Mike (00:00:09):
Hi, everyone. Hope you’re doing well today. This is Mike Schoenfeld from EB5AN. We’re going to give everybody else another minute or two to join, and then we’ll get it kicked off. All right. I think most people are here, so we can go ahead and get this started. So, to give a bit of background on why we’re doing this today—at our company, EB5AN, we’re focused on providing as much transparent and concise information to the EB-5 industry as we can. And we’ve started our webinars series to provide free information to developers, investors, lawyers, and anyone else that’s currently in or thinking about getting into the EB-5 industry. The origin of this webinar is that we’ve had several EB-5 events across the country, and we wanted to provide a concise, free version of this. I assume we’ll probably spend about an hour and a half going through content and then open it up for questions from the group. And the goal today is to go through everything about what the EB-5 program is—how does it work? How are jobs counted? How are projects typically structured? Really the 101 of EB-5. This is going to be a more of an introduction to EB-5—if you’re looking for advanced structuring advice, this is probably not the right webinar, but we will have some webinars on that in the future as well. So, I’m looking forward to sharing all this information with you. And, with that, we’ll get started.

Mike (00:03:11):
The most helpful thing would probably be to provide you some context on who we are and our company. So, I founded EB5AN with two other partners about six years ago. And we formed this company because at that time, EB-5 was a lot less institutional than it is today. Six years ago, many of the projects were very poor quality. They couldn’t find financing anywhere else. And we really saw EB-5 in China at that time. So, I was in New York, working at a large private equity firm, doing leveraged buyouts, and a former colleague of mine, Sam, from the Boston Consulting Group was in China and gave me a call and said, “You have to see what’s going on in the EB-5 industry.” So, I flew over to China. We looked around and realized that there was a great opportunity to offer institutional solutions to the industry.

Mike (00:04:46):
And we formed our company. We started by setting up our own regional centers. We own and operate 14 regional centers that cover more than 20 states all across the US. We’ve helped many clients set up their own regional centers. We have 100% approval to date. And then, with these regional centers, we allow high-quality projects to join our licenses, and we sponsor high-quality EB-5 projects that pass our immigration risk and financial risk criteria. After a few years in the industry, we realized that there was a pretty unique opportunity as well to provide documentation services to help developers and clients who were wanting to start in the EB-5 industry and to help them put together their deals to be able to take to market. So, that’s the quick snapshot of our company, who we are, and what we do. And that’s the perspective that we’re bringing to the table the day. We’ve been in the industry for a long time, and with that, we’ve gained a lot of experience across hundreds of projects of seeing how things are structured. And we just want to share some of those insights with you and some of the basics on the program.

Mike (00:05:25):
We like to highlight that we’re very, well-known in the industry. We’re an NES Medallion Solution partner. We’ve helped develop a software program and some tools that NES Financial leverages now. For regional center compliance—we are one of the best in class in terms of regional center compliance. And we partnered with NES to develop a solution to help other regional centers with their USCIS reporting. We’ve also partnered with Klasko Immigration Law Partners on many different projects and products and work closely with them in the industry. We have a snapshot of several client recommendation letters here. We can also put you in touch with previous clients as well, if you have any other questions after this presentation. So, I am Mike Schoenfeld. Sam is probably going to be joining us in about an hour. He’s on a plane right now. If so, he’ll dial in, but if not, I’ll be running through all of this material with you. Our third partner is a securities attorney, Timothy Shih, and he is not going to be joining this one, but he will likely be on some of the other advanced structuring webinars in the future.

Mike (00:06:49):
So, to start off with, I think what a lot of the people on the webinar really care about is going through what the EB-5 program is, and the next 20 to 30 minutes I’m going to spend on the very basics of the program and how it’s structured. So, for the basics—the EB-5 Immigrant Investor Program was created in 1990 by the U.S. government, and the goal of the program was to bring investment capital to the US. So, it’s a very unique program where there is no cost to taxpayers, and it brings foreign capital to the country to invest within the country. The way the program was initially structured was a little unclear—it was meant to encourage foreign investment, but it wasn’t really well utilized in the beginning of the program because the rules weren’t set and developers and project sponsors didn’t know the right way to structure their projects.

Mike (00:07:49):
So, the program has been around since 1990. It’s been extended every several years. It was formed as a pilot program, and it has to be reauthorized by Congress. If you’ve been keeping up with any of the legislation in news, I’m sure you’ve seen some of the articles about a lot of short-term extensions recently. Since 2015, we’ve had several short-term extensions to keep the program going. It has been continuously approved, and we anticipate that will continue in the future as well. So, the program is managed by United States Citizenship and Immigration Services (USCIS). And it’s administered by the Department of Homeland Security (DHS). So, if you think about it… so Congress authorizes this program with legislation, and then DHS and USCIS actually administer this program.

Mike (00:08:49):
Every year, the EB-5 visa category is able to issue around 10,000 visas, and these 10,000 visas count both the primary investor and their spouse and children under the age of 21. So, up until even 2010, 2011, 2012, not many of these 10,000 visas were being used every year. As of recently, more than the 10,000-visa allotment of subscribers have been investing every year, and the program has grown exponentially over the past few years. At the core, the EB-5 program is about investment in job creation. The investors have to invest at least $500,000 in a targeted employment area (TEA), or $1 million dollars, if the location of the project is not a TEA. A targeted employment area is defined as either a high-unemployment area, and you’re going to take a single census tract or multiple census tracts and combine them together to get an unemployment rate 1.5 times the national average—the threshold at this point is 6.6% because we’ve had relatively low unemployment—or it’s an investment in a rural area.

Mike (00:10:13):
And that’s an area where there’s less than 20,000 people in a city and it’s outside of a metropolitan statistic area. The minimum required investment amount is $1 million if you’re not located in a TEA, but in all practicality, a vast majority of projects are located in TEAs. I would say more than 95% of projects are located in a targeted employment area. And the other key requirement of making that $500,000 investment is that it has to stay at risk throughout the entire immigration process. So, this isn’t a case where an investor can invest $500,000 and then, two years later, take that money out of the business or sell the condos that they built—instead, the investor has to stay invested and at risk until they’re all the way through the immigration process. Yes, there’s a few other issues that you can think about—an investor can either invest directly in the EB-5 program, or they can invest through a regional center.

Mike (00:11:21):
So, a direct investment is where you have to show the creation of 10 W-2 jobs, which can be quite challenging. So, this works best in a business where an investor is starting a restaurant. They want to own the restaurant 100% and be completely in control and are going to hire 10 W-2 employees to work there. The other option, and the much more common option, is using what’s called a regional center. A regional center is a government-approved entity that sponsors projects and is able to count indirect and induced job creation. We’ll go much more in depth into how job creation works later in this presentation. But I want to make it clear that there are two different options here—either direct or regional center. And within both of those, you can invest in a targeted employment area or a non–targeted employment area.

Mike (00:12:16):
Investing with a regional center has no bearing on whether you can use a TEA or not. And sometimes, people confuse that in the EB-5 program. So, what we’ve seen, at least from the EB-5 investor’s point of view, is that the main goal of the EB-5 investment is to get the green card, the secondary goal is to have a return of that $500,000, and a far-off third goal is a return on investment. Historically, most projects have been structured to provide security on the first two as much as possible. And the return has been significantly below market, which is why this program has been so attractive to developers and other project sponsors—they’re able to get foreign capital at below-market rates.

Mike (00:13:10):
So, there’s a lot of text on the slide, and I’ll try and run through it, seeing that I covered some of it on the previous page. So, just in general, with EB-5, as discussed, it’s a $500,000 investment most of the time. And the goal is to create 10 full-time jobs to make the green card permanent. Over the past 15, 16 years, the program has grown at a rate of more than 25%, and it’s grown from… let’s see, there were only 384 investors in 2000, and in fiscal year 2016, there were over 14,000 investors. So, you can see the absolute, incredible growth rate of the program. The growth, a lot of it was triggered through the 2008 recession when developers and project sponsors were really challenged to find access to capital, and this program offered an opportunity to bring in capital to projects that wouldn’t otherwise be available.

Mike (00:14:18):
So, that’s the basics of the program. If you think of the benefits of EB-5… so, first of all, there’s the benefits to the project developer and sponsor. So, EB-5 can be very low-cost capital, and it’s also very flexible capital. You can be extremely creative in how you structure deals. We’ve seen deals put together with all different kinds of tax incentives—equity deals, debt deals, senior deals, mezzanine debt deals, common or preferred equity. Really, you have complete creativity in the works for the project to be able to bring the investors in. Of course, your project has to be marketable and has to be favorable to the investors in many ways, but you are able to be creative with financing to make it work for whatever your situation is. As long as you are able to put the money at risk and prove job creation over two years, there’s a way to structure your project for EB-5. Additionally, there’s a very long investment horizon here, since the funds have to stay at risk throughout the entire EB-5 process. It can be five years for the loan—sometimes six years. And it’s longer-term capital. It’s not two- or three-year money. The investors will not be through the process at that point. So, when you’re structuring the deal, you need to keep in mind that this money does need to stay outstanding for, most likely, five to six years.

