Sam (00:00:06):
Hi everyone. This is Sam Silverman, managing partner of EB5AN. Today, we’re going to be discussing best practices for EB-5 redeployment, a very important topic in the EB-5 program context. We’re going to talk about redeployment in terms of compliance and also how to avoid potential issues that may come up as a project is considering different redeployment strategies.

Sam (00:00:38):
First, we’re going to start with a quick overview of what we’re going to cover today. First, we’re going to spend a few minutes talking about some context about EB5AN, for short, and our guests today, Ronnie Fieldstone and Jay Rosen from Saul Ewing Arnstein & Lehr. Then, we’ll spend a few minutes talking generally about how redeployment works and what the current USCIS guidance is on redeployment. We’ll talk about some specific redeployment strategies that Jay and Ronnie have seen in practice with several of their clients. We’ll talk about some of the problems and issues that may come up if a redeployment isn’t handled correctly, and then we’ll open it up for questions at the end. Obviously, redeployment is a very large topic, and there’s a lot of different angles and a lot of specific situational questions.

Sam (00:01:41):
And so, please submit the questions that you have during the webinar, and try to keep them as general as you can, and we’ll try and cover as many of them as we can at the end of the webinar. Also, this webinar is going to be recorded, so no need to take notes. And if you are looking for a copy of the slides, you can email us info@eb5an.com, and we can share a copy of the slides as well. Following the webinar, a link of the full recording will be on our YouTube channel in the next few days as well. Okay. So to start out, we’ll first cover this first section here. So, as I mentioned earlier, I’m Sam Silverman, managing partner at EB5AN. Today it’s just me. As you can see, myself and my two co-founders Mike and Tim, we come from an institutional investment, corporate law background, and we entered the EB-5 space in 2013. A little bit more background about our company—we’re a regional center operator consulting firm and fund manager. Over 1,800 investors have joined projects under our regional centers that we own and operate across the United States. This is a quick overview map of where some of our regional centers have coverage and where we sponsor projects ranging from one investor to several hundred investors across the country …

Sam (00:03:23):
… and a similar overview map that shows where some of our investors have come from over the years. Most important here is that investors from a wide variety of backgrounds from around the world have consistently found value in our approach to EB-5 investment.

Jay (00:03:47):
Hey Sam, I’m sorry. I’m getting a couple of texts from some folks that are saying they believe they’re on, but they can’t hear anything. I don’t know if that’s an issue, but I just want to bring that up.

Sam (00:04:04):
Okay. Uh, let’s see.

Sam (00:04:21):
Hold on one second. Okay. Jay, can you hear me now?

Jay:
Oh, I can hear you. This was just a text from one of our contacts that said they could not hear, but they understood that they were logged in.

Sam:
Okay, perfect. Okay. That should address the issue now. Okay. So continuing on. So next I’ll introduce our two guest speakers today, Ronnie Fieldstone, Jay Rosen, both partners at Saul Ewing Arnstein & Lehr, Saul for short. We’ve worked extensively with both Jay and Ronnie over the last seven years on many different projects around the country. And we’re very excited to have the opportunity for them to share their expertise with us, particularly on redeployment and some of the complexities that they’ve helped clients work through over the last several years. So I’ll let Jay and Ronnie jump in and quickly introduce themselves and share a little bit about Saul. And then we’ll jump into the core content of the webinar.

Ronnie (00:06:21):
Yeah, good afternoon, everybody. Ronnie. And I’ll let Jay go. Just briefly, as many of you know, our firm has been actively involved in EB-5 since 2009. And this is probably one of the most important topics in the industry because there’s far more redeployment money available than new money, which has dried up a lot. And it’s extremely complicated. We’ve been involved in at least, I’d say, 30 redeployments or more, and we’ve seen it all over the map, the contested, non-contested. So I think this webinar will address a lot of these issues and answer questions. Okay.

Jay (00:06:58):
Yeah, no, I certainly repeat those sentiments. Also, you know, Ronnie, even before myself, has been working in the EB-5 space for many years—I joined his group back in 2009. We’ve certainly done, geez, Ronnie, I don’t know how many EB-5 projects over the last many years, but I’d say upwards of $6 billion or so of EB-5 capital. Our firm is multi-regional from up and down the East, almost the entire East Coast and the Midwest. And we’re full service, where we do the corporate securities transactional work, we do the real estate loan work, and we have a very involved immigration practice for EB-5 and general immigration work as well. Thank you.

Sam (00:07:56):
Perfect. Thanks. Thank you, guys. All right. So I’ll now kind of provide a quick overview of the redeployment process, and then we’ll jump into some of the more specific details with Jay and Ronnie. Okay. So, high level, what is redeployment and when does it happen? And what’s USCIS’s guidance on redeployment? So, the redeployment issue comes up because an investor’s capital must remain fully invested and at risk until the end of the two-year conditional residency period. So, those are the requirements set forth by USCIS. And so, what that means in real practice is, if a project or business enterprise that’s taken in EB-5 investment capital, if there is a liquidity event that happens before that two-year risk period is over, at a minimum, then the investor’s capital can’t just be handed back to them, and it must be redeployed into an alternate investment to continue to satisfy this at-risk requirement.

Sam (00:09:09):
And there’s a few nuances around timing. When does that have to happen? And how does that work? But in general, the money has to remain at risk during that minimum two-year period, during which the investor has their temporary green card. Now, previously, there was minimal guidance around redeployment, but in the last year, USCIS has provided more specific guidance around the timing of the redeployment of capital. When does it have to be redeployed? And also what types of investments qualify? What types of investments do not qualify? And where does that redeployment have to happen? Does it have to happen in the same city, in the same county, in the same geographic area where the regional center is? Those items were previously not known and were clarified in the middle of last year, in July. And we’re going to talk about all of those rules, and that will help kind of shape the discussion around what types of redeployment strategies can work that meet those requirements.

Sam (00:10:21):
Okay. Before we get into those details, just to visually kind of walk through the timing and how a situation like this will occur at the beginning of the project life cycle—an investor files their I-526 up here at the top, then the I-526 is reviewed. For simplicity, let’s just assume that that’s about two years, then after the two-year period, this particular investment investor gets their temporary green card, which starts the clock on their two-year conditional residency period, year three and four, the blue bar there in the center. Then, let’s say during that period, at the early onset of the third year, skipping down towards the bottom, the project is sold, right? So, let’s say it was a hotel—it got built and it was opening and operating, and then it got sold. And so, per the USCIS rules, the capital needs to remain at risk.

Sam (00:11:23):
And there’s a 12-month period during which that capital must be redeployed, with an asterisk from USCIS that says, you know, special circumstances, you know, may be considered to extend that period. But in general, 12 months is what they’re looking to see the reinvestment happen. And so, because there’s still the full two years needed for that investor to have their capital remain at risk, that capital is going to need to be redeployed, and ideally within 12 months of that liquidity event. And so, once that happens, then the other major bright line rule is at the end here, in the bottom row—when is the investor eligible for repayment? Once that 24-month period has been completed, then the investor can be repaid, right? So, again, these are the kind of the foundational rules that were conveyed in the July 2020 policy update from USCIS. And so, at a minimum, these are kind of the rules redeployment needs to be structured around. And so, there’s a lot of flexibility, you know, beyond these rules, but this is kind of the starting point for evaluating what redeployment strategy a project could have.

