Webinar: Evaluating EB-5 Projects from an Immigration and Securities Law Perspective With Greenberg Traurig Law

Full Webinar with Greenberg Traurig Law:
Evaluating EB-5 Projects from an Immigration and Securities Law Perspective

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Sam:
Hi, everyone. This is Sam Silverman, managing partner of EB5AN. Thank you for taking the time to join us on today’s webinar. Today, we’re going to be discussing the evaluation of EB-5 visa investment projects from both an immigration standpoint—getting the Green Card and having it become permanent—and from a securities law perspective, with a primary goal of protecting the investment that’s made into the EB-5 project. Today, we have two incredible EB-5 attorneys, Kate and Bruce, who’ve dedicated some of their afternoon to share their years of experience working on hundreds of EB-5 projects. We’ll introduce them shortly.

As I mentioned, this presentation is not legal advice, but for informational purposes only. You should hire your own legal counsel. This is a quick overview of where we’re going today for the discussion: a little bit about EB5AN, a little bit about Greenberg Traurig, which is the law firm that both of our panelists are from. We’ll talk about immigration risk, and then we’ll talk about financial risk. During the webinar, if there are any questions that we haven’t covered, please use the chat box on the screen and we’ll leave a few minutes at the end to try to cover as many questions as we can. We have a pretty large turnout for today, so we’ll try to get through as many questions as we can. We’ll run through these pretty quickly.

A little bit about EB5AN: as most of you probably know, we’re a large regional center investment fund manager. We’ve worked with more than 2,300 EB-5 investors over the last ten years. One of the things that we’re really committed to as a company is investment transparency. We want to make sure that investors have the full set of information to make their investment decision. EB-5 is complex; there are a lot of different things happening. It’s both an investment from a financial perspective, and then, based on that financial investment, the investor is also petitioning the US government to receive an immigration benefit.

So, you’ve got all of the normal investment terms that go with making an investment, typically in a real estate project, combined with all of that additional language and structure that goes along with having your investment qualify for a Green Card. When you combine those two things together, things can get complicated. So, it’s really important to get up to speed and really understand how those two items interact. We’re going to be talking specifically about that and what investors should be looking for when they start evaluating potential projects.

Along those lines, we’ve published a series of articles on our website that talk about key diligence questions. We’ve got a number of different investment diligence questionnaires that you can download completely free, with lists of questions that you should be asking potential EB-5 projects—to get that key information in an easily understandable and digestible format. Every EB-5 project is going to have its own unique set of documents, hundreds and hundreds of pages, so it can be difficult to compare one to the other.

The purpose of these questionnaires is to isolate the 10 or 15 things that are really important—the ones you want to be able to compare from one project to the other. And that’s what we’ve tried to accomplish with some of our posts and available free resources. As I mentioned earlier, I’m Sam Silverman, one of the two managing partners of EB5AN. My partner, Mike, is also with us today. My bio’s there on the left-hand side. I’ll let Mike jump in and share a little bit about himself and about our company’s origin and mission in this space.

Mike:
Perfect. Thanks, Sam. I really appreciate everybody taking the time today to join us on this webinar. I appreciate the time our guests are taking as well to help provide some insight into the industry. You can see my background on the right. Prior to founding this company with Sam, I was in private equity in New York, and that financial lens is what we take to everything within EB-5. We are very focused on providing institutional-quality projects that minimize immigration risk. We do that by finding under-construction deals and minimizing the financial risk by finding very strong borrowers and adhering to strict underwriting criteria. We’ve been doing that for over 10 years now, very successfully, and we’re happy to have everybody on this webinar today.

Sam:
Perfect. Thank you, Mike. As we mentioned earlier, we own and operate a number of regional centers that cover most of the country. Here’s a quick map showing our regional center network. Now, we’ll shift gears and introduce both of our panelists. They’ll share a little bit about Greenberg Traurig as well. Kate, do you want to go ahead and start us off?