Mike (00:15:51):
So, this chart here shows the typical flow of how EB-5 works. So, the government, in the top left, has created this program for the foreign investors to be able to invest. And most of this presentation is going to be focused on the regional center program and not on direct investment, since regional centers comprise 95% of investments. We figure it’s best for everyone to focus our time here. So, foreign investors invest their money through a regional center into a project. That project spends the money, creates the jobs, and then, at the end of the investor’s conditional residency period, they prove that the jobs were created, and the investors end up with their permanent green cards. So, the key players in EB-5—you have the foreign investors who provide the capital. You have the project sponsor who provides the project. You have the regional center, who sponsors the project, and USCIS and the government administer the entire program.

Mike (00:17:00):
One of the most common questions we get, and something that some of our clients don’t understand coming in, is “What is an EB-5 regional center?” Historically, there was a lot more confusion about what an EB-5 regional center was and what it was not. We used to see regional centers who would only be involved in a project if they were the developer themselves and they were the lender to themselves. There’s many different roles and hats that everybody can play. And at the end of the day, the regional center’s core role is to sponsor projects, administer the EB-5 program and report back to USCIS on the investments that have been made and the jobs that have been created. Regional centers are entities owned by private individuals or cities or states, and they are designated by USCS to be an approved regional center.

Mike (00:17:55):
That process involves an application where you prove that you understand the EB-5 program. You submit a business plan and economic report and operating plan for your regional center, the structure that you’re going to use, information on all the principals, and just an overall demonstration that you understand the benefits of the regional center program, and of the EB-5 program, and you intend to create economic activity throughout your geographic region by having this regional center. Our regional centers are approved for certain geographic areas—they’re not nationwide. They are meant to focus on smaller geographic areas. All of our regional centers are approved for at least an entire state, sometimes multiple states. We’ve seen regional centers approved for as little as a single county, and the largest we’ve seen are several states put together, but USCIS hasn’t been issuing as many approvals for multi-state regional centers recently. And they’ve been a little more strict on really needing to dig in and prove that your economic impact is going to affect the entire area.

Mike (00:19:06):
So, regional centers, at this point, can serve mainly two different roles—one of them is what we would call the reporting-only, or affiliation, regional center. Some would call it a rental regional center. In this case, the regional center is not the project developer. They’re not the one raising the funds. What they are doing is they have a service agreement with a project to report back information to USCIS. And that’s all—it’s an arm’s length relationship. The regional center is not touching the funds. They’re not in control of the escrow. They are not finding the investors. They are primarily helping to structure the deal and reporting on the deal. The second way that regional centers operate is as a manager of the general partner. So, this is where the regional center is wearing two different hats. So, the regional center is reporting to USCIS, and they are also managing the funds and managing the escrow account and lending or contributing the funds into the project. Sometimes, the developer is the regional center and is the manager, and it’s all the same person running the three. Other times, the regional center lender is separate from the developer. And there’s lots of different ways that this can be structured.

Mike (00:20:33):
So, this next chart focuses a bit on the flow for an EB-5 investor. I’m going to give the verbal context here. This chart is a little bit complicated, but in the basic sense, the way that this works is an EB-5 investor chooses their project. They pull together their $500,000. They document where those funds came from, and then if there’s an administrative fee, they also pull that together. So, maybe it’s $550,000, and they use that to invest in a project in a regional center. Most commonly, they become a limited partner in a new entity called the new commercial enterprise (NCE), and they invest their $500,000 in this new commercial enterprise. Once they have proof that their money has gone into this NCE, they’re able to file their I-526 petition. So, this is the first form that the investor files. An I-526 petition is comprised of two main things.

Mike (00:21:37):
The first is the investor information—so, information on the investor and their spouse and their children under the age of 21 that might be applying with them, their background, and all of the personal information on their source of funds. So, that’s the investor half of the application. The other half of the application is the project application. So, this is all of the project details. Typically, it’s 20 to 25 documents in a very large, two- to three-inch binder that goes through the business plan, the economic report, the offering memo, and what the investor subscribed to, the limited partnership agreement and all of the supporting exhibits that structure the project. This project may already be approved by USCIS if the project had filed an exemplar petition and had waited the 12 to 16 months to be pre-approved, or it may not be approved already, and USCIS may be receiving this project information along with the investor information without first pre-adjudicating the project.

Mike (00:22:42):
Historically, it made a lot of sense to file exemplar petitions when they were being approved in six months, because then you had a pre-approved project. At this point, with how slow USCIS is processing, it doesn’t make quite as much sense to file the exemplar unless you have a very long timeframe for your project. So, back to the investor flow. So, the investor files this I-526 petition, which is made up of their individual information and their source-of-funds information and the project information. On average, now it’s taking about 16 months for USCIS to adjudicate them, but we’ve seen everything from four months to four years. So, the key factors here are how clean of a case is it. If the investor is very buttoned up, their source of funds is clear, and the project is very clear or pre-approved, they tend to get approved faster. If it’s very messy and a poor-quality petition and the investor is missing personal information on source of funds or the project isn’t very well-documented, it could take significantly more time. I’d always recommend having a very well-put-together project and having a very well-put-together investor case file, where the source of funds is clean and has gone through the diligence process. Otherwise, it can be very painful to get the approval, and you can be waiting a long time.

Mike (00:24:03):
So, once the investor gets approved, let’s say 16 months later, they then have to file to adjust their status, if they’re already in the US, or schedule an interview with their local U.S. consulate, if they’re outside of the US. What we’ve been seeing recently is around six months for this to happen. And then, after that point—you’re looking at months into the process—the investor ends up with their conditional green card. So, this is the point where you’re almost two years in, and the investor has their conditional green card. Technically, from this point forward, there’s another 24 months, and then the investor files a petition to remove the conditions on the green card. And they filed the job creation evidence with this. So, the investor is approved for their I-526, gets their temporary green card, and then has two years to create the 10 jobs they’re supposed to create. Chances are, at this point, they’ve already created the job, seeing that they’ve been invested for two years.

Mike (00:25:07):
But they have, in total, about four years—the two years to get approved and get the green card, plus the additional two years to prove this job creation. Once they get to that point, they file the next form—it’s the I-829 petition. And with this, they’re submitting evidence of the job creation of the project. If it was a hotel, you would submit the expenses to build the hotel and then the operational proof, the P&L showing that the jobs were created. And assuming all of that went well, the conditions are removed. So, that’s the basic flow of how an investor goes through this process.

Mike (00:25:50):
Going back to the growth of the program on the left-hand side here—the chart starts in 2010. If we started before that, the numbers would be much lower even than that, and in the hundreds and not in the thousands. But you can see, even from 2010 forward, how much growth there has been in this program. So, if you look, 2010 and 2011 were relatively the same, but then 2012 through 2014 was a dramatic difference. And then, 2015, 2016, and 2017 is really where things grew exponentially. And this is where China ended up filling up much more than their allocation of the visas, which has led to a waiting line in China, because there were so many Chinese applicants in 2015, 2016, and 2017. As you can see in the denials and approvals over time, most denials either come from a project that can’t work for EB-5, and that’s going to be, usually, a very small project, one or two investors, or a very poorly put-together project, or it’s based on the individual investor not being qualified—either their source of funds doesn’t work, or they have some other issue for being denied.

Mike (00:27:08):
It’s hovered around a 10% denial rate historically. This is skewed a little bit—it’s much easier than 90% to get these approved as long as the investor’s qualified and the project is qualified. A good amount of these denials have been on bad projects or bad investors. So, if you have a strong project and good investors, the approval rate is very high for I-526, as you’ll see. The black line on that chart—so, that’s the pending receipts, or the pending applications, at USCIS. So, this is part of the reason why it’s taking so long to get these approvals. USCIS did not build for this type of growth and has been playing catch up due to the rapid increase in petitions over the past seven, eight years. So, they’ve been hiring, but not fast enough to work through this backlog.

Mike (00:28:06):
So, you can see that in 2015 to 2017, the number of receipts actually flattened out a little bit to where 2015 was really the peak of the most EB-5 applications received. And it’s stayed relatively stable. If you think about market share in there, China was a vast majority in 2015, and it continues to decrease. EB-5 is not as popular in China anymore due to the long waiting lists. And we’ve seen other countries really pick up the slack here, as we’ll see on the next slide.

Mike (00:28:42):
So, this is, 2017 EB-5 visa issuance. So, there’s a little bit of a lag here because this is the number of visas that were issued, not the number of receipts over the past few years. Vietnam, Brazil, South Korea, and India especially have grown, and that’s not going to be reflected in the visas issued because there is that 16-month processing time plus the adjustment-of-status time. But as you’ll see, just as a vast majority of investors were Chinese investors, about 84%, we think that over time, the market is going to become much more balanced. Vietnam has grown very quickly, Brazil is still developing, and India is going to be one of the largest markets in the future, although it has taken much longer for the EB-5 visa category to catch on in India than you might’ve expected due to the very similar demographic and trends to China.

Mike (00:29:50):
One question that I’m sure is on everyone’s mind in here is what’s going to happen to this program. If you’ve been following the legislative and policy discussions over the past few years, you know how really stressful it’s been for everybody in this space. So, June 2015 is when one of the first sets of potential legislative changes was introduced. So, in that case, it was introduced in June and debated, and everyone panicked. And then, in September, when the program was up for renewal, it was a status quo extension. So, EB-5 was extended as part of the omnibus bill. And this has happened many times—as you can see, it went from September to December, back to September, to December, to April, to September 2017, to April 2018, and then back to September 2018. So, these have been the legislative extensions. Additionally, throughout this time, the Department of Homeland Security, DHS, has introduced several policies.