Sam (00:12:50):
Okay. And so we’ll spend a minute just quickly going over what those rules are in detail. So first, generally, financial instruments cannot be purchased. Second, EB-5 capital must be redeployed in a commercial activity that’s consistent with what’s been happening previously with the NCE, which generally just means any type of activity. That’s, that’s pretty general. Then, third, same NCE. That’s expected. The same entity took the money in from investors, the same entity is going to be loaning it out or investing it. It’s an equity investment. Four and five, those are kind of the really important ones. So, redeployment must happen within the same geographic area of the same regional center. So, let’s say that you invested in a hotel in Miami, and the regional center that sponsored the project covered, you know, Miami-Dade, Broward, and Palm Beach County. Well, then the reinvestment has to happen within one of those three counties.

Sam (00:13:56):
It doesn’t have to be the same county, Miami-Dade, but it has to be in the same area that the regional center is approved for. Now, you could expand the regional center before the redeployment happens, and we’ll spend a minute talking about that later, but in general, you’re going to be restricted to the regional center coverage area that you started with. And then, lastly, we mentioned earlier that 12-month target window for redeployment. Okay, so now we’re through kind of the foundational context for how redeployment happens and what the current USCIS regulations are. Now we’ll get to the fun part and talk about some more of the kind of specific details in the real-life application with Jay and Ronnie around, you know, how is this actually happening? And we’ll start that discussion off with Jay and Ronnie kind of walking us through, you know, who are the various parties that are involved in a redeployment and, you know, what’s at stake and the different incentives and, you know, kind of how that works in a traditional deal structure. And for this structure, we’re going to assume that a loan has been made and that it was done, obviously, at the previous $500,000 level. So now that we’ve got this structured chart pulled up, I’ll let Jay and Ronnie jump in and kind of walk us through this first chart. And then we’ll shift over to the second one that shows the redeployment as well.

Jay (00:15:31):
Sure. So in large part, what Sam talked about in the beginning is you have an EB-5 loan, in our example here being made to the original borrower. That borrower is now repaying the loan back to the NCE, the EB-5 lending entity, and that EB-5 company is now taking that repaid EB-5 loan fund and utilizing that to make a redeployed loan to a new redeployment borrower for what is, in most cases, a new redeployed project. And so I’ll start off with a little more on, kind of, who the players are, because that is really one of the main starting points when you’re considering a redeployment program. You have to understand there’s many different parties that we have to consider and what their roles are. And so, you have the developer, the project company, you’ve got the EB-5 company, you’ve got the EB-5 company’s manager, you’ve got the regional center—in some cases they’re the same, or they’re affiliated. In all these cases, you’ve got the EB-5 marketing agents and other intermediaries that, even at this stage, are still involved and working with or advising their EB-5 investors.

Jay (00:17:11):
And then, of course, you have the EB-5 investors. So, all of those different parties—understanding who they are is important. And just as important is what are each of their roles, what’s the regional center’s role? Is it just a Rent-A-Center, which, you know, for lack of a better term, is a regional center that’s just allowing the NCE, the project, to affiliate with that regional center, or is the regional center affiliated with the direct manager of the EB-5 company? Were they involved or are they involved in the marketing to the EB-5 investors? Is it a separate and independent EB-5 manager company that may, in some cases—a lot of cases we see it’s affiliated with a project company, developer borrower, and in those cases, there’s typically an independent EB-5 manager or financial manager—we call them so that there’s independence between the EB-5 lender and the borrower. So I’m digging a little deep, but you see that there’s a lot of different components as far as who the parties are. And then, you need to understand what exactly are their roles, who’s really managing the EB-5 company, and who is in control of the money and the flow of funds and the direction of funds.

Ronnie (00:18:41):
Okay. And Jay, I want to add to that, very important… Jay’s right regarding the practicality of what’s going on. I want to make another point of the big-picture economics, and it’s been a source of a lot of consternation litigation and dispute. If you look at the chart, there’s five players in the EB-5 world: you have the developer, you have the regional center, you have the manager of the NCE, the NCE, and investors. And you have the agents that brought those investors into the program. Now, in the original offering documents and the original package, normally the developer doesn’t play a role, doesn’t get any money, they’re just a developer. The regional center gets paid money for sponsoring the project—could be an upfront fee, a per-click fee per investor, or an ongoing fee based upon the loan balance outstanding, or a fixed amount.

Ronnie (00:19:43):
The NCE manager usually gets paid some fee for services rendered. The investor gets a rate of return, and the agents get traditionally a significant portion of the total net profit allocation, which is industry standard. Now you’re five years later, or six years later, maybe, plus or minus. And now you’re redeploying a loan that maybe was not contemplated in the original transaction. And now you’re negotiating. If you’re the managing general partner that has control of the money, you’re going to redeploy the money, which we’ll talk about in this webinar somewhere. But as part of the process, there’s going to be an economic structure. Let’s assume, hypothetically, the original loan was 5%, and those days that was the market rate, and that was divided accordingly. Now you’re going to redeploy, and maybe the rate is 5%, maybe it’s 6%. Rates have gone up a little, maybe, in the redeployment world, but let’s assume it’s a 5 or 6% rate.

Ronnie (00:20:46):
The question becomes, how do you cut the pie? Because the agent may or may not be entitled to continue to earn a commission. The investor may not be satisfied after five or six years with getting a very small fee to return, and the regional center wants a slice and the manager wants to be paid for the efforts they’re providing. So a lot of the controversy is undertaking a transaction, and we’ll get into the notification to the investors and the economics that go with the transaction. It’s not assumed, although it could be assumed, that it’s the same as the first round—the first round would be, everybody gets paid what they got before, the rates are the same, no harm, no foul, but generally that’s not how the industry is working. So, I think when we go through this today, we need to consider all the moving parts and how we manage this process because a lot of it may be written, but as a practical matter, investors, as we know, have been very frustrated. There’ve been a lot of litigation cases, a lot of hiring of attorneys.

Ronnie (00:22:00):
And part of the role of any best practices for redeployment is to try to mitigate the risks of actions, whether founded or not founded, as a result of the way the redeployments are conducted. Hopefully that’s a helpful overview.

Sam:
Yes, that’s great. Thanks. Thank you, Ronnie. We’re now going to shift over to the second chart to kind of illustrate, mechanically, how funds get repaid following the conclusion of the initial investment and then how that looks, you know, going into it as well. Jay, do you want to walk us through this chart?

Jay (00:22:50):
So we’ve talked a little bit about it earlier, but you see here, the EB-5 investor makes a subscription to the project by way of making an investment in the NCE. The NCE uses all the collective EB-5 funds from the investors who make the loan to the project company. The project is completed and gets repaid to the NCE. And now, the NCE has to redeploy funds because as Sam was saying before, with respect to the immigration-related issues, investors need to maintain their money at risk. EB-5 capital cannot be repaid to them until they’ve satisfied their sustainment period. And so, what do you gotta do? You gotta move the football, and the clock starts ticking once the funds are repaid.

Jay (00:23:46):
12 months, maybe a little longer, because they’re now looking at the totality of the circumstances. We’ll talk about that later. Obviously COVID is something that’s top of mind when you think about redeployment opportunities and timing of identifying opportunities, getting consents from investors, to the extent that that’s applicable, and then actually redeploying those funds. The right side of the slide is the redeployment project. And so, we really talked about the original structure chart so far. We have not really gotten into so much the redeployment opportunity itself and the redeployment project. And it looks in large part like the original offering package or chart, right? You’ve got a project company that is now the redeployment borrower, and you’ve got the new project. That’s the redeployment project. You have the same NCE EB-5 lender, of course, that’s making the redeployed loan, but very similar to the original offering structure, the original project capitalization structure.