Kate:
Sure. My name is Kate Kalmykov. I co-chair the Global Immigration and Compliance Practice at Greenberg Traurig. We have a very large law firm of over 2,500 attorneys at this point across 45 offices all across the world. And we’re a multi-service law firm. So, obviously, we do immigration. Bruce is going to talk about corporate securities today, but we do the whole gamut of legal work. Litigation, real estate, tax advice, anything you can think of—GT is usually in that jurisdiction and practicing law there. We’ve been working in EB-5 for close to 20 years. We represent regional centers projects, we do corporate security structuring, we help draft loan agreements, we offer broker-dealer advice, and of course, we do the immigration filings with USCIS. We’ve also represented thousands of investors in their EB-5 Green Card process all the way through until I-829 approval and naturalization. We also assist them with securing status while the EB-5 is pending, through securing work visas for them or other types of visas that they may be eligible for. Bruce?

Bruce:
Thank you. My name is Bruce Rosetto. Just to add a little bit to what Kate said, I am a corporate securities finance and mergers and acquisition attorney. I’ve been practicing now for 41 years, the last 16 or 17 with Greenberg Traurig. My experience in EB-5 is not quite as long as Kate’s. I’ve been doing this since about 2008, 2009, so a little bit shorter timeframe. I represent everything from funds to, in the case of the EB-5 projects, NCEs and JCEs throughout the country. I also form private equity funds, deal a lot with family offices, and represent a lot of both public and private companies in the securities markets.

An Overview of EB-5 Immigration and Current Rules

Sam:
Thank you. That’s a great summary. Now we’re going to dig into the details. Kate, we’re going to start with immigration. Do you want to give us a general picture of how the EB-5 investment itself works from an immigration perspective, and what are the key things investors need to be aware of as they start to explore doing an EB-5 investment?

Kate:
EB-5 had a number of changes last year with the passage of the RIA, which is the Reform and Integrity Act. It implemented a number of changes in EB-5 law that impact investors, and of course the price went up, which was the first price adjustment since the program was initially introduced in 1990. It was an adjustment for inflation, and this is the investment amount that you can see on the screen for the next five years. The general investment amount is $1,050,000. However, most projects are at an $800,000 investment amount. And that is determined by whether a project is located in a high unemployment area defined as 150% of the national average. In EB-5 talk, we call that a targeted employment area or TEA. It can also apply to a project that is a government infrastructure project or a rural project—which is defined by the US census and can be looked at fairly easily as those designations are for 10 years.

When an EB-5 investor is choosing whether to move forward with the application, key things for them to consider are from their side. Can they show and document the source of their funds? The US immigration agency and US public policy are, of course, very concerned with making sure that money that enters the US is lawful. So, we have very stringent requirements. We have to show the source of the money from the time it was earned all the way through investment into the selected EB-5 project. And we also have to show the path of funds. So, we have to show the movement of funds through accounts all the way through until the time of investment. The new law also requires that we present tax returns—and if tax returns are not available because, perhaps, you live in a jurisdiction where they’re not required or they’re paid for by your company that employs you, we have to explain that as well.

And it is a very fulsome analysis to present a source of funds to USCIS. We also need to decide the project that you’re investing in, and Bruce is going to talk about what factors to look at when you choose a project for an investment. But of course, most investors want to go for an $800,000 project versus $1,050,000, because at the end of the day, the Green Card that you get is the same. Many are investing right now in what we call visa set-aside categories. These categories were also introduced in the RIA last year. We had the TEA concept in the old EB-5 law. Now, we have a set aside devoted to 10% of it. A rural project—those get 20% of the visa set asides, and government infrastructure projects get 2%.

What does that mean? That means that investors applying in those categories should get priority processing from USCIS. It means they’re currently not subject to backlogs or visa retrogression. The US gives 140,000 employment-based Green Cards annually with 10,000 reserved for the EB-5 category.

Within the category, no more than 7% can go to any one country. So, that’s how quotas develop and that’s how backlogs develop. Right now, because the RIA changed the law, everyone applying is current. We may see changes in that depending on the volume of applications received in particular categories, but they are a priority. The stated goal of the USCIS is to adjudicate those petitions in 180 days. Has that happened yet? No, but it is their goal. They definitely lost a lot of staff during COVID. And they have stated that their goal is to reduce processing times and to hire more adjudicators.