Stressful it’s been for everybody in this space. So over time, um, in June, 2015 is when one of the first sets of potential legislative changes was introduced. Um, so in that case, uh, so it was introduced in June, uh, debated everyone panicked. And then in September, when the program was up for renewal, it was a status quo extension. So [inaudible] was extended as part of the omnibus bill. And this has happened many times as you can see, it went from September to December, back to September, to December, to April, to September, 2017, to April, 2018, and then back to September, 2018. So these have been the legislative extensions. Additionally, throughout this time, uh, the department of Homeland security DHS has introduced several policies.

Mike (00:31:07):
The policy proposals show, or help, or… redo the program is the nicest way to put it. There have been some strong political pressures on from both sides. This is not a Democrat or Republican issue. It goes across both parties, and there’s different incentives for members of each party on each side of the aisle. I would say, if anything, it’s more rural versus urban rather than Democrat versus Republican. And there are some very strong detractors from the program in the Senate, who have focused on some of the misuse in the past. There has been fraud in this program, as in any financial market. Going forward, the industry has really cleaned itself up, as projects have become more institutional. I think that you will see less fraud over time, but that has been a focus of some of the senators, which is a very valid point.

Mike (00:32:01):
And some of the policies introduced have been transparency measures and integrity measures to help the integrity of the program. And I think everybody in the industry understands that and is for more transparency and integrity. Now, some of the policies would have been very detrimental to the program if they were to be enacted—for example, significant increases to the minimum investment amount. One of the first policies proposed would have changed the rate to $1.35 million, which is extremely significant because almost all investors are currently at $500,000. Now, there have also been proposals to change the way that targeted employment areas are defined. That’s also a very contentious issue—right now, projects are located in Midtown Manhattan, downtown Miami, Los Angeles, San Francisco, and in downtown areas, and there are some rural states that are not too happy about that, and they’d rather have the money come to them rather than Manhattan, let’s say.

Mike (00:32:59):
There’s valid arguments on both sides. If the project is happening in downtown Manhattan, the jobs that are being created—probably they’re not for the office workers nearby, they are for the construction workers that are commuting in. So, the jobs still are being created for lower-income individuals. But there is an ongoing debate, and that has been the focus of both legislative and policy debate over the past few years. One major issue now that we’ve run into is that with China, there is this backlog. It could be up to 10 years, maybe longer—it depends on how the math works out. But for Chinese investors, now some people are estimating a 10-year waiting list—that obviously makes the market in China much smaller than it used to be. And it’s only for very select parents who are doing this for very young children that can wait for that 10 years.

Mike (00:33:58):
The core focus of every lobbying group and industry group in EB-5 now is visa relief—getting more than 10,000 visas. It currently works out where every person on the application counts as a visa—the investor, the husband or wife, the children under 21 all count as taking a visa. One proposal is to remove the derivatives and make it so it’s 10,000 actual investors per year, but it’s yet to be seen what can actually get through policy-wise or with Congress. The way that it is right now, EB-5 is such a small program, such a small amount of the overall visas and green cards in the country, and a very small amount of the overall foreign direct investment, so it hasn’t gotten the attention of a lot of people. And there’s some very loud and vocal detractors of the program, and supporters as well, but that hasn’t gotten enough momentum to actually get anything passed or approved.

Mike (00:34:57):
So, going forward, the program right now is extended as is until September 2018. DHS has issued guidance that they want to finalize their policy recommendations. They’ve issued a date of August 2018. It’s yet to be seen whether they’ll act on that. They also had a previous statement in February that they were supposed to issue, and that didn’t happen, but it is very important to be aware that in this program, there are lots of little stops and starts. And right now, we have a window where we expect at least until August the program is staying as is, and we’re seeing many project sponsors hurry to get their investors in projects funded before any potential changes.

Mike (00:35:38):
We do have a nice window here compared to some of the prior ones that were two- or three-month short-term extensions. So, that first part was the basics of the program and where we are today in the EB-5 program. I’m going to pause for a minute or two here, in case anybody needs to run out and grab a drink or answer some emails, whatever you need so you can come back and focus. Also, during this, I’m going to play a short intro on our company.

Mike (00:38:41):
Also, I’m putting a short poll out there—just quickly answer which question best describes you. And there’s going to be one other poll. This helps us gear the rest of the presentation. Give me a minute—having a little technical difficulty. Okay. Well, I’m not sure if that one’s going to come up, but please let us know—what is your experience level with the EB-5 program? I’m going to launch that now. All right. Thank you all for answering. So, it looks like we have a good mix here of beginners, intermediate, and a few advanced in there, but that means that for the next few sections, we’ll cover selecting and structuring an EB-5 project. I’ll focus on some of the fundamentals and go through to help you gain an understanding.

Mike (00:41:30):
All right. So, on this slide, let’s go through the potential ways that you can use EB-5 capital. So, before we discussed how EB-5 capital can be creatively used in the projects, and here, I’ve tried to lay out the different types of financing that you could think of as associated with EB-5. So, EB-5 can be equity, senior debt, or mezzanine debt. Historically, we saw a lot of EB-5 capital as senior debt. This was often when projects couldn’t find other funding sources. If you think about a high-quality project, usually bank debt and senior debt is available at a more reasonable price. So, this is the cheapest part of the capital stack, and with all the time and effort that it takes to raise EB-5, you see less EB-5 as senior because often there’s alternatives.

Mike (00:42:40):
There are some projects where EB-5 does make sense as senior, and we still see that. But I would say that if you’re thinking about it, a majority of the time, that is not the case. If you move further down the capital stack and think about mezzanine debt—this is where we see EB-5 capital used a majority of the time. And we see this in lots of development projects—hotels, casinos, apartment buildings, medical facilities, a lot of assisted living, and many single assets, so like a single building, large projects where there’s a capital stack—let’s say $100 million dollars—and they need to fill it up, and where mezzanine debt historically would have sat, instead EB-5 sits. So, in a mezzanine debt structure, you typically have a senior bank loan of, let’s say, 50 to 60% LTV.

Mike (00:43:44):
Maybe you have 20 to 25% EB-5, and then the remainder is developer equity. So, the EB-5 is the junior, unsecured debt here. You can structure this where the EB-5 debt goes either directly into the development company, or you put an upstream borrower in the middle to make the debt structurally subordinate to the senior debt. This is probably a little bit more advanced in going through some of the nuances of structuring, but there are several different ways that you can make EB-5 act as mezzanine debt. So, in this case, the investors are investing their $500,000 as a loan to the project, and the collateral is typically an equity pledge from the owner of the hotel or the assisted living facility or whatever it is. Normal mezzanine debt could be 10, 12, 14% or more and is usually very strict and has a lot of other teeth in it.

Mike (00:44:42):
In EB-5 mezzanine, debt is typically a lower price than that and quite a bit more flexible than typical mezzanine debt. And that’s what makes it so attractive to developers in this portion of the capital stack. It’s just a much lower-cost version of mezzanine debt. The other place where you see EB-5 capital quite often is as equity. And we see EB-5 as both common equity and preferred equity. We can start with preferred equity—when we see EB-5 as preferred equity, quite often, it acts and feels a lot like the mezzanine debt structures, where there’s a set preferred return for the investors, and they end up acting a lot like mezzanine debt, and it fills the same part of the capital stack. And it works. Similarly, what we have seen more recently is a rise in normal equity projects.

Mike (00:45:38):
So, we’ve helped structure several deals lately where maybe one family owns two Holiday Inn Expresses, and they’re planning to build the third and fourth. Several of our clients have been Indian, and they have friends and family in India that would have been equity investors in their project anyway, and they wanted to structure it so that they’re an equity investor in the deal and it’s an EB-5 deal as well. So, we’ve helped them structure that deal to work and be EB-5-compliant and also provide the type of equity structure and more similar returns to what those investors would have had anyway. I would say that that’s the most common way that you’ll see a common equity deal, if it’s people that are known to the project or people that are close—otherwise, in terms of mainstream market deals, where you’re going out to the open market, we see many more as mezzanine debt deals.

Mike (00:46:35):
I’ll leave this slide up for another minute so you can read through it, if there’s anything else that you haven’t seen. So, to give you a true example of what one of these capital stacks look like, let’s assume it’s a $100-million-dollar project. So, we’re building a hotel—it’s going to cost $100 million dollars in what I would say is a middle-of-the-fairway deal. You go to the bank and get a 50 to 60% loan to value. So, in this chart, we’re going to show $50 million, and then, whatever’s left after that we often split in between EB-5 mezzanine debt or preferred equity and common equity. So, in this case, $50 million of senior debt, $20 million of EB-5 mezzanine debt, and $25 million of developer equity. So, that’s on the left—you can see what a typical capital stack may look like for EB-5.