Jay (00:25:07):
You do that. You have the same picture here in the redeployment project structure. Is there senior financing? What’s the project company developer or sponsor equity or monster equity? We have the EB-5 loan. Is there any other means of financing? Is there already existing EB-5 financing unrelated to our NCE’s redeployed loan? That’s actually very common. We’ll talk about that later, too, because a lot of these redeployed projects are affiliated with the original project company. But I think that shows much of what you’re seeing here on this slide, unless I’m missing anything, Ronnie, you want to add, or Sam.

Ronnie (00:25:48):
Yeah. Right. Thank you, very well done. I want to add a few points to that. Part of the process, as we talked about before, is now we’re getting into a different issue. Forget splitting the pie—that’s one issue. The other issue is the integrity of the redeployment transaction, and we view, in the best practices, that you must look at a redeployment transaction in the same light as you viewed the original transaction from a diligence standpoint. So, what that means is it’s not enough just to say, okay, we’re going to put this money to work. We believe you have to treat this like a brand-new real estate loan. I call it an investment, but it’s really a loan because you’re not selling a security when you’re reinvesting, you’re redeploying money into another project, if it’s real estate, assuming it’s real estate—it may be some other asset class. And therefore, it’s really necessary to go through the same type of process you went through before.

Ronnie (00:26:47):
So, the first issue when you do this process is to—it sounds obvious, but it may or may not be obvious—you’ve got to look at your corporate documents and your offering documents and older deals. All transactions clearly had issues because they didn’t address redeployment because redeployment was not an issue in great detail or understood in great detail until the June 14, 2017, policy memo that was issued by USCIS, which kind of set a template, which was substance, which was amended obviously by the July 24, 2020, modification to the policy memo, addressing in more detail redeployment. So the process, a lot of the older documents didn’t really focus on. They did say you have to maintain the at-risk requirements, didn’t necessarily go into detail. Don’t forget, in the olden days, until the June 14, 2017, policy memo, it was always believed, at least from an industry point of view, even if it was right or wrong, that the I-829 adjudication had to be accomplished before the individual could get their money back.

Ronnie (00:28:07):
The policy memo in 2017 corrected that. Now you have to meet a sustainment period. So all of a sudden, you have a brand-new standard that’s not even in your operating documents, offering documents, or operating agreements, if those documents were done at an older date, and now you look at your documents and you say, wait a minute, that’s my obligation to redeploy, how do I treat sustained investors? How do I treat investors that are all in different places in the capital stack because of retrogression in China versus non-retrogression and other countries, or retrogression in Vietnam? Of course, there used to be retrogression in India, but that’s no longer relevant. So these are all things you have to take into account because you have investors not similarly situated from a timing point of view. So when you look at a redeployment, you’ll say what the first issue is, is how long is the investment for? Is it going to be for five years, seven years?

Ronnie (00:29:00):
Who’s our audience? Who are we protecting? We’re protecting investors with all different time zones, as far as when they can get their money back. And then you may have withdrawing investors who say, “I want to get out of the program. I’m from China, and I’m not going to wait another 10 or whatever number of years it takes to get in the country.” And we know that China, more than any other country—which is logical—would have investors that want to withdraw because they don’t want to wait for the time to go by to, you know, potentially come to the country. So, these are very important structure factors in designing this redeployment model. And how do you address the loan term when you have a schedule of investors? It varies. What we do is we immediately ask for the investor list and their filing dates for retrogression purposes—when they filed the I-526.

Ronnie (00:29:51):
We try to get a status report and where each investor stands, and we try to do a mathematical calculation of the shortest and the longest of when investors are gonna be entitled to get their money back at different points in time. So, investors that have come into the country and are in their sustainment period, you can monetize that easily. Those investors are still waiting to get a visa. Then, you have to look at the status of what country they’re from and what the retrogression is—complicated formula. Then there’s the investors that want to withdraw—different situation. So, when you have an investor, for instance, in the sustaining period, and they only have six months left, one would argue, why are you redeploying their money? You should just hold it in escrow and give it to them at the end of the six months, because the July 24, 2020, policy memo finally gave clarity that one year is a realistic timeframe to redeploy. So, theoretically, for anybody under one year, there is no need to keep the money at risk. You can theoretically keep it in escrow and give them back the money—why reinvest their money and then have it outstanding when they could get their money back? So this is a major undertaking that needs to be evaluated. Jay, I’m going to kick back to you on the disclosure issue, which we take very seriously. Why don’t you present the disclosure items that we consider relevant?

Jay (00:31:16):
Yeah, that’s fine. And I know, Sam, we’re probably bleeding a little bit into the next slide that you have where we kind of listed the high-level topics, and we’ve already kind of started going into that, but, um, yep.

Sam:
Go ahead, Jay. We’ll shift over to that next slide now.

Jay:
All right. And again, you know, so much of this, folks, is obviously interconnected and whatnot to, you know, to an extent where we’re going to be jumping around between these high-level topics, so that we’re really making sure we’re giving you as much perspective and insight on all these components [as possible], because, again, they’re constantly bumping into each other and overlapping. But I’ll start with just jumping into what Ronnie was just saying, which is, you know, the disclosure requirements and whatnot. And so, just at a high level, when you’re doing a redeployment program, first and foremost, you’re trying to understand, once you get a lay of the land, like we’ve talked about—who are the players and their roles, and what do the offering documents say and any other relevant governing documents say—how are we approaching the investors?

Jay (00:32:29):
What form is that taking now? We’ve done a lot of redeployment transactions, as Ronnie was saying before. And ultimately, what we’re presenting to the investors is some form of disclosure document, whether it’s a confidential information statement, a notice to members, a notice to investors, whatever we call it, which, a lot of times, is dependent on what the offering documents say. We are presenting a very detailed disclosure package to the EB-5 investors. Now, at a high level, one concern is… is this a notice document that has all of the disclosure information about the repayment of the loan and the redeployment opportunity or multiple redeployment opportunities that are being presented, or is it also going to be coupled with a request for consent? And that’s always obviously a big concern for our NCE management clients and whatnot. And you gotta look at the governing documents of the original offering package that were provided to the investors.

Jay (00:33:41):
Like we were saying before, in a lot of cases, redeployment wasn’t contemplated so much, you know, prior to 2015 or so. So, you know, in the last several years, though, there has been redeployment that’s been contemplated in the documents. So, a lot of times, that redeployment concept is described in detail in the original offering documents. And so, we look at that in terms of what will dictate the extent to which we need to include in this disclosure notice package to the investor or our request for consent. Now, just quickly, I’ll say in some cases, you look at the original offering documents, and some cases, this is what we’ve drafted for our clients. And we discuss it with our clients, and this is something they want, or that is ultimately implemented that every EB-5 investor needs to consent to where the money is getting redeployed.

Jay (00:34:39):
In a lot of cases, that’s not the case. And it’s that whatever basically a majority of the investors agreed to will get redeployed. In some cases, it’s the manager’s discretion, but it includes certain criteria for what types of alternate investments, what type of redeployment projects, and the terms of that redeployment law related to this redeployment transaction will be. And so, there’s whole criteria that must be followed. And so, our notice package to the investors, in terms of the consent issue, will comply with that. And so, we, as a firm, it’s really a case-by-case basis. We have to look at what those documents say are their criteria, or is there other direction we have from those documents on how the redeployment needs to be made? So, that was just a little on that, but the structure of these disclosure documents, besides just the consent issue, which is obviously a big issue… I’ll just speak very quickly.