So, I sincerely hope, and the director has said it in public, that her desire is to bring the processing times down and to meet the stated objectives. When you’re selecting a project for immigration, there’s a number of factors that you should be looking at. Has this regional center done EB-5 in the past? Do they have experience in the industry? What is their track record of approvals for I-526s, which is the initial EB-5 petition? How many of their investors have been able to remove the conditions? EB-5 requires that you invest $800,000 into a new commercial enterprise. That new commercial enterprise is supposed to create 10 jobs per investor. In regional center projects, that happens through indirect employment creation.

Usually, it’s the spending of money that generates, through an economic model, a certain output of jobs. If a business is not able to meet the objectives of their business plan; if they’re delayed for some reason; if they don’t secure financing that they were relying on, they may not be able to evidence job creation at the eight to nine stage. This could potentially impact a person’s immigration. It’s very important to consider that. They also need to consider how long their money will be invested for. Previously, under the old law, we had to invest money until the time of I-829 filing. The statute of the RIA says that the investment period is for two years; it changes it, but it’s not clear. We don’t have regulations from the agency yet. So, we don’t know: when do the two years begin to toll?

Do they toll upon the filing of the I-526? Do they toll upon release from the project’s escrow account? Do they toll from the time the money is received in the escrow account? That is something that we expect immigration to clarify when they issue regulations. Regulations by any agency are subject to notice and comment under the Administrative Procedures Act. And so, we expect to get clarity on that within a year. So, when you’re looking at projects and how to select them, it’s very important to look at the sustainment period to consider. Perhaps it’s safer to have somebody hold my money for longer to make sure that, whatever is decided with the regulations, your investment is meeting the sustainment period. It’s something to consider for any investor. On the screen here, you see the timeline of receiving the EB-5 based Green Card. Of course, the timing fluctuates because, as I said, there have been numerous delays post-COVID with the immigration agency and, prior to COVID, we were filing and getting decisions much quicker than we are today.

But again, they have stated that their goal is to work on that and rectify it. And I am confident that they will. I certainly hope that they will. But, if you look at the processing times today, if you file the I-526E, which is the actual EB-5 based immigrant petition, it’s taking about three years to get approval. And then, if you’re overseas, you can process at the consulate overseas, and they’ll issue an immigrant visa to you. Once you get the immigrant visa, the first day you enter the United States is when your permanent residence status commences, and then you need to toll 90 days prior to the two-year anniversary of that entry in order to file your I-829 petition to remove conditions. There, you show that you sustained your investment for the requisite amount of time, that the project created the jobs, and then you get the permanent Green Card.

If you are in the US, the Reform and Integrity Act introduced a concept that we as immigration lawyers have used in other immigration categories. That is incredible. It allows you to file the I-526E concurrently with what we call an application for adjustment of status. So, you adjust status from a non-immigrant to an immigrant. You can process your Green Card in the US if you’re in F-1 status, if you’re in B-2 status, and if you are on a work visa. You and your dependents can remain here while it’s pending and also secure work and travel authorization.

So, that has been very welcome for many people. We have a lot of students who are finding it hard to secure employer sponsors; it takes a very long time. So, they’re really loving that they can file for a work permit and not be dependent on sponsorship to secure a job. Now, one thing that is not on this chart here, but that I have to mention: 90 days prior to the five-year anniversary of getting your initial conditional Green Card, you can apply for naturalization. And, of course, many of our clients choose to. In addition, I do want to mention that the visa set aside categories are supposed to have a shorter processing time than what you see here. So, a rural project can shorten the processing time, certainly because it is priority processing. The US government’s objective is to funnel investment into rural areas. And so, the RIA sought to identify that as a need and to assist with that. We can go to the next slide.

Job creation: this is sort of the crux of the EB-5 program. Initially, when the EB-5 program was introduced in 1990, and the regional center program was introduced in 1992, it was a time when we were really trying to bring foreign direct investment to the United States. This program was conceptualized as a tax, as a way for American taxpayers to not pay anything to bring in foreign money into the US and to ensure that it creates jobs. This really sets aside the US investment program from many of the other overseas investment programs: the Caribbean, the European. We need job creation in the US. And so, it has to be met. As I said, it’s 10 jobs per investor, and when you invest into a regional center project, I previously mentioned an economic model. Well, the economic model allows a regional center to capture jobs not just at the project itself, but jobs that are generated in the region as impacts through the investment.

