Monday, November 19, 2012

Proliferation of EB-5 "Funds" Spells Trouble for Developers

There is one indisputably clear "job creation" impact of this whole EB-5 business:  it is sure opening one heck of a lot of new collateral businesses within and without the U.S.  Consider:
  • While there were but a handful of immigration attorneys creating complex EB-5 Regional Center structures just a few years ago, we suddenly have hundreds of self-proclaimed experts all to happy to put together an RC.
  • China has the only organized, government-licensed (if somewhat less than ethically pristine) immigration agency structure on earth, but there are suddenly of "immigration agents" in Russia, Brazil, you-name-it aggressively marketing their proven EB-5 results (??) to U.S. EB-5 projects
  • The notion that there is this big, long-line of prospective EB-5 investors lined out the door of each of us who work in this business has triggered a rapid growth in mezzanine debt providers who claim they can use EB-5 investment "pools" to provide short term venture capital to desperate U.S. developers.
I'm not going to get into the cornucopia (hey, give me a break, it's almost Thanksgiving and I never get to use that word) of SEC violations associated with the notion of collecting money from an investor as the law requires (i.e., via a Reg D or Reg S exemption to registration) and putting that money elsewhere.  I won't dwell on the notion that you can raise venture capital via a private placement without fulling disclosing the specific use of the funds under U.S. securities and state blue sky lies (you CAN'T.)  And I won't harp on the AMPLE adjudicatory history, stakeholder dialogue, and regulatory guidance which makes it crystal clear that USCIS wants to see a specific EB-5 investor's money go into a specific, USCIS-approved EB-5 project and NOT into some vague, general-purpose capital stack distributed for multiple, unrelated projects.

I will simply leave you with a blog entry from my friend Boyd Campbell, who finds this whole mess as downright absurd as I do.  Be careful out there, my sophisticated developer friends, the investors in China aren't the only ones getting bamboozled. 

Boyd Campbell's excellent blog about USCIS policy wavering

Saturday, November 17, 2012

EB-5 Marketing: Time for a Post-China Vision

Last June, I had the privilege of serving as discussion leader in Nashville at ILW's annual EB-5 Summit, held in concurrence with the American Immigration Lawyers' Association's annual national convention.  During a morning break between sessions, my dear friend Sam Udani -- the founder of ILW, the Web's foremost resource on U.S. immigration law -- leaned over and whispered something he'd said to me a year earlier, in New York:
"Jose, never mind the expiration of EB-5; next year we are going to RUN OUT OF EB-5VISA NUMBERS!"
It made sense the first time he'd said it in New York, I'd had time to think about it...and history was rapidly proving him right: we knew that FY 2012 EB-5 numbers were going fast compared to FY2011 (in the end, 7500+ EB-5 slots went in '12, an increase of 3500+ in '11; what an awful lot of people in the EB-5 world don't seem to remember is that the 10,000 cap doesn't just count the EB-5 counts spouses and children as well, and that looming 10K cap is pretty much around the corner!).  I agreed with Sam, so I brought up the subject of hitting the 10,000 cap later that day at the seminar in Nashville; we echoed each other's comments, but, alas, we were two lone voices crying in the wilderness: the fear of the looming September 30th termination of the last EB-5 Pilot Program extension was all anyone wanted to talk about.
Well, fast forward a few short months and, as Sam predicted, we are there:  the December 2012 Visa Bulletin issued by the State Department -- the monthly calculation on the consumption of U.S. immigrant visa numbers --  says the following about EB-5 visa availability (excerpting the EB-5-specific language and highlighting key points excerpted):

Employment Fifth:  Current*

*The following advisory is based strictly on the current demand situation.  Since demand patterns can (and sometimes do) change over time, this should be considered a worst case scenario at this point.

It appears likely that a cut-off date will need to be established for the China Employment Fifth preference category at some point during second half of fiscal year 2013.  Such action would be delayed as long as possible, since while number use may be excessive over a 1 to 5 month period, it could average out to an acceptable level over a longer (e.g., 4 to 9 month) period.  This would be the first time a cut-off date has been established in this category, which is why readers are being provided with the maximum amount of advance notice regarding the possibility.