Jay (00:35:54):
This is a notice package. This is not a simple notice to investors. That’s a couple of pages where you’re just saying, “Hey, the loan was repaid, and we’re redeploying it,” like Ronnie was saying before, when we’re looking at what this redeployment opportunity is, and maybe there’s a couple of them or more than two. We look at it almost like we look at the original offering and the original project. We need all that information. So, we do the same thing. We include all that information about the redeployment project, the redeployment loan terms, the capital stack of the redeployment project… all of that is included in this notice package with schedules and exhibits and whatnot. And there’s full disclosure to the investors.

Ronnie (00:36:47):
And I might add there, Jay, and we always do an immigration analysis. Usually, we have the immigration attorney give an immigration memo, one for the benefit of the investors, especially ones that have been around for a while, where the old offering didn’t address it, explaining the whole concept of redeployment and retrogression sustainment period so they understand what their rights are from an immigration point of view. We usually also include in the notice the status of the immigration. You’ve got 50 investors, you know, and everybody’s got I-526 approval, 35 investors are waiting for their visa to come into the country. 15 investors are in the country, and 5 have reached their sustainment period. The other 10 have not. I mean, these are the types of facts that are very important because it gives everybody a template of where everybody stands in the process.

Ronnie (00:37:41):
We think it’s good, useful information. We also have a risk factor section, which we think is important, just like we did in the beginning. The risk factor really addresses a project, much less the immigration, because the immigration memo will address the immigration issue. So we do a risk factor, just like in any investment, of the redeployment transaction, no different than you would do for the initial offering. The other aspect that we think is very important is what we call—and again, let’s go down to best practices—best practices, study corporate, number two, analyze immigration, number three, transparency, full disclosure, and independence. So, how do you get independence? There’s many ways, but the best independence you can get is having an advisor who advises about the transaction as independent—that’s one type of independence, could be an RIA, could be a real estate expert, could be someone who was very experienced.

Ronnie (00:38:41):
The second situation, which is we think is critical, is getting an appraisal or a feasibility study of the transaction so we’re not just relying upon the developer saying, “Here’s my numbers, and here’s my projections,” but getting a third party that would do a similar report to what you would give to a senior lender to verify the values and the projections so you know that the third party has signed off on this. Just because you have the right to do something, if you’re the manager or GP of the NCE, you still have an obligation to use reasonable diligence under industry standards to properly vet the transaction and undertake the redeployment. Whether it’s a loan or equity, it doesn’t matter. Doesn’t really matter either when you’re making an investment, really. So we think that’s very important in the process.

Jay (00:39:36):
And I would add, too, some things also that we’ll include in this disclosure document is more, again, information about the redeployment project. So, structure chart bios of the executive management—again, very much in line with the original offering, but the idea is we as the NCE manager and the NCE want to make sure we’re putting our best foot forward here, acting in good faith, complying with our fiduciary duties, and giving investors the full picture of what this redeployment program is. And so, I mentioned, I think, before, is there a senior loan? What do the senior loan terms include? The material terms of it? What does the capital stack look like? That’s really important, too, because one important component in reviewing the whole redeployment program is trying to make sure that it’s as similar as possible to, really, the structure of the original investment that the EB-5 investor invested in. So, is it a similar project that it’s going into? It doesn’t have to be, but from an immigration standpoint, we understand you want it to be as similar as possible to the original so we’re showing as little change as possible. Does the capital stack look similar? Is the project company developer equity?

Ronnie (00:41:06):
Uh, Jay, I think they say in the 2017 [policy memo] that it really has to be in accordance with the business plan, whatever the heck that means. So if you’re invested in real estate, the issue is—I think it’s correct—can you invest in any other real estate? Does it have to be at the hotel? And can you now invest in multi-family? I don’t think anybody has a problem with the fact that a real estate investment is broad enough that you can go from A to B, a different asset class.

Ronnie (00:41:34):
Could you go from a hotel to an operating business? I don’t know, that’s a different animal, and you’re going to end up in an operating business, which technically would be okay but may not meet the requirements. So those are, you know, pretty, pretty basic issues that need to be addressed. Sam, I don’t know if you want to get us to get into this… we may want to address some of the problem areas here. And I don’t know, Sam, if you want to talk about it a little, this was all well and good, but what are the problems and how do we try to mitigate risks both from a corporate point of view and an immigration point of view?

Sam (00:42:14):
Yeah, yeah. Before we jump in on the specific risk-mitigation strategies, I just want to add in a couple of points on some of the things that Jay mentioned. So, you know, from a kind of roadmap perspective, starting out, obviously the first thing is what Ronnie mentioned, you know—review everything that you have in place, right? Particularly the PPM, the LPA, and the loan agreement. Those are going to be kind of the governing documents for, you know, what types of steps need to be taken. Does the project, or does the NCE, need investor consent at all? Or can it just, you know, make a recommendation and move forward with just notice, or is there, you know, an investor vote, and is it a majority vote or, you know, there’s a number of different requirements that have to be met per the original corporate documents.

Sam (00:43:08):
Then when you start shifting over to, okay, you know, what are you going to reinvest into particularly, you know, we’re seeing this a little more often now—redeployment with a little bit of investor participation in terms of choice, right? So multiple investment options. So, you know, even if the original corporate documents don’t require investor consent or an investor vote, you can still provide investors with options, right? Instead of just picking one and then kind of just notifying investors of what, you know, what project their money is going to go into and not giving them any opportunity to, you know, to weigh in on that. Right. So a good theoretical example of that is, let’s say the original investment was done as an interest rate-only loan, and investors were getting a low rate of return. Now that loan is up, let’s say, as Ronnie mentioned—let’s say it was a 5% loan and investors were only getting, let’s say half a percent.

Sam (00:44:15):
And it was a five-year loan. Now that loan is up. Now, the money comes back and now, you know, you’re going to… let’s say one of those options is another loan with the same terms, same, you know, return structure, same risk profile as the original loan, or let’s say that, you know, there’s now also an equity option, which is going to pay a higher rate of return with more risks. But, you know, that’s going to compensate investors for, you know, taking on that risk, right? And so, you know, if you provide investors with an option, then, you know, you’re kind of, you know, giving them a little bit more flexibility and also potentially expanding the pie as well for the other, you know, participants involved… the GP, you know, might make more money. Agents might still be involved. And so, you know, there’s sometimes in optimization of allocation of the capital in a way where everyone is, you know, is essentially better off in getting what they want.

Sam (00:45:18):
Right. Some investors may not want to take more risk. And so, okay, no problem. Those investors go into the loan that they were in and continue along that route, whereas other investors may want, you know, since they’re going to continue to be invested for years into the future, they may want a higher return, and they’re willing to take on, you know, a little bit more risk. So that’s just, kind of, one thing to consider. And again, the same level of diligence and transparency and third-party verification, as Ronnie explained earlier, particularly around third-party diligence, valuation reports, all of that… you’re going to want to have that same level of reporting and information provided on one or multiple opportunities. Anything that’s presented to investors as a choice of where their money goes needs to meet, needs to have that same standard of presentation and detail. And then, Ronnie, do you want to spend a minute or two talking about the fiduciary duty and kind of how to think through that as a manager of the NCE?