The benefit of that is its indirect job creation, and the benefit is that you get a lot more jobs than you would if you were just creating jobs directly. So, for example, if I invest into a hotel, I’m not looking at just the W2 employees working at the hotel, I am looking at how much money was spent to construct the hotel. How much money was spent on hard costs and soft costs and to operate the hotel? And I end up with a lot more jobs than just the W2 employees on site.

The program says you have to create 10 jobs per investor. When you’re reviewing a project to invest in, it’s always good to look for a project that can give you even more jobs per investor. It gives you a cushion in case any are disallowed. That is something that I think is very, very important. And if you look on the screen here, we have a beautiful chart created by EB5AN. They’re very skilled with the charts, and I love a good visual. So, you can see that you’re looking at both direct jobs and indirect jobs if you look at the last column. That’s great because investors get 24 jobs each and so you’re more secure in the EB-5 project meeting the requirements. Next slide, please.

Sam:
Thank you, Kate. Before we jump to the next slide, could you touch on the concept of job creation before the investor actually joins the project, and how USCIS rules apply in a situation where the project’s been going on but the investor is coming in the middle? How does all of that work?

Kate:
Well, the answer is that it’s permitted. It’s even permitted for the project to have begun with other financing or bridge financing. This is part of the RIA; it’s now part of the law, and the investor can still capture those jobs. When we look at the money being put into the project, we’re not just looking at the EB-5 money going in: we’re looking at the totality of the project. And so, the project, even if it began earlier, even if it needs construction, even if it’s nearing the end and we’re using EB-5 to replace the bridge financing—we can capture those jobs and allocate them per investor.

Sometimes clients get nervous because they think they won’t get credit for it, but it is important to consider it when you’re weighing your due diligence. We’ve seen other projects that have purchased the land and are still waiting to secure other financing or to raise EB-5 to move forward. It’s delayed or it falls through or they’re not able to, and the project just doesn’t move forward at all. Many investors choose to look at projects that are underway or that have other financing where the EB-5 is taking it out—because they have some assurance that the project is actually going to be completed and the job creation met.

Sam:
From an immigration risk perspective, there’s kind of two sides of the equation. The riskiest would be a project that maybe has only the land where no job creation has happened, because you don’t get job credit for purchasing land. So, they own the land, but no money’s been spent on construction. There’s zero jobs in the job bank toward the 10 that are needed. Whereas the other side of the equation or spectrum, the lowest risk option is a project that is well advanced. This project has a lot of jobs already created, ideally more than the 10 that are needed for the investor. Can you do any better than that, or is that the best an investor could hope for: something that’s well under construction and has more than the 10 jobs that are needed?

Kate:
I think that’s ideal. The program requires that the money is be risk, but it doesn’t require that you put money into a risky project. As an investor, you have to weigh the immigration benefits with the investment benefits. So, we want to make sure in many cases the project is underway, that it is going to move forward, that it is going to be completed, and that financing is in place. That’s very important, especially now in today’s environment.

Sam:
Exactly. Interest rates are up. A lot of people who thought they could borrow funds a year or two ago are having issues. Now, the number of loan dollars you can get is going to be a lot lower, and operating costs are significantly higher.

Kate:
Yes.

Bruce:
I think there’s one other factor there, just to interrupt for a second. There are a lot of loans that may be out of balance that may have had the full financing in place, but because of increases in interest rates or increases in construction costs, they’re now out of balance. The senior lender comes back to the developer and says, “We need more equity dollars.” It’s not always there.

Sam:
Right.

Bruce:
We can talk about that more when we get to my part of this slide here, but I thought it was important to put that in place.

Sam:
Absolutely. Kate, I know earlier you briefly touched on the concept of these set asides. Maybe we don’t have to go through each one in detail, but just give us the concept. What do these set aside categories do? Why is it unique and better, favorable for new investors now, versus investors from a year or two ago?

