as a result of her relentless seminar tours through China.   Agents who TRUST Sharon.

  • So begins their barrage of DD questions (nothing beats explaining "rights of redemption" on Skype at 11 pm on a Tuesday, believe you me.)  But because Sharon has developed a group of TRUSTED Chinese agents, we do the long, tedious back and forth until THEY are satisfied.  Most often they are, sometimes they politely say "no thanks" to a project I like; they know what they can place, we don't always.

  • Finally, the China agents who come on board reach out through their organization with information on the EB-5 project, answer questions, and use the TRUST their reputations have earned them to have prospective investors give the deal a listen...and possibly invest.


So there you have it, I've done it again, giving away all my trade secrets. (-:  Seriously, though, can't you see how it works?  TRUST!  Latin America, Europe, Middle East, Far East...wherever...it's all about trust.   There are over 180 approved Regional Centers and hundreds of EB-5 projects under them in the U.S. and there are but handful whose structure and histories have earned my trust.  End of story.




 





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