Ronnie (00:46:24):
I’d be very happy to share. Thank you. The first fiduciary duty, of course, is looking at your corporate documents. The second is disclosure, making sure you make proper disclosure. The third is really… that’s a really complicated one. First of all, for instance, the agents continue to get paid in many cases. Now, the agents are paid when the loan’s repaid—the old agreements typically say, well, the loan’s outstanding, you get your take. And when the loan is paid, you’re paid. Now, as a practical matter, this is where it becomes very interesting. Practically, let’s assume the agents, one agent, or a few agents, raise most of the money. It’s probably not good practice to avoid the agent and then try to go directly to the investor and get them to either consent, or, even if they don’t consent, buy into what you’re doing. So we advise clients to engage the agents, pay them something to provide the service for the benefit of their customers and keep them in the loop.

Ronnie (00:47:25):
That would be step number one. I know Sam was dealing with that, too, because you deal with agents all time. So I’m sure he’s had a lot of experience with that, but we find it to be a best practice to keep everybody in the loop. And we generally find those practices are generally better for trying to increase the yield to the investor who didn’t expect, when they made the investment, instead of a five-year investment, they’re now into a seven-, eight-, ten-, fifteen-year investment, depending on what country they’re from, and the slowness of the process, that surely would be something to consider. I’m dealing with this issue now, Jay and I, with multiple deals, and I’ll list what the issues are. These are practical issues. Somebody has already met sustaining period. Your document doesn’t deal with the sustainment period because it didn’t exist. Now with the I-829, are you going to ignore the document or amend the document or take the position that obviously giving an investor back their money earlier doesn’t prejudice anybody, why wouldn’t I do it?

Ronnie (00:48:20):
Because they, you know, “sustainment period” was a non-existent term until June of 2017. So, the next thing is, how do I treat my sustained investors? Is it fair to redeploy their money? When I can write them a check, they can get their money back, and they don’t have to take a risk? Then you have the investments that are within the sustainment period, addressing their needs and where they are. And is it fair to put them in a five-year loan when they only need to be there for less than two years? And then you have… we’ve addressed, and it’s complicated. There’s the concept of laddering. They call it laddering, it’s like laddering bonds, or, it’s called, you know, cost averaging. When you buy something, you cost-average, you invest over time.

Ronnie (00:49:14):
Dollar-cost averaging is a technical investment term—same concept here. Is there a way to ladder the investment term or the loan term or the equity investment or a loan where you can get some degree of repayment or return of money over a period of time that would otherwise meet the needs of the various timeframes of the investors? One option. Another option is maybe do two redeployments: one standard five-year, because we’ve got a lot of redeployed people are going to be there for a while, and second, maybe do a different loan or an investment, much shorter-term, to take into account the needs of those people who will need satisfy a requirement within a much shorter period of time. And that’s some of the… I guess the art of the practice is to really try to navigate these complicated financial issues, which require a lot of immigration input as the estimations of sustainment period achievement together with the economic model.

Ronnie (00:50:15):
So we think that’s very important, and the analysis. The other… and then giving, and this is pretty standard. We do it, but you don’t legally have to—when you do your redeployment notice to the investor to give them the right to withdraw and get their money back. You may not legally opt to do it, but a lot of investors are sort of saying, “I want my money back, just get me out of the deal, I’ve finished.” Or maybe we have cases where they got visas elsewhere… they got married, the spouse got them in there, and they found another way to get into the country and they don’t need EB-5 anymore. So they just want their money back. Is it fair to redeploy their money when they’re willing to withdraw from the program? Going through that right now in multiple cases. So there’s a lot of issues, fiduciary issues, that are really not defined clearly because these have never existed before.

Ronnie (00:51:10):
They’re not the documents typically that need to be addressed. So I think those are key factors, and it’s very important to get legal advice. And what may be even better is… it’s just as important to get third-party advice. This is where the advisor comes in, where the manager or GP goes to a third party and says, “Give me a report, give me a report on the redeployment, give me a report on how to deal with investors. Tell me what would be an appropriate way to proceed.” And therefore, you’re… I wouldn’t say it’s called an insurance policy, but it sure helps to get independent verification as advice to rely upon in addressing these issues. Jay, you may want to add to this. Did I miss anything?

Jay (00:52:01):
No, that was good. I think that the key is that you don’t jump into a redeployment program and then just press the button and implement it and reach out to investors because it’s just… there’s so many components to it and parties and factors that are affected, depending on which way you go, that you want to get your ducks in a row before you do that. And you know what? We see a lot, too. And like Ronnie was kind of referring, he was referencing a bit ago, you’re typically getting some input from your marketing agents, sometimes directly on smaller deals. A lot of times, the NCE management comes to us and says they already know what the investors want. They’ve soft marketed the redeployment concept to them on what the developer’s looking to do. And they already have an understanding generally that everybody’s going to want to go this way or that way.

Jay (00:53:08):
And we’ve already talked with this agent and that agent, so the issues that we’ve found that have arisen that have been most challenging are when folks haven’t done that exercise to the fullest extent before proceeding down the line in their whole redeployment transactions and whatnot—you want to do this. And, you know, we’re having calls regularly with clients now on redeployment. And what we tell them is, don’t wait until the loan is repaid. It should be months before where we start having those discussions and strategizing on what you need to do to gear up for when you are ready to redeploy. Because, as I said at the beginning of this webinar, it’s a race against the clock, which we all know.

Ronnie (00:54:03):
Yeah, by the way, just adding in too, I did neglect something. We often recommend doing a conference call with investors. And, of course, if it’s China you’re dealing with, WeChat works very well. Or some communication, maybe you call an investor meeting. If you’re the manager, GP, you have counsel there, you can discuss what you’re doing and get input—that way the investor feels involved in the process. Again, very valuable getting the agents involved because we want the agent support. But I think that the idea, especially now, in my perception, is there’s a lot of distrust in the industry for obvious reasons. And investors are getting legal counsel. Obviously, law firms are actively soliciting investor representation, and I’m not complaining about that, it’s just a reality, and investors are entitled to legal representation if necessary to make sure their interests are protected.

Ronnie (00:55:03):
So you’ve got to look at this as a… you got to have your antenna up when you take this process on and try to be as transparent, independent, as best as possible, and use a reasonable degree of due diligence. And when I say independent, I don’t mean that you can’t redeploy back into the same developer project—say, a project with the same developer. On the contrary, one would argue that if you made the original investment with a developer that was successful and paid lack the EB-5 loan, then you’ve already got a track record with that developer. So there’s nothing inconsistent with redeploying back to that to that developer has already proven that they successfully finished the project from both an immigration point of view, and a corporate, an economic point of view. And by the way, later documents drafted in a later fashion, they commonly reference the preference or the right of the GP manager to redeploy back into a project preferring the same developer.

Ronnie (00:56:07):
And that’s becoming common for the reason that the developer… most developers want to retain the money. The reality is developers are having a major role in where the money goes because they paid the loan off. They may pay it off early, and they want to know they can redeploy the money into another project. And clearly, there’s a lot of advantages to that, providing all of the other conditions are satisfied… you know, the independence, valuations, you know, appropriate notes of the documentation, et cetera. So it’s kind of a really complicated process and we can give a choice. We have developer clients who actually go to investors and say, “I have three options for you. I’ve got project A, B, and C. They’re all different but within immigration guidelines. We’ll give you a choice. You can go into all three, you can take one or the other, et cetera. And if you don’t like any of them, you don’t have to go into any of them. I’m going to come back to you with another choice.”