Mike (00:47:41):
So, the benefit here is the total leverage on this deal. Now it looks like 75% LTV, and if you had a little bit more senior, you could be at 80% LTV, which has a significant amount of leverage to the deal. And that extra leverage on top of the senior debt is way below market in terms of what the interest rate could be. Sometimes we see this EB-5 mezzanine debt coming in as a recap to developer equity or a bridge loan that the developer has put in to get the project started. Sometimes, the EB-5 money comes straight into the project and immediately goes into the deal. So, you can structure either way. The issue of bridge financing comes up quite often in EB-5. The general policy from USCIS was issued in, I believe, 2013 that bridge financing is allowed as long as EB-5 was contemplated at the start of the project.

Mike (00:48:40):
So, if you think of the spectrum here… if a hotel is fully built and operational and you want to recap out some equity with EB-5, that’s not a good project, not a good structure, and you’re probably going to get denied. But if you’ve just broken ground—maybe you were thinking about EB-5, you weren’t sure, you started moving dirt around and building, and then you decided, “Yes, I actually want to use EB-5 in the capital stack”… even if it takes you another six to nine months to fully document the project, go out to market, get the investors, and invest their money, that’s completely fine and acceptable, and you are able to count the jobs from the very start of the project, not just from once that investor’s money hits the project. So, even if it takes a significant amount of time to raise the EB-5 money, if you’re able to bridge that financing either with equity or with a bridge loan, you’re able to use the EB-5 capital in that way.

Mike (00:49:39):
So, here is a pretty typical EB-5 project structure, if you’re using EB-5 as mezzanine debt. This would be what I would think of as a middle-of-the-fairway, medium-sized hotel EB-5 deal. To go over these boxes one by one… to start with, you have boxes one, two, and three. The three of these together make up the EB-5 component of the deal. Box three is the EB-5 fund, or the new commercial enterprise. This is the new limited partnership where all of the investors go into. So, in this case, there’s 20 investors, or $10 million of EB-5—all 20 investors subscribe and become limited partners of box three, Marriott EB-5 Fund LP. Box one, Marriott GP, LLC, is the manager of this fund. This could either be related to the developer or a complete third party who’s managing just the EB-5 portion, or it could even be the regional center that’s managing the general partner.

Mike (00:50:46):
What’s not shown on this structure chart is the regional center, and that would be a dotted line to box three. It would just be the management of box three, but we’re not showing it because we really wanted to highlight here the legal structure, the deal, and the flow of the funds. So, these 20 investors all become partners, limited partners, of box three, Marriott EB-5 fund. And then, the general partner, box one, has box three make the loan to the Marriott upstream borrower. So, the general partner is in control of making the loan and administering the loan from the new commercial enterprise. So, the funds flow from box three to four. Marriott EB-5 Fund LP, the limited partnership, makes the loan to box four, Marriott Upstream Borrower. And this is where, when you’ve structured the EB-5 deal, all of those different things come into play. What are the details of this loan? What’s the interest rate? What’s the term? How are you paying the interest? And when are you paying the interest? Are there any extensions? What’s the default rate? Everything you would think of in a normal loan agreement comes into play here for the loan in between the NCE and the borrower.

Mike (00:52:05):
In this case, we have an upstream borrower. So, box four is an optional box that we do see a lot of the time in EB-5 deals, because what happens now is box four accepts this $10 million loan and contributes the $10 million to the development company. So, to the development company, it looks and feels a lot like an equity contribution because the cash is contributed down, which makes it a lot more workable with box six, the commercial bank, or senior lender. A lot of the time, you’ll run into a situation where a bank does not want to be lending into the development entity if there’s another $10 million loan for EB-5 investors directly on that entity. So, the upstream borrower provides a layer of cushion there, where the bank is lending to box five, and Marriott Upstream Borrower, box four, is contributing the equity into box five, but it’s not a loan.

Mike (00:53:06):
So, it looks and feels a lot more like preferred equity or an equity investment from the developer. So, additionally, here we have box seven, which is the developer group. This is the developer. Typically, they’ll contribute their equity, the land for the project, and whatever other cash. Sometimes they arrange for tax incentives and other financing that goes into the deal. All of the funds end up coming together in the box five, or the project company, which actually develops the project itself. So, in box eight—this is the Marriott hotel—as an example, it could be in Delray Beach. And that is the project itself. So, everything above box eight is the legal structure and the flow of funds to actually build the project, and there’s a lot of structuring that goes into setting all of this up to make it USCIS-compliant. And also, at the end of the day, this is a securities offering. So, there’s a lot of securities regulations that go into structuring the PPM and creating all of these documents.

Mike (00:54:20):
When we get to the questions at the end, we can dig into that chart a little bit more if there’s any open questions there. So, when you’re trying to select what makes a good EB-5 project from the developer side—and from the sponsor side, for that matter—you need to think about what matches well with the EB-5 program. So, you need something that creates a lot of jobs—new development projects are always great and create a lot of jobs. So, that’s great. Anything that’s operational can create a lot of jobs. So, that’s also good. The timeline is also important for the project. You want a project with a longer development timeline. If the construction on the project lasts for over two years, you get additional job creation. If it’s under two years, there’s less job creation. That’s not to say that under two years is an issue if it’s an operational project, but there are some job creation constraints that come into effect there.

Mike (00:55:19):
One other thing to think about is that a lot of EB-5 investors don’t want to hear that you need all of the EB-5 investors before you can start construction on the project. So, you should have a good answer to how you are going to start this project and maybe even finish the project without EB-5. The worst case for an investor is if you’re looking for 10 investors and only two show up and come into the project, what happens now with that other $4 million, or the other eight investors, that you were looking for? How do you finish the project? So, you need to have good answers to that. Sometimes it’s additional equity, and sometimes there’s other debt that’s available. But it’s important to know what your strategy is to finish the project if EB-5 doesn’t fully materialize. The last piece is just making sure there’s enough job creation. That’s where we can help. We have a free tool online you can use to approximate the job creation. But if it’s a new development project with an operational component, there should be plenty of job creation if you have a good portion of EB-5. You’re not going to get a 100% EB-5 deal structured like that—they don’t sell anymore. Maybe 10 years ago, you could have gotten away with that, but now EB-5 is typically a somewhat smaller portion of the capital stack.

Mike (00:56:41):
So, on this slide, we want to highlight what a project timeline actually looks like. There’s a lot of moving pieces here, and every project is different, but one mistake that we’ve seen several people make before doing all their homework in the industry is thinking that the money is going to be fast and easy money. Sorry to burst your bubble, but EB-5 is not that fast, and it’s not that easy. If you look at this chart, you can see the typical timeline to get the funds. Of course, it could be shortened a little bit, or it could take longer, depending on the specific situation, but there are very significant components to getting this funding. So, the first step that’s required is that you have to assemble the EB-5 project documents. This is the business plan, the economic report, the structuring of the deal and all of that—that could take two months.

Mike (00:57:31):
It can be done faster if everything’s ready, but a conservative guess is two months, and maybe another week or two to build out all the marketing materials and translate them. And then, you start down the marketing path. There’s a few different ways this can go on this chart. We’re showing more of the historical path—you go to a few migration agents, and they sell the project for you. Now, we’re seeing a lot more project sponsors going and finding their own investors directly and using family networks. So, that could significantly reduce the timeframe here. But if you’re using the traditional path, maybe it takes three to four months to secure the marketing partners and develop the deals and have them start marketing, and then another six months for them to find all of the investors for the deal. After that, it does still take the investors even more time to put together their individual source of funds, pull together their $550,000 and show where it came from, transfer it out of the country, get with their immigration attorney, and go through that entire process.

Mike (00:58:35):
Let’s say they do all of that, and they’re able to submit their petition. At that point, you may be able to use the funds. So, if you need the funds in under six months, EB-5 may not be the best fit. We have seen projects get EB-5 funding in as little as three months from the day they started, but that’s not that common. And we have seen projects take over a year from when they started to be able to start using the funds. So, it is not immediate cash, but what it is is cheap cash, and it’s flexible cash. It’s also not easy to get EB-5—it’s not put together a package and sit on your hands and think that investors are going to come. This is a capital market. There are many projects looking for EB-5 funding. So, you need to have a pretty good story together and be willing to put in the work to find the investors and find the channel partners that can help bring the investors to you. There’s lots of growing markets now that aren’t that overly penetrated and offer plenty of opportunity, but it’s not a situation where you structure the deal and you sit there and investors are going to find you and want to subscribe. So, I just want to make sure that that is very clear and that you’re thinking about EB-5 in the right context.

Mike (00:59:45):
So, when you’re thinking of a project, there’s a few key pieces to being successful. First, the project has to be approved, sponsored by an approved regional center. This lets you go out to market and file investors very quickly. Second, you need the full set of EB-5 project documents. This is the business plan, the economic report and the PPM, the loan agreement, the limited partnership—all the entities must be set up and everything be structured in the right way so that it can be approved by USCIS. And this is all very project-specific, and once you lock it down, you don’t want to change it. So, it’s very important to get all of this, right? The next thing that you need are the investors to come into the project. So, the investors that are going into the project—they can come from any country. Some of them may already actually be in the US on a different visa, and they need to be convinced that your project is going to get them to the green card and that they’re going to get their money back and maybe they’re going to get a return, too. Also, a marketing package is helpful to show and highlight your project. Often what we’ve seen is projects putting together a brochure, a PowerPoint deck, a web portal, and a video to easily communicate some of this information to the investors.