The above projections for the Family and Employment categories are for what could happen during each of the next few months based on current applicant demand patterns.  The determination of the actual monthly cut-off dates is subject to fluctuations in applicant demand and a number of other variables which can change at any time.  Those categories with a “Current” projection will remain so for the foreseeable future, with the possible exception of the China Employment Fifth preference category mentioned above

As someone who has spent roughly 50% of the past 12 months in and around China, I can tell you this: the momentum for interest in the EB-5 has never been greater, and the capping of investor visa opportunities in China's key historical outlets for this type of migration -- Canada and Australia -- has only increased demand.  It is my personal opinion that just as key family and work visa categories have historically backlogged from high-demand countries, the same will happen with EB-5...and China is the number one demand market for the EB-5 investor visa.

So, as a Regional Center just entering the EB-5 game or even pending approval, what do you do?  You develop a multinational marketing plan which identifies investor opportunities in different global regions.  While it would be silly to say that any one or even cluster of these other markets can numerically compete with Chinese EB-5 demand, consider the damage that has been done within the China market by unscrupulous projects, agents, and structures.  Chinese investors and the agents who, under Chinese law, MUST represent them, view even the most bulletproof deals with a jaded perspective as a result of all the really bad EB-5 deals pushed upon them.  (When I was Fraud Officer in Ciudad Juaraz, Mexico 20+ years ago, about 80% of the marriage-based visa interviews I conducted revealed sham marriages for visa purposes only; it is human nature to become cynical after repeated negative experiences, and I remember having to remind myself daily about the 20% of couples, the bona fide marriages...).

Add up this new reality, long ago foreseen by the inimitable Mr. Udani to this embattled China EB-5 market and the logistics of getting investment funds legally out of China after the accredited investor is on board and you have to ask yourself:  "is there an easier way?"  I'm not going to pretend I know the answer to that but I do know this:

  • There is increasing interest in the EB-5 materializing in countries like Mexico and Brazil, powerhouse economies with LOTS of qualified EB-5 prospects looking for a Plan B;
  • Chavez' reelection will trigger an assured continued exodus of the country's affluent business leaders, who are increasingly concerned about the careening Venezuelan economy;
  • Russian, Kazakh, and Pakistani business owners and professionals -- the men and women who meet the SEC definition of "accredited investor" not by virtue of bloodline but by virtue of decades of tireless hard work and relentless saving, often as expatriates in remote locations -- are seeing the respective implosions of their own nations in various ways, shapes and forms.
I've spent more than half my time this past year focusing on marketing Lake Point Capital Partners in the Far East, and it's been an amazing year.  Five years ago, when I was first carefully educated into even believing that EB-5 could really work fairly by Pat and Kraig of EB-5's game-changer, CMB, we experimented with marketing EB-5 in the Latin markets I knew so well.   Later, when Lake Point was an infant EB-5 deal in diapers, Jud and I hit Dubai.  The results in both cases were, candidly, less than spectacular.  But this past September, when I visited Pakistan, it was a different story.  The world, my friends, is catching up with EB-5 and America is still the best place on earth to assure a bright future for your children.

The point is this:  I'll still be pounding out seminars in the Far East, but I truly believe it is time for diversified marketing approaches for EB-5 projects.  As so many more legitimate U.S. developers understand and delve into EB-5 structures, it is MHO that, for new projects entering the world of EB-5, a China-only model is no longer feasible.

Friday, November 9, 2012

Lake Point EB-5 in Vietnam

I know, I know...I've been a terrible slacker blogger person.  BAD Jose.  I have been a rolling stone/flying MACHINE since the beginning of September and Immigration Insider has been dormant.  No more Global Entry booths in sight till next year and I'm actually going to remain in the U.S. for the rest of the year -- longest time in U.S. in well over a year!  The plan is to get back into the daily habit of updating Immigration Insider before I am again China-bound on 1-1-13!

But that's for Monday.  Right now I'm on day 5 of non-stop EB-5 conference calls so I'll leave you with this cool HLG ad for Lake Point seminar in Vietnam last month and my sincere wish that you have a great weekend!

Lake Point Seminar for Vietnam Migration Agents