Ronnie:
Another issue we have to address is to the extent that investor consents are required or majority consent are required, what happens if you don’t get a majority consent? It’s a 51–49. I feel like I’m dealing with Congress now. And then what do you do with the 49%? Do they not get redeployed because they’re sitting there with a timeframe? So the issue is, can you redeploy the money for the minority people that want to invest and then take the other folks and present them with other alternatives? These are, again, very challenging, interesting issues. So they have… do you have any thoughts on this? I mean, I know

Jay (00:57:43):
I was just going to add a couple of things. So, first off, first I wanted to say another thing that makes it helpful when it is a redeployed project that’s affiliated with the same original developer is the developer knows EB-5, which we all know on this call is very complicated. So you don’t have to give an education to that redeployment borrower, and it makes it easier to proceed through the redeployment transaction and the administration of the loan. Like we were saying before, what happens when an investor reaches the sustainment period? But you know, oftentimes there’s favorable terms where the borrower can make an early repayment for purposes of returning funds to investors who’s satisfied their sustainment. Or if there’s a withdrawal situation, or changes in EB-5 laws, and now we have to amend the EB-5 loan docs, just like we’d do in the original EB-5 loan docs, various things happen that are immigration- or EB-5-driven.

Jay (00:58:51):
So it just practically ends up being an easier execution and administration of a redeployment program and a redeployment transaction over a period of time during the term of the redeployed loan. When it is the affiliated developer and they’ve already been vetted, like Ronnie said, it’s oftentimes a similar project or similar terms. A lot of times, it’s the same senior lender. And now you’re, you know, we have this in a few deals, I’m on the phone with a senior lender, and we just did an amendment to a loan agreement related to a redeployed loan or an intercreditor agreement related to a redeployed EB-5 loan for another transaction, or they were involved on the original EB-5 transaction. So, just practically, what you find is a much smoother process in that sense there.

Sam (00:59:53):
Thanks. Thank you, Jay. So one thing I want to kind of run through is, like, what this looks like, you know, in a real-life scenario with, you know, careful advance planning, right? So let’s say, you know, there’s a hypothetical loan that’s been made. Let’s say the loan is coming due… let’s say December 31, 2021. So, 11 months from now, you know, a loan is going to be repaid, and you’ve got 11 months to figure out how this redeployment is going to happen, right? So during that period, you know, you’re going to consider, you know, hiring third-party consultants and assistants to help determine what projects you potentially want to redeploy in and, you know, work together to put together that diligence package that’s going to be, you know, that’s going to be required. Let’s say that the project documents basically say that, you know, there’s no investor consent required.

Sam (01:00:51):
And, you know, they’re pretty general, right? But no investor vote is needed. And the general partner has discretion to, you know, maintain the investments in accordance with USCIS policy. In most cases, probably over 50%, certainly not in all cases, but in most, you know, especially the earlier, vintage projects that we’ve seen, it seems to be kind of more of the case where a general partner pretty much has discretion and there’s no requirements. So in a situation like that, you know, from a kind of efficiency perspective, you’d want to work hard over the next 11 months to put together all of those research documents and analyses, you know, from a risk reduction perspective. Let’s say that you would invest it with, you know, developer A, right? And the project went well, everything finished, it’s final.

Sam (01:01:47):
Now let’s say that developer A has, you know, three new projects, right, that you could go into. Let’s say that one is basically identical to the one you went into originally; the second one, a little bit more risk, a little bit more return; and the third one, more risks, but also more return. Right? And so, even though you don’t have to give investors an option—you could just pick one, theoretically, take one and just move all of the money there—you know, to reduce your risk, you could offer investors a choice, right? You give them notice, maybe it’s a month or two before the loan is repaid. You know, maybe you send out the package, have an investor conference call with a translator. You provide all the documents in English and whatever the other major, other languages are, if other languages are involved, provide everything, you know, give them a month to review everything and, you know, ask for a written acknowledgement of, you know, which of the three projects they want to go into.

Sam (01:02:50):
And then, once the loan is repaid, you know, you immediately move the money into, you know, one of those three or spread it across those three options, depending on how investors, you know, selected, right? So you’ve done the advance notice. You’ve provided them with all of the diligence third-party verification documents we talked about earlier, and, you know, you’ve made yourself available for questions and, in an interactive format, you know, given enough advance time for investors to conduct their own diligence, and you’ve gone above, you know, your control and you haven’t just said, “We’re going into one project.” You’ve given a choice, you know, with varying risk–return profiles, and it’s the same developer. And so, you know who’s successfully, as Ronnie mentioned, you know, familiar with EB-5 and has already done a project. And so, you know, you’ve tried to reduce, you know, your risk as much as possible, you know, by doing that, providing the notice, providing the optionality and, you know, giving investors the full set of information as early as you can, while at the same time planning to not have a long gap period where the capital is just sitting idle and not earning a return for the investors or for any of the other parties involved and also, you know, limiting the amount of time where it’s not really at risk at all.

Sam (01:04:18):
I don’t know, Jay, Ronnie, did you guys have any other… in your opinion, what else could be done in that kind of a scenario to, you know, to make it even, you know, a smoother process?

Ronnie (01:04:30):
No, I think you’ve hit on the head points. There’s one thing, I mean, I know we’re getting to the end of the timeframe, but there’s something we need to address that will affect all these issues. It’s the July 24, 2020, policy memo update. And it’s interesting because I have a lot of problems with it. Not by me, I mean the industry has a lot of problems with it, and I’ll say why we have to figure out what to do with it. About USCIS, I totally disagree with what they did. They claim that the July 24, 2020, update was a continuation of the June 14, 2017, policy manual. So you’d say, wait a minute, you’re telling me that this is an update? So they made it retroactive, believe it or not. So what did that do? First, same regional center, same territory. Wait a minute. Why is it that? I mean, there’s no logic. You know, I’m probably saying something that may not make the government comfortable, but from an industry point of view, why would you limit the geographic territory where we deploy when you don’t have to create jobs?

Ronnie (01:05:45):
I understand the job creation, and that’s part of the incentive for the economic benefits of society. But when you’re redeploying, you don’t have to create any jobs. So why would they limit that? There is no basis in their position, but they just took a policy position. That’s step number one. So what does that… it restricts the territory of where you can deploy. So if your project’s in the greater New York area, then your region is New York, plus maybe a little New Jersey, a little Connecticut, that’s it. Now, that’s a big area. Don’t get me wrong. Not a bad territory. But you could be in the middle of nowhere in a rural area or somewhere else. Where are you going to redeploy? There may not be, you know… you could be in a very low-population state, Vermont, Montana, Wyoming, you know, et cetera, et cetera.

Ronnie (01:06:35):
If you’re in a major metropolitan area, it’s probably not as big a problem because you have a lot of choices. No logic. The other factor is, it’s going to be litigated. It’s retroactive. How about the projects since July 14, 2017, that sort of redeployed in different territories not in the territory of the regional center? What do you do with those folks that have already redeployed their money? Are they at risk now of being, you know, denied because they’re no longer meeting the at-risk requirements? Think about that. I don’t get it. I don’t know how they… it’s one thing to make a policy. It’s another thing to make it retroactive. And we weren’t sure in the beginning, but they came out and said it’s retroactive. So given that scenario, we have a few clients that correctly redeployed their money. It did not go to the same territory.