Mike (01:01:06):
So, at this point, we’re going to be switching into a few of the ways that we can help you before jumping into job creation and marketing. So, we’ll try and keep this pretty quick, but there’s some very helpful tools that we have that I think are worth checking out. So, the first tool that we have is our targeted employment area map. We actually did a webinar on this a few weeks ago, but with this, you’re able to, by yourself, check whether your project area is going to be able to qualify as a TEA. This is one of the first checkboxes that you have to have to do to make sure that your project qualifies to be a $500,000 project. So, you can go onto our website, click on “TEA Map,” and we actually have a very helpful video on there that shows you how this works. Also, our TEA map is the only one that allows you to combine multiple census tracts together. So, you can actually aggregate census tracts and get to the number that you need, and you’re able to do that in real time.

Mike (01:02:17):
Next is our job calculator. So, we used to get a lot of questions from clients—they would email us some basics on their project and say, “How many jobs am I going to be able to create?” We built a tool internally, an Excel database of all the different multipliers that we had for different geographic areas— and multipliers are how you actually calculate jobs, which we’ll get into later. But for this part, all that you need to know is that you input the key construction costs, hard and soft, and any operational revenue associated with the project, select the categories that most closely match what you’re going to be doing, and with that, you get a back-of-the-envelope job calculation estimate. Now, this is not the formal job report, but it’s the 80% answer to know roughly how many EB-5-eligible jobs you’re going to be creating.

Mike (01:03:05):
This is most accurate in major cities, and it’s least accurate in rural areas, because there’s a lot more of an economic study on the impact area that needs to happen in more rural areas. But this is a great tool to start with as you’re thinking about your EB-5 project. Both this and the TEA map we first built as internal tools for our company, and we decided to give them away for free and publish them for free online so that everyone is able to do their own diligence on their project and their own basic work.

Mike (01:03:40):
Next, we have an EB-5 project risk assessment questionnaire. This is helpful both if you’re an investor and also if you are thinking about structuring your own EB-5 project. This just helps you see what makes for a good EB-5 project and what some of the key criteria you should be thinking about are. And this you can also download on our website. Last, we built a regional center database. So, UCSIS has their official database online of all approved regional centers and the geographic coverage they have by state. But when thinking about a regional center that can sponsor your project in your specific county or at your specific address, that USCIS list might not be that helpful. They may have 100 regional centers listed in California, but maybe only 20 of them have the area that you need, and you would have to go through and try and diligence exactly who has that area by calling them up.

Mike (01:04:37):
So, what we did is we requested the approval letters of every regional center from USCIS with a Freedom of Information request, and we took them all and created a large database and broke down what county and region every regional center is approved for. So, this database is constantly being updated. It’s on a little bit of a lag because we have to request new letters from USCIS. But if you have a project that’s located somewhere and you need a regional center to sponsor your project, you’re able to enter the address in there, and all of the approved ones that we have the information for will immediately pop up for you, and it’ll cut your time down significantly in terms of trying to find a regional center that can sponsor your project.

Mike (01:05:22):
We also offer a preliminary EB-5 project report. You can purchase this on our website, and about half of this you could do yourself with the TEA map and the job calculation—a very basic job calculation you can do for free on the website. But if you don’t feel like going through and doing it yourself and you want us to actually do this preliminary work, we can do it.

Mike (01:05:48):
The next area that we’re going to dive into is how EB-5 fits into the equation here. We’ve run through a lot of EB-5 basics, structuring projects, and how the industry works. I want to take a few minutes just to walk through how we fit into the industry and the services we offer. I’ll try and keep the sales pitch to a minimum. We focus on transparent, free information, but this could help you in the future, just so you know what we do.

Mike (01:06:19):
So, one of the first services that we offer is helping to set up new regional centers. We’ve done this for ourselves 14 times. We’ve helped many clients through the process, and we’re able to set up a new regional center for clients. It takes us about three weeks to do all the documents, and then you file it with USCIS. I wish we could control their processing time for how quickly they approve you. We cannot control that, but we can get your regional center filed within a few weeks. The average processing times we’re seeing now are around a year. We’ve had a few come in in as little as nine months, but we are seeing some take 14, 16 months to be approved. We also actually publish our prices—we’re very transparent. For a new regional center, we charged $35,000 to set it up.

Mike (01:07:08):
It is limited to usually around two metropolitan statistical areas, or 10 to 15 counties. We can go for larger areas, but USCIS does ask questions if you’re going for a larger area, and it’s harder to show the economic impact tying them together. I would say that it makes sense to set up a regional center if you are going to have multiple EB-5 projects, you’re committed to EB-5, and you’re located in a single or a small geographic area where all of your projects are going to be. It probably does not make sense to set up your own regional center if you have projects all across the country, or you’re only doing one project where you’re not sure if you’re committed to EB-5, just because it does take, let’s say, a year to be approved and to be able to start using it.

Mike (01:07:57):
The next service that we offer is regional center affiliation. So, this is where, rather than setting up your own new regional center, you join one of our existing regional centers. With this, you’re able to bring your project to market immediately rather than having to wait that year. We go through your project and make sure we’re comfortable with it from an immigration and a financial risk standpoint. So, we make sure it’s structured appropriately for EB-5 and we’re confident all the jobs will be able to be created. And then, from the financial side, we diligence this project and underwrite it not quite as stringently as a senior bank would before issuing you a loan. But we do go through and we make sure the budget is reasonable, the pro forma makes sense, and we do our diligence on the principles of the project to make sure that there’s no bad actors involved.

Mike (01:08:44):
The benefit of affiliation is you can immediately start raising capital once your project documents are done—you don’t have to wait. The downside is that it is a little more expensive than setting up your own regional center in the long term if you are going to have a lot of projects. Once again, we actually publish our pricing—we’re transparent about it. We charge $20,000 upfront for the project to join our regional center, and that includes our diligence fee. And then, there’s a one-time-per-investor fee. It’s 1%, or $5,000, per investor, one time. When the investor files, if a project is extremely large, sometimes we can get a little lower on that, but we do stick to our standard pricing a vast majority of the time. And you can see, on the right-hand side, where all of our regional centers are approved—we are in most of the major metropolitan regions of the country, and anywhere there’s a major population, we have regional center coverage.

Mike (01:09:52):
So, this slide just lays out a little bit more of the benefits of working with us as a regional center. We do own and operate all of these ourselves. We are best-in-class operators. We’re very professional, and we are easy to work with on the regional center affiliation side. So, the last service I’m going to talk about is complete EB-5 project documentation, and this is where we help structure the project from start to finish and complete all of the documents—the business plan, the economic report, etc. We have our council prepare, the PPM, the loan agreement, the limited partnership—we set up the entities for you, and we help think through all of the structuring decisions you need to make and what we’re seeing in the market in terms of what the market rate terms are. I would say it used to be the case where you would hire five different people to help assemble this.

Mike (01:10:45):
And we realized that wasn’t the most efficient way, and it was quite expensive. So, we built the in-house expertise to be able to assemble the full documentation for a flat fee. And it starts at $75,000, and it typically stays at $75,000, unless it’s an extremely complex project with multiple offerings. The benefit here is that you work directly with us as a single point of contact. We’ve done this many times before and produced the package all in one place quickly, efficiently, and at a high quality. So, just want to let you know that these are the services that we offer. What we do the most at this at this point is helping to document projects, and we combine it with affiliation and also setting up regional centers for certain clients. We fill the middle part of the value chain of EB-5. At the very start of the value chain is the developer or the project—we don’t do that. We’re not developers ourselves. And at the end of the value chain is the individual investors, and we do not focus on finding individual investors. Where we do focus is on the middle of that value chain—structuring the project, being the regional center, and helping to put together all the materials. And if there are any investors on the call, we do have several high-quality EB-5 projects that we’ve screened through that we can suggest for your EB-5 investment.

Mike (01:12:12):
So, as you’re thinking about the EB-5 project documents, we’ll use this to walk through all of the key components, and then we’ll dive a lot deeper into the job creation part in the next section. So, the first document that you need for an EB-5 project is the business plan. So, this explains exactly how the project is going to be structured, how the EB-5 fits in, and it looks something like a normal business plan but with a lot more information that USCIS cares about. So, we can help put all this together as part of our full project documentation package. Typically, these come out to 50 to 75 pages with lots of exhibits, and it’s helpful to have market studies and other information like that to go into it to help complete a compelling story. At the end of the day, USCIS is reading this, and you need to convince them that your project is high quality and you are going to create the jobs the way you say you’re going to create them.

Mike (01:13:11):
Next is the economic report. So, we’re going to dive a lot more into job creation in the next section, but and this is where you lay out to USCIS how the jobs are going to be created. With a regional center EB-5 project, you use input–output models to demonstrate this rather than direct W-2 jobs. And for this, you show what the construction expenditures there are going to be, breaking it into categories, as well as what the revenue is going to be, with all of the supporting exhibits. And then, you use a sound economic methodology to calculate how many jobs are going to be created for the EB-5 investors.