Ronnie (01:07:34):
And then the question becomes, well, what do you do? Well, one option is you go back, which is one option… you go back to the… if it’s the same developer, you may have leverage and say to the developer, look, we’ve got a problem here. And ideally, you arrange for the loan to be repaid and redeployed back into the territory of the regional center. That would probably—no guarantee—fix the problem. Because one would argue that when you found out what the policy was, you complied. But you may not be in that luxury because you redeploy, and you can’t get the money back because the borrower says, “Wait a minute. I’m sorry. I can’t, you made me a loan. We have a loan. The money was deployed. What do you want me to do?”

Ronnie:
And I don’t know, maybe the new administration will change this or clarify it, or somebody will get their senses right and say, how can I retroactively apply a policy that was not clear in the beginning? Because the original policy memo never mentioned territory of redeployment. We all knew was an issue. So we felt that since it wasn’t ever addressed, either publicly or privately, it was once a stakeholder comment that was discussed but not resolved in a call where the commentator that asked the question received the response saying, “We’ll take it under consideration whether or not it needs to be the same regional center, because we didn’t address it.”

Ronnie (01:09:15):
And that should have been prospective. So then when you read, there’s a few other things, unfortunately, you can’t change. If there’s an issue, can you change the NCE? Can you change out? So assume the FCC comes in, there’s fraud. Your money’s still in the account. Can you redeploy the money somewhere else? Can you do this? So there’s so many variations that weren’t addressed in the regulations that really were maybe unintended consequences. So, I know things need to be considered… unlikely regional issues, but of course, when you’re considering a redeployment, you’re now looking at a zone to comply. I don’t think anybody wants to intentionally redeploy contrary to the policy, the latest update, but it’s very limiting.

Sam (01:09:58):
Thank you. Thank you, Ronnie. I want to spend just a minute talking about the geographic area issue that you brought up, and the thing there is that, you know, obviously there’s the regional center’s initial geographic area that was set up at the time that the initial EB-5 project investment was done, but it is possible to expand the geographic area of the regional center to cover a greater area, which could give the sponsor a bit more optionality in terms of future redeployment. So particularly for projects like one in more of a rural area or even one in a more metro area but that has a small initial regional center geographic area… for example, if we look at, let’s say, the state of Florida, and if the regional center only started with Southeast Florida, just a few counties, and, you know, you knew today that you’re going to have to redeploy, most likely, given the backlog and, you know, where your investors are through the immigration process…

Sam (01:10:58):
You may know that you’re going to have to redeploy in, you know, four years, right? And so, it may be very well worth it to expand the geographic area of your regional center, file a Form I-924 amendment, and increase from just a few counties in Florida to half the state or the entire state. So then, when you do have to redeploy, at the time the redeployment is done, you could redeploy essentially into any project in the whole state instead of just those few select counties. So that’s something to really keep in mind, you know, for projects with a smaller coverage area where, you know, maybe that developer has another project, but maybe it’s not, you know, right down the street from the original one. So just a good kind of strategic approach to where the investment might occur. All right. That’s pretty much the end of the formal materials that we have now for the webinar today. So we’re now going to shift over and try to cover a few questions that we’ve received. And I’m going to put up the contact information here as well.

Jay (01:12:10):
I was just going to say a kind of concluding comment about all this. If I may, before we go to Q&A, I just want to say quickly because, you know, Ronnie and I are so much in the weeds on this, and so we’re just firing off so much information, but I do want to make something clear. Practically speaking, what happens is when the clients approach us with the redeployment situation or whatnot, we have an initial call with them. We give them a redeployment checklist. It’s got a lot of these items that we’ve talked about and flagged today. What ultimately happens is, very quickly, it doesn’t take too long until the picture comes into very good focus for a particular client’s project or investment and how they need to redeploy what the issues are. So we’re firing so many things at you, but what actually happens in reality is a lot of them are going to get answered very quickly.

Jay (01:13:12):
Certainly looking at the governing document, having an initial call with the client, understanding the lay of the land, who the parties are or whatnot… so while we’re giving you all of this information, all the different trip-ups, things to be concerned about, best practices, and proceeding at any of these points, what will happen is it’s very much, often, a very smooth execution, where you start coming very quickly to the resolution on how this disclosure package that you’re providing to investors is going to look. So I just wanted to make that point because obviously this webinar’s very much hitting all of the big issues that arise, but in practice, we’re able to kind of work through it at a very good pace where it’s very digestible, ultimately, to the investors, and then it’s a case-by-case basis. I don’t know if, Ronnie, you want to say anything else too?

Ronnie (01:14:12):
I think that’s fine. I’m happy to, I think we would like to get some questions from the audience. We’ll figure what their take is.

Sam:
Yep. Got it. Okay. Let me, let me turn to the questions here. Let’s see what we have. So, one question we had is, if the documents called for a vote to be taken about a redeployment, how can, you know… let’s say that if there’s multiple options… does that mean that, you know, the majority defines how everyone is going to be investing, or does that mean, you know, that if 60 people say they want one option and 40 people want another, that, you know, those 60 people go into the one they wanted and that 40 people go into, you know, the other one, or is it just going to be a “majority rules” type of situation?

Ronnie (01:15:21):
That’s a great question. Whoever asks it, really, it’s really a real-life question. And I would respond back as that’s a structure issue. Is it all or nothing? Are you suggesting you can invest in both projects or either you loan 10 million here, or you loan 10 million here, take your choice? And the majority says, “I vote we lend the 10 million here.” I think the majority rules, because if you can’t slice the pie. If you could invest in both projects and you have a choice of how much you invest in either one, we give the investors a vote of what they want to do and give them a choice. And that way, they got a decision-making process. So, now, if none of the investors want to invest in any of them, or a minority only wants to invest in them, then that’s a problem.

Ronnie (01:16:11):
But assuming a lot of people say, “Hey, a lot of people say A and a lot of people say B” and, you know, you have a majority of the people that are voting, we’ve found that to work. And those that don’t vote for either, you have two choices: you force them into one or the other, or you pass on them and give them another choice down the road. It’s a very interesting issue. Not common. Usually, “Here’s our project, that’s a yes or no, what do you want to do?” Or if you… in a rare case where each investor has to approve their own redeployment, you’d give them an option. If they don’t take it, you give another option, if they don’t take it, you work with them, but eventually you tell them if they don’t make a decision, they’re taking a risk of losing their green card. It’s complicated, but generally, if it’s a one-off, I think you’d go with the majority, assuming that either go project A or project B, that’s what the vote’s for, and you, GP manager, shouldn’t even present the options if you haven’t vetted both opportunities, because you have a bunch of presenters, and you’ve got a diligence issue.

Sam (01:17:23):
Another question we got is, you know, for a new project that’s coming to market soon, you know, that’s being designed and, you know, assembled today, what are you, Jay and Ronnie, seeing in terms of, you know, kind of, redeployment, you know, marketable redeployment terms for current projects? Obviously now, you know, investors are more sophisticated than ever, and, you know, there’s a lot more research and, you know, careful thought going into how, you know, reappointment works. Are you seeing more that, you know, every investor has to consent or, you know, a “majority rules” kind of the situation, or, you know, what are you seeing in terms of sponsors putting in their documents today? You know, rules governing how redeployment is going to be handled when decisions have to be made, you know, five years from today?