Mike (01:13:49):
Next is the private placement memorandum. This is the disclosure document that describes to the investors how the offering is actually being run at the end of the day. This is a securities offering. So, you need a very well-put-together disclosure document, private placement memo, or offering memo that lays out how the transaction works, with the risks and everything else associated with the EB-5 project. It ends up looking a little bit like a normal limited partnership, like equity—a private placement memorandum where there are a lot of EB-5-specific nuances that have to be included. Another document is a subscription agreement where the investor actually signs up for the project. There’s the loan agreement, or the equity purchase agreement, depending on the structure, and all of these documents fit together into a comprehensive package. What the investor ends up submitting with their individual information is an I-526 template, which includes maybe 20 exhibits of all of these documents and many others, which helps walk USCIS through what the project is, how it works, how the funds are flowing, everything like that. So, before jumping into job creation, I think we’ll take another five-minute break here for everybody to be able to answer some emails. And I will also show a sample marketing video that that can be used. We sometimes help put together marketing materials, and this is just a hypothetical project marketing video that we put together so you can get a sense of what it looks like.

Video (01:16:18):
The city of Miami is located at the Southeastern tip of Florida along the Atlantic coast. Sunny weather, and world-class beaches make Miami. One of the world’s most popular vacation destinations, Miami attracts more than 15 million tourists each year who visit the city for its unique neighborhoods, art museums, and galleries, and Latin American culture throughout the year. The city hosts various boat shows, festivals, and outdoor food and wine events, with an average annual high temperature of 28 degrees Celsius. The climate in Miami allows for year-round tennis, golf, boating, jet-skis, and swimming. Miami offers 24/7 excitement, from world-class shows and premier clubs to outstanding dining and shopping opportunities. An unparalleled quality of life makes it one of the most exciting and attractive cities in the United States. We know people choose EB-5 for many reasons—for educational opportunities for your children, for better medical care, for better job opportunities, for food safety, for retirement, for family, and for their future. We look forward to seeing you in America.

Mike (01:21:24):
All right. Well, I think we can get started again. Hopefully everybody had a chance to take care of what they needed to. Okay. So, this next section is going to focus on job creation. You’ll find that within EB-5, job creation is one of the key things to keep in mind with a project. So, for the next 15 to 20 minutes, I’m going to focus all on how job creation actually works for EB-5. So, the way that a lot of people would think about job creation is, “Oh, I need, let’s say, 10 W-2 employees working in whatever my new business is for the two years,” and that is not actually the case. So, the way that job creation works in EB-5, as long as a regional center is sponsoring the project, is you’re able to use economic multipliers and economic analysis to understand the job impact of a project.

Mike (01:22:23):
So, an example of this would be if a municipality is thinking about building a new hospital, let’s say. It’s not just the doctors that are going to be working in the hospital as the economic impact and the job creation—there’s also hotels nearby that are going to be booked up with patients and families. You’re going to have restaurants nearby, and they’ll get additional business. There’s going to be janitorial and cleaning staff. There’s going to be suppliers that bring in materials to the hospital. So, there’s lots of overflow benefits, which are called indirect and induced jobs. So, when you’re thinking of the analysis, you have direct jobs, which is the W-2 jobs that you’re thinking of, and indirect and induced jobs.

Mike (01:23:15):
So, the way the job creation is calculated is that there’s two very distinct components in EB-5 when you’re doing these calculations. The first one is an expenditure-based model. So, you take the capital expenditures. Let’s say you’re building a hotel—all of the hard costs, the soft costs, the architects, the engineers—some of those costs are eligible, and some are not. So, for example, land is not an eligible expense. You’re not creating any jobs from buying a piece of land, but you’re creating jobs from digging on the land, pouring the foundation, and putting up the structure. The second half is focused on revenue. So, if you built this hotel, how much revenue are you generating? Is it $1 million dollars a year? $2 million a year? $5 million a year? And USCIS views the job creation from revenue as a factor of the multiple in the area that you’re in. So, at higher-end hotels, there may be more service staff working there, and there’s also a higher price point, which translates, as you would expect, to more job creation for EB-5 purposes.

Mike (01:24:24):
So, once you have your capital expenditures and your revenue understood, you then go through the economic analysis process. There are official multipliers published by the U.S. Bureau of Economic Analysis (BEA), but IMPLAN and RIMS II are the most common EB-5 job creation methodologies, and they both work in relatively the same way. They’re both input–output models, where you input the amount of construction expenditures or operational revenue, and you get different information. But one of the pieces of information is the total job creation impact from that category, and it gives you the direct jobs and the indirect and induced jobs broken down separately.

Mike (01:25:21):
To go through an example, let’s say we’re building a hotel for $25 million in hard construction costs. There are supplier jobs that come into play—people are driving the equipment to the hotel, and you have the actual people working on site. So, that $25 million generates a lot more jobs than just the hard hats on site actually creating the physically building on the property.

Mike (01:25:48):
Each region of the country, down to the county level, has a different multiplier. So, the job creation is simple math: multiply every $1 million of construction expenditures by the multiplier, and with that, you get the number of jobs created. So, in this case, South Florida is an example—maybe the RIMS II multiplier for hard construction is 16 jobs per $1 million spent. So, for every $1 million dollars you spend, you get 16 jobs. If you spent $10 million on construction, you would create 160 jobs in that region for that project. And on here, we also have an example where if it was $25 million, how the math works—it’s just very simple multiplication here—if you spent $25 million on hard construction, you’ll have 400 jobs being created.

Mike (01:26:50):
So, for this job creation, you do a study in the beginning before EB-5, and you have your report based on all of your general contractor forms showing how many jobs you are going to create. Great. You submit that to USCIS with the I-526 petition. When it comes time for the investor to submit their I-829 and remove the conditions on their permanent resident status, they have to show how many jobs were actually created. And the easiest way to do that is, at the regional center, you show the receipts from the construction, how much was actually spent, show all the invoices. And then, you would also show a pro forma of the project for how much revenue was generated, and that’s the validation of the jobs. It’s not providing 10 W-2s stapled together from people that had been there for two years. Instead, it’s a study that’s provided showing the job creation.

Mike (01:27:49):
And I mean, that’s a big part of the reason why almost everyone uses regional centers rather than going down the direct path—it’s much more favorable from a job creation standpoint. There’s also easier tracking of the jobs. You get more jobs, and it’s easier to track, and from a documentation side, you don’t have to collect the W-2s from everyone and keep track of all of those. So, this is going a little bit in depth, and we had a separate webinar really going into job creation and all of the nuances of how it works, but I’ll run through one of these lines on both the construction side and the revenue side quickly to give you an idea of how job creation works. So, if you go down the first column, you can see that we have hard construction purchases and the architecture and engineering and consulting services are the main categories that we’re creating jobs in for this sample project.

Mike (01:28:52):
Next, you have how much is being spent. So, you see $23.4 million for hard construction, $3.2 for FFNE, and so on. You then multiply the dollars that you’re spending today by whatever the multipliers are. The BEA only puts out multipliers every couple of years, so you have to count back to the most recent year to be able to use that number for the math. In column B, you see the number in the hard construction line, and that’s the actual multiplier for this area of how many jobs you get for every $1 million spent. So, one thing that we didn’t dig into yet is the difference between direct and indirect and induced jobs and how USCIS views those jobs. So, structuring project lasts for less than two years—you do not get credit for the direct jobs, but you do get credit for the indirect and induced jobs. In this case, as you can see, the direct jobs from construction are 170.

Mike (01:29:55):
The indirect are 176. So, you would actually only be able to count those 176 jobs because construction did not last for two years. And this math works going all the way down the different construction categories, and at the bottom, you can see that this project creates 212 EB-5-eligible construction jobs, even though, in total, it creates 408 jobs. If this was going to take three years for construction, you would get a little bit more job creation there on the bottom. We have some of the categories that you may see in a typical hotel—accommodation, a restaurant, a parking garage—and the sample numbers here. So, in terms of accommodation revenue, maybe we’re estimating, once the hotel is stabilized, there’s going to be $9.4 million of revenue. So, the total—you’d have to discount that down a little bit to get it to the current day dollars of when the multipliers were released in the hotels—creates a lot of jobs per $1 million of revenue.

Mike (01:31:01):
So, in this case, it’s 15.9 jobs. So, in total, you’re creating 148 jobs at this hotel. Maybe there’s only 75 people working in the physical hotel, but then you have another 73 people working in terms of bringing in the supplies and doing other things related to the hotel. And then, you can see the math works very similarly for the restaurant and the parking garage as well. So, in total, you add up the jobs from construction, the 212, plus the total job revenue, 173.4, and you end up with 386 total jobs from this project. So, technically, this would give you, at 10 jobs per investor, 38 investors and 380 jobs. However, I would strongly suggest that you don’t maximize the EB-5 because you’re putting some investors at risk just in case you come in a little under budget, which doesn’t happen often, but it could. Or your revenue might not quite hit the numbers you were expecting if there’s another downturn or recession, which is much more possible, much more likely, and you want to leave a nice cushion for EB-5 investors to make sure everybody ends up with their green card.