Jay (01:18:19):
Well, I’ll go first. We’re putting in our original offering documents before redeployment. We certainly contemplate redeployment. We certainly describing disclosed sustainment periods and have all the bells and whistles and immigration language surrounding those issues. We oftentimes… it’s typical that we’re going to put in, like I said at the beginning of the webinar, criteria for what these alternate redeployment investments look like, and we’ll be specific one way or another, and we work with our clients on how it will ultimately look and what they want in there as far as consent. And oftentimes, I think, you know, Ronnie, you can speak to this after, but I think majority rules… in some cases it’s the GP, the manager, who has authority. It’s just subject to this criteria, these parameters, you know, LTV, being a certain percentage or in a similar project, or what have you. But there’s authority. Now, that doesn’t mean… that’s not to say that when you get to the redeployment notice to the investors that you’re saying, okay, section X of the partnership agreement says, “I have authority and I’m within parameters. I’m just going my way, I’m proceeding. And I’m notifying you.” That’s why it’s so important that you have a full package with all the disclosures, all the diligence third-party verification, evaluations like appraisal, things like that. So that you’re showing that everything was done in good faith and compliance with the fiduciary.

Ronnie (01:20:00):
We have a philosophy when we do this. If the documents are clear [that] you need consent, you need consent, and that’s black and white. If the documents are not clear, you don’t need consent. So frankly, all our new packages generally provide that the manager GP has the absolute authority to redeploy. And in the documents, we provide some guidelines of how that would be done, especially if it’s with the same developer. Then we put language in that it’s intended that the redeployment will be done with the project, with the same developers, similar to the existing project, having the same—and I’ll give you the key language—the same loan-to-cost, percentage of developer equity, et cetera. So the parameters, the economic parameters are within the same framework as the original transaction. So at least there’s a guideline that say we were duplicating what we did. And if we do that, we don’t need your consent. And that doesn’t guarantee you a non-issue, but it sure makes it a lot easier.

Ronnie (01:21:10):
So that’s what we’re trying to do in a lot of cases, where the developer knows, and most developers do know, they want to redeploy, and they’ll tell you they want to redeploy. And most developers we deal with are not one-off projects. They do multiple projects. So somewhere down the road, five years from now, they’re going to have a project that they’re going to be able to redeploy. That’s the typical nature of a developer. The middle ground is where you have language in an old document where it says the manager has full authority to do this, do that, handle a loan, and handle any replacement loan. And a lot of times, in the old days, you didn’t, you know, sustain, but you still realized sooner or later the developer could pay the loan off. It was always the case. It was never an issue with USCIS that a loan couldn’t be prepaid on maturity.

Ronnie:
Otherwise, the last investor could be 10 years out. That’d be ridiculous. I asked one of the USCIS major officials that question, and he gave the right answer. He said, “Of course we understand you have to be able to comply with a loan and pay it off. And then you reinvest the money.” But they didn’t have guidelines at that time. So the answer there would be, “We recommend that’s where you come into the neutral position.” You can do one thing. You can ask investors for consent. That’s conservative. You can send a notice to investors and ask them for comments, rather than asking for consent to get their input. Or you can even send them a note to get their input without seeking their consent, you know. So there’s variations to that, but normally, no matter what you do—Jay, and I agree that you must give a notice one way or the other—you’ll leave an open forum. You should surely be willing to take input from investors or agents in that front

Sam (01:23:05):
And Ronnie. So taking that economic perspective, but then applying it to the economics on the investor side… so let’s say in the original investment, the investor was getting, you know, half a percent in a loan structure. You know, how are you seeing that, you know, defined in the documents for what happens, you know, in the future redeployment investment? Does the investor automatically get the same half a percent? Is it more, is it less? Is it, you know… whose discretion, you know… how are you seeing that typically happen for old deals? And then, you know, for new deals that are coming into market today, obviously you can’t promise.

Ronnie (01:23:51):
I’ve seen it both ways. One way is just follow the system and pay the investors the same amount, and let’s move on. That’s one way… the other way is there’s no right or wrong to it. We’re going to give the investor some more money because we can save money on the agent, or we can save money here. And therefore, we’re good. Instead of the investor getting half a percent, we’re going to give them two percent. So I guess you could, say, benefit them that their investment has gone on longer than they expected, because most investors that are in retrogression or investors that don’t get their money back when the loan was repaid assume they didn’t expect, necessarily, that they’d be waiting so long. And let’s say you invested after when the retrogression started getting pretty bad. I mean, you disclosed that many investors should have known that they were going to have to wait to get their money back. Although a lot of investors—maybe there’s a language issue or a communication issue—didn’t totally understand how long they would have to wait in countries like China or possibly Vietnam. Can we find that there was a benefit to trying to give something extra to these investors and continue to keep the agent engaged?

Jay (01:25:06):
Got it, thank you. I would just add one thing to that, too. I mean, we see if the NCE managers increasing their fee, then typically you would want the investors’ return to be proportionately increased. You wouldn’t want there to be some disproportionate different treatment on redeployment. And, you know, who’s getting, you know, the amount that the management or the investors are getting paid? So that’s just something, you know, we get all sorts of different things and that’s… we’ve got to analyze it, but that’s something that does come up, too.

Sam:
Got it. Got it. Thank you, Jay. Okay. Yeah, I think, I think that that covers it. We’re at about an hour and a half. So I want to just close first by thanking Jay and Ronnie for taking time to share all of their expertise with us, particularly, you know, with a lot of these real-life examples of, you know, what’s actually happening.

Sam (01:26:08):
EB-5 redeployment is still a relatively uncharted territory, and Jay and Ronnie are largely shaping that field, you know, given the scope and number of deals that they’ve worked on over the last several years. So they really do know more just by nature of having seen many more unique scenarios about how redeployment happens and the issues that have come up. And so, overall, it’s really important to start early, you know, at least six months before, you know, a loan was going to be repaid. And so, yeah, just want to re-emphasize that and also say, you know, if you’re interested in seeing or getting a copy of our slides, please reach out to us. And so, I’d be happy to send you the slides, and any redeployment-specific questions, please reach out to Jay and Ronnie, their contact info is on the bottom. Right.

Sam (01:26:59):
And again, the webinar will be on our YouTube channel, if you need to reference it or share it with someone else. And then, the last thing is, you know, this is not just an issue, you know… today we focused primarily on how the redeployment is kind of evaluated and strategized from the perspective of the developer or the sponsor. But, you know, a lot of these issues, as Ronnie mentioned, you know, do involve investors, obviously. And so, you know, Jay and Ronnie do work with a lot of investors. And so, you know, if you’re an investor and, you know, if there is a redeployment issue or something you’re concerned about, you know, they can also be a resource for you as well. They don’t exclusively work with just the project sponsors or the developers. So that’s important to keep in mind. I think a number of our attendees today were individual investors who wanted to know, you know, what could happen to their investment in the future. So that’s important. Then, Jay and Ronnie, any final thoughts?

Ronnie (01:28:01):
No, thank you for presenting. You did a great job putting this together, and we tried to exhaust as much as we know today, which is, it’s going to get… oh, yeah, one final comment is, you know, there’s a game changer. The game changer could be new legislation. That’s the pending the Grassley bill. I don’t think it’s gone through, but it’s pending. It will have implications on redeployment. It’s in the bill, and there could be brand-new legislation and new regulations with the new administration that could change a lot of it. And that’s a possibility as well. So stay tuned, because this is a moving target.

Sam (01:28:41):
Very good. Thank you both for joining us. And again, the contact information is on the screen for any future specific questions that come up. Thank you, everybody. Thanks.

Ronnie (01:28:53):
Thank you, everybody.