Mike (01:32:17):
So, the last piece of this presentation is focused on the marketing of an EB-5 project. We actually have another webinar coming up in a few weeks where we’ll go through the details on the marketing and how it actually works for these projects, but there are some very basic things we should discuss when you think about marketing an EB-5 project and when you’re thinking about structuring it and whether you want to move forward with EB-5. So, there’s some legal considerations here. The first side is U.S. securities law. And the disclaimer is I am not an attorney, so do not construe this as legal advice, but I want to highlight some of the typical issues that you need to take into account. First of all, EB-5 is usually either meant for overseas investors not located in the US or accredited investors that meet certain accreditation requirements to make sure they’re eligible for this type of investment in the EB-5 program.

Mike (01:33:21):
Most investors that are coming in are going to be accredited. The limits for accreditation, I believe, is $1 million dollars in net worth, and I would hope that every EB-5 investor, if they are investing $500,000 plus the fees, I would hope that they have $1 million dollars of net worth. This is an illiquid investment, and betting that, going all in on it, if you only have $500,000 is a bit of a bad idea. So, it’s good that this is typically geared towards accredited investors. Next is who is conducting the offering. How are they related? What’s being said to investors? Is there a broker dealer involved in the offering that’s managing the placement? We’re seeing this more often now, although that is a very specific requirement to dig into for your project and how you plan on marketing it. The structure of the offering is also very important, and that comes into play during the structuring, and then the disclosures in the PPM need to be accurate because this is, at the end of the day, regulated by the SEC.

Mike (01:34:22):
Even though you may not register this with the SEC or are using the exemptions, if anything goes wrong, it is absolutely in the SEC’s purview. And then there’s some overseas legal considerations. So, China is the best example, where a vast majority of investors have come from. They have official licensed immigration agents—the government in China issues licenses to companies that are allowed to sell an immigration product like this. And if you’re not licensed, you’re not allowed to sell it. So, China’s like that. I believe Vietnam is like that. A lot of countries do not have an immigration agent network and licenses, but China is one that you do need to be aware of, and there’s governing bodies that take that. The other thing to be aware of is just what your marketing activities are, what’s being said about your project—at the end of the day, it’s an issue where you are responsible for what’s being said, and you do not want to be promising false things to these investors and making wrong statements that can get you in trouble in the future.

Mike (01:35:21):
So, you just need to be aware that there are a lot of things here that you need to be focused on when you’re doing the marketing and make sure you’re doing it the right way and taking into account both U.S. and international law when marketing the project.

Mike (01:35:40):
So, when you think about what a foreign investor is deciding between, it is not always just them deciding between two EB-5 investments—quite often, they are deciding between EB-5 in the United States and many other countries that offer a very similar program. The UK has a program like this, and in Canada, every province has their own program. Quebec is the most common, but every other province has their own. Spain has some. Some countries have programs where you purchase property and you get permanent residency. Others have programs where you invest with the government and you get permanent residency. The US is the only one with the job creation requirement and the strict “at risk” rules it has. So, investors will be considering their alternatives, and that is part of the issue with a big increase in price. If USCIS or legislation does that, there are alternatives here right now. EB-5 is one of the lower-priced options and extremely competitive, and the USA is very attractive, but that could change in the future if the price tag goes up. So, it’s always important to consider other options these investors have.

Mike (01:36:56):
When you put on the investor hat of what they care about, the things that they’re going to look at are the immigration risk and the financial risk. So, if you’re wearing your investor hat, you’re making this investment for the green card. That’s the most likely situation. We do see some investors that are doing it for a return as well, and I would break the investors into two categories: just passive EB-5 investors doing it for immigration, and then a very small category of active EB-5 investors who are true entrepreneurs, starting the business themselves. Their real goal is to make money, and hopefully, they end up with a green card along the way. Your project most likely will be focused on more of the passive investors who focus on the immigration risk of the project than the financial risk.

Mike (01:37:44):
So, on the immigration side, you want your project to be as buttoned up as possible on the jobs being created. So, if you have a project that can move forward without all of the EB-5 being in place, that is a big positive because it means that there’s more certainty on the job creation. If your project is already under construction, jobs are being created. So, that is an important decision factor for investors. And also, the money has to stay at risk, so if you tell an investor, “Invest in this project and you get a condo at the end,” USCIS could construe that as not being at risk—you were buying the condo. It was not an investment, and they could deny the petition. So, I would avoid anything like that—that is not going to be approved by USCIS. The next thing that investors look at is the financial risk.

Mike (01:38:32):
So, maybe they aren’t getting a larger return on their investment, but they absolutely want that $500,000 back at the end of the time period, plus whatever the small return is. So, investors are going to dig into the project and make sure that it is a financially sound investment and that the project could maybe have been financed without EB-5. They want to see that it’s a good enough project that banks will lend to it, other lenders will put money in it, and there’s other capital in the deal. It’s a good, financially sound project in the right area, and it works, it’s feasible. If it’s a very oddball project where there is no direct comp and it’s very hard to know whether this is going to make money or go out of business, investors may not like that because they want to make sure they get their green card and their money back if they’re not taking part in the upside of a riskier project. So, those are the two key things that I would focus on.

Mike (01:39:31):
We already showed the marketing materials package and that video, but one of the things that we can help put together, primarily if we’re doing the documents, is the brochure, the PowerPoint deck video, and the web portal, which can be used when sharing the project with foreign investors.

Mike (01:39:52):
And at this point, I have one other poll that I need to launch—the last one didn’t work—just to understand a little bit more about everyone’s role in the industry. So, I’m going to try and launch that.

Mike (01:40:16):
After this poll is closed, we can run through the Q&A. We did get a lot of questions in the messages, and I’m going to read through and address many of them. Okay, great. We’ll leave this poll open for another minute or two as we go through some of these questions, but feel free to text in any other questions that you may have. So, I see several people are asking whether we’re going to send out an electronic version of this deck. We will make this recording available to you online so you can go back through, but we do not distribute digital versions of this deck. We have had issues before of people copying this deck and trying to claim it as their own. So, a recording of this will be available.

Mike (01:41:53):
And much of the information there is also available online in our free tools, and you can gather a lot of it on there. So, one of the most common questions that we saw is, “What’s going to happen in August, and how will legislation change?” So, I discussed this before, but realistically, change is going to happen in the EB-5 program at some point. We’ve been handed a reprieve from April until September without any changes. There’s a chance policy could come sooner. I don’t think that will happen. So, we have a nice time period here where there’s still time to structure a new project and move forward with it and have the investor submit before any potential changes. I personally think that most likely change is—this is an absolute certainty to me—integrity measures, just increasing the transparency of the program and increasing requirements on regional centers for reporting, which we strongly support.

Mike (01:42:52):
We already report significantly more to USCIS than what is actually required, and we believe that that is the way that best-in-class operators are going to succeed. So, transparency will likely be a key feature in the next legislation. The investment amount will likely change—it is unclear what it will change to. Some are thinking it will be an increase to $800,000. Others believe it will be an increase closer to $1 million. I would like to think it’s going to stay closer to the $800,000 range to keep the program marketable. But we’ll have to see on that. One other very likely change, and it is hard for me to predict where it will fall, is TEA reform. Regarding TEAs right now and the way the process works, we’ve also gotten several questions on this.

Mike (01:43:41):
So, we can dig into TEA reform. Targeted employment areas are issued at the state level. USCIS has given authority to each individual state to designate their own TEAs, as long as the math works. Some states, like Texas, have delegated it down even further, but in most states, it stays at the state level to get a TEA letter. We offer a service to help, but you can also do it directly. If you go on our map and you find a configuration of tracts that qualify, we give you a free export so you can have that summary of the math and you can contact the correct state agency directly. We have most of the state agencies listed on our website and their contact information, and with that, you’re able to contact the state and get them to formally designate a TEA area.

Mike (01:44:34):
So, that is how you would get a TEA. Or, we can submit it for you and follow up with the state agency. The key there is working with the correct local person and making sure the math works and they’re willing to designate it. Not every single location can qualify as a TEA, but if you’re close to an area of high unemployment, you can likely get a TEA. So, that’s a that just the basics on TEAs. If it’s a rural area, there is no official letter needed, as long as it meets the criteria listed by USCIS, and you can find that formal criteria on our site. So, in terms of legislation, back to what I think is going to happen—probably nothing until August or September, maybe nothing at all, but when it does happen, increased investment amounts are likely, integrity measures are likely, and TEA reform is likely. This is, of course, just my opinion. Things could change, but based on everything we’ve seen, those are some of the hot-button issues. Visa relief I’m not sure about—I think everybody in the industry is pushing for visa relief and more than 10,000 visas, but we’ll have to wait and see what happens with that.

Mike (01:45:47):
So, one of the questions is, “What will happen if the policy or legislation changes?” Just to build on to the last answer, I do not believe anything will be retroactive. If USCIS has changed the policies and made it so investors that were already in process had to, let’s say, submit more funds, if they increase the investment amount or change the TEA definitions, there would be a huge amount of litigation against USCIS and the government. And I just don’t see that happening. So, my guess is there will not be retroactive changes. A possibility is there’s a grace period for projects currently in market to finish out their projects, or the changes could be nearly immediate, and if you’re halfway through an offering, then you’ll need to play by the new rules for the second half. Not clear how it’s going to be, but the retroactive language has been mostly stripped out of most proposals that we have seen.

Mike (01:46:44):
One other question that we have is on the redeployment of funds. So, one issue that’s a big in EB-5 right now, especially with a long Chinese waitlist, is what happens after your project is done. So, if you’re done with the project five years from now and you’re not able to repay the investors—let’s say the hotel is operational and you want to sell it—what happens? Because the EB-5 investors need to stay at risk the entire time. So, we are still waiting for good USCIS guidance on exactly what qualifies as “at risk” in this redeployment period. Smart operators build this into their PPM and their agreements in the beginning, contemplating redeployment and putting in strict requirements such as the funds only being able to be deployed to another real estate project as long as leverage is not above 70% loan to value or the loan could be recollateralized with a different deal and paid back when the investors are through the process. We’ve heard of some people trying to put the money in an escrow account to be able to repay the investors.

Mike (01:47:51):
It’s not clear whether USCIS will deem that as at risk. Hopefully we get guidance soon, and we believe this is one of the issues that will really hit the industry over the next several years. It should be clarified by USCIS, we hope. In that same timeframe, with Chinese investors having to wait 10+ years, this money will need to be kept at risk, or USCIS will need to change their policy so these investors can get paid back during their waiting list period after a certain point, but it’s yet to be seen.

Mike (01:48:27):
We have some questions on investors’ source of funds and transfer of funds. So, from China, historically, there were currency controls. So, individual investors could only transfer $50,000 themselves, and they had to gather 10 friends and family to use their $50,000 allotment as well to be able to get all of the money out for their project. That was the China way, and it was done for a while. The government tightened currency restrictions, and people had to get a little bit more creative, although China has slowed down significantly. I believe in India, it’s $250,000 a person. So, that’s a lot easier—if you have a husband and wife, then you have the allotment right there. And in the worst case, you may need one other friend to help transfer those funds, but that is a lot easier. Every country has their own nuances for what happens in currency transfers. Sometimes it’s easy, sometimes it’s difficult, and there’s also source-of-funds issues for every country where sometimes money isn’t well traced. Sometimes people don’t really pay their taxes at home and it’s black money that’s undocumented, and how do you use that? So, there’s a lot of different questions that immigration attorneys and source-of-funds advisors really need to help investors with throughout that process.

Mike (01:49:52):
There have been several other questions on how long the waiting list for China is. It’s impossible to know exactly because it depends on 30 different factors, but the best guess that we’ve seen is about 10 years. Some are saying up to 15 years—I don’t think that’s realistic right now, with attrition rates and with other things that could happen, but it’s possible. But realistically, it’s probably around a 10-year waiting list for a Chinese investor. Vietnam recently hit, or will hit retrogression, for current investors. That’s the only other country facing this issue. Over the next several years, as India and Brazil, and even South Korea, grow in their EB-5 markets, there is a chance that retrogression will hit, but unless any of these markets look like China, the retrogression is not going to be nearly as painful as it is for China.

Mike (01:50:44):
And for many other countries, like India, for example, the process of trying to get a green card through H-1B is just so daunting, and the timeframe is so long that even if there is a two- or three-year retrogression, eventually, for India, that is still a much better option than anything else on the table. And with current potential H-1B reform making it so spouses can’t work and other things like that, it is a real possibility that H-1B will be a major driver of EB-5 investment for the next several years, at least.

Mike (01:51:28):
One other question that came in is, “How do bridge loans work?” So, for bridge loans, it depends on where they’re coming from. It can either be an equity bridge from the developer that’s paid back immediately when the EB-5 investors come in, and you can have it where $10 million additional dollars are put in by the developer and eventually $10 million of EB-5 comes in and repays the developer directly. Alternatively, you could have a third-party bridge loan where maybe you’re borrowing that $10 million at 10% per year until EB-5 comes in, and you’ve negotiated with the lender to be able to repay it whenever the EB-5 comes in without penalty. So, there’s lots of different ways that you can structure bridge loans to work with EB-5. The key is just to have it structured ahead of time.

Mike (01:52:28):
A question that usually comes up when you’re thinking about EB-5 projects, and this is a good area to focus on for the next few minutes because the escrow landscape has changed significantly over the past few years—four years ago, it was very common for a project to have an escrow structure, where an EB-5 investor would put in their $500,000 into an escrow account, and it would not be released to the project until that individual investor was approved by USCIS, until they had their I-526 approval. You never see that anymore. Back then, it made a lot of sense because USC could approve these petitions quickly and the investors didn’t want their money going into the project until they knew for sure they were approved. With processing times of 16 months and more, that doesn’t work for projects. So, it shifted from 100% escrow until I-526 approval to what we’ve seen as a common structure over the past three years, which is what we would call a hold-back structure or an 80–20 early release.

Mike (01:53:21):
So, the investor puts $500,000 in escrow, and maybe there’s a trigger where you need to find half of the EB-5 money, which is the tipping point for the project to move forward. And once half of that money is found, 80%, or $400,000, of each investor’s funds are released into the project. So, $400,000 goes into the project and $100,000 stays in a hold-back account. So, this $100,000 is in the hold-back account and pooled with other investors so in the event any of these investors are denied, they’re able to go to that hold-back account and repay that denied investor. So, that way, you’re able to use the money earlier, and the investors still have the protection of having a hold back so that in the event of a denial, they can get their funds back.

Mike (01:54:18):
So, that’s great, but that also doesn’t work for all project sponsors. Sometimes you can’t sit and wait a year and a half or two years for that last 20% of the money. Otherwise, you would just have to increase your budget, and you’d be taking on more debt. So, more recently, what we’ve seen is a shift towards 100% early release, where once the investor files their petition, 100% of the funds are released either immediately or once a certain threshold is hit—let’s say enough EB-5 investors to actually complete the project. So, that’s a structure that we’ve been seeing more recently. And with that, we often see a developer give a guarantee to repay any denied investors. If a developer can’t give that type of guarantee, you may still have a hold-back, or the investors may still want to hold back.

Mike (01:55:08):
But if you have a very liquid parent company or developer that guarantees that if an investor has their I-526 denied, they will either replace them or repay them, then you’re seeing more of the 100% earlier release. There’s several banks in the industry that understand and know EB-5 and that you can work with for either escrow or a control account for the limited partnership. Sometimes we see projects working with a local bank, which is great, but trying to work with a Wells Fargo or Bank of America is sometimes pretty challenging because they don’t have the EB-5 expertise and their compliance is very difficult to work with. But if you work with us to structure your EB-5 project, we have several banks that we have good relationships with that we can work with to hold the limited partnership funds and serve as the NCE account provider.

Mike (01:56:10):
There’s another question on TEAs. It’s really up to the individual states to designate what they will or will not allow. In New York we’ve seen several TEAs that go over a river and go into another area, and those have been approved. And it is up to the state, though, whether the area of water contains a census tract and is connected to the other census tracts. We also have other states like California that have very strict rules. You can have up to 12 combined census tracts, and they cannot have one that’s an entirely a body of water in there. So, you can’t skirt around different areas by using water. So, every state is different in what they allow, and it’s up to working with the individual state to get that designation. Some states only allow a single census tract, but we see most states are relatively flexible when it comes to TEAs, because if they don’t designate an area as a TEA, another state will, and the capital will go somewhere else. So, it’s in the state’s interest to designate areas as targeted employment areas, assuming they qualify mathematically.

Mike (01:57:22):
And we’re getting close to 3:00. I’m going to wrap this up in the next few minutes. I don’t want to hold you more than two hours for this webinar. But the last question that I’m going to address is the administration of the project. So, the general partner is typically the party that’s most in control of the funds and the project administration of the loan or the equity investment and reporting to the investors. This is a true private placement. It is a limited partnership, and the general partner should take their fiduciary duty very seriously, reporting to the investors accurately and managing the loan and the funds appropriately. There are third-party software solution providers like NES Financial that offer very helpful overlays to fund accounting tracking and providing transparency to the investors, and we highly recommend their services.

Mike (01:58:24):
They’re very good at providing that extra level of transparency, but at the end of the day, it is up to the general partner to manage the administration and to provide this type of oversight. The regional center has to report to USCIS on this, but they are not often directly in control of the funds, tracking the funds and managing the funds. So, I guess for the final comment, I would definitely urge everyone to take that responsibility very seriously if you are the general partner and know you are managing the investors’ livelihoods and their immigration, as well as their funds, and it is a very important role. So, I really appreciate the time that everybody spent listening today and taking part in this. I really hope that this was helpful and provided a good foundation for what the EB-5 program is and how it works.

Mike (01:59:16):
And also, hopefully you understand what we do as a company, how we fit in the middle of the value chain, the services we offer—regional center setup, affiliation, project documentation, etc.—and we also have very high-quality projects, if there are investors interested. And we look forward to hearing from you and working together in the future. What would be helpful is, if you don’t mind, shooting us a quick email on any feedback that you have. You can email us at info@eb5an.com, or you can email me directly at mike.schoenfeld@eb5an.com. And the spelling of that is on the website. You can also email anyone else from our team. if you’ve already been in touch with them. Let us know how this was. If you have any feedback or any additional questions that we didn’t answer, we are more than happy to follow up on that. And hopefully this was helpful. Thanks and have a great rest of the day.