Kate:
Well, the first benefit is that the slate is clean. We have a long backlog for previously filed cases for individuals from certain countries like China and India. Right now, choosing to file in one of these set aside categories creates no backlog. So, whereas you may have a Chinese national who previously filed and has been waiting 10 years, they can file all over again in a rural area project, and they’re not subject to the retrogression. They just have to wait for the USCIS processing times to get their Green Card. So, that’s a huge benefit and it’s really sort of breathed new life into EB-5 for many people.

Also, you already know what kind of projects are going to be prioritized and looked at first, because they’re telling you, “Under the RIA, we want mostly rural projects: we’re giving them the largest allocation, 20%, followed by 10% for the high unemployment TEA and 2% for government infrastructure projects.” They’re already telling you how they’re going to prioritize new applications. If any of the categories that are set aside don’t meet their caps for the first year, it’s reallocated the second year to them so they will have even more spots.

It’s very important, and it’s been a huge draw for many investors.

Sam:
We’ll spend a little more time on that when we get to the Visa Bulletin slide as well, but that’s really good context.

Talk to us a little bit about this priority processing for rural projects. What does it mean, what do we know so far, even though it’s early? How does that factor into comparing a rural project versus a non-rural project as the immigration attorney for a potential investor?

Kate:
We know during the Congressional hearings, when the EB-5 program was suspended and the RIA was being debated in Congress, that there was a huge push by many members of Congress to funnel money to rural projects. They want to make sure that rural areas are receiving foreign dollars, that they’re available for development, and so the set aside category of 20% was born.

As you can see in the RIA itself, it says that we shall prioritize processing of rural applications. We expect those !-526s will actually be adjudicated faster than others. Certainly, those people who were previously in line who filed under the EB-5 law, unfortunately, they will also be behind the priority processing of the new applications. They’re really giving attention to them because they want to make sure that the dollars are going to rural areas. We don’t know the answer to the million-dollar question that everybody that I do consultations with and meet wants to know: how long exactly is it going to be? We don’t know. The program really was passed last year in March and implemented in May, we had some litigation, so most people started filing applications in August and September of 2022, I expect that we should be receiving adjudication soon. But to give broad trends on exactly how fast it will be, we don’t know exactly.

Sam:
On the concept of priority processing, is this a completely new concept for USCIS? Or is this something that they have had in the past, but just not for EB-5? Looking at where they have had it, has there been a material difference versus categories and visa processes that didn’t have it—or does that even exist?

Kate:
We didn’t really have it in other immigration categories. We had something called premium processing where you pay an extra fee $2,500 and you get a decision in two weeks. There are certain employment-based immigrant categories like Extraordinary Ability Aliens; those are the people at the top of your field, multinational managers and executives who could pay that fee, get a decision in two weeks, and get a decision on their case. But this is not premium processing, and premium processing is not being introduced for EB-5. Priority processing means there’s a line and these people are going to be ahead of the other people. But how quickly, we don’t know for sure.

Sam:
What we really know is this is going to be the fastest way to get the Green Card, how fast we don’t know, but you’re going to be in the fast pass lane. However long that ends up taking, it should be faster than the other lanes that are open.

Kate:
Yeah.

Sam:
Tell us a little bit about this Visa Bulletin. What is a Visa Bulletin, and why does it matter? I’m sure you saw earlier today that India, the EB-1 category, retrogressed 10 years approximately.

Kate:
I saw that.

Sam:
After we go through this Visa Bulletin, let’s spend a minute or two and give the context for what that means and how that retrogression contrasts with this current nature for EB-5.

Kate:
Okay. Everyone, bear with me a little bit because now you’re going to have an immigration lawyer explaining that.

As I told you before, the US gives out a certain amount of Green Cards every year and it’s 140,000 in the employment based categories. Within the employment-based categories, we break them out further into five categories. Employment-based first preference are those super-duper extraordinary ability aliens that I talked about. These are your superstars in whatever field they’re in, outstanding researchers and professors and multinational managers or executives. They get 10,000 visas. The second and third categories are workers. In the second preference category, we have people whose immigration is in the national interest or people who are going through a company sponsorship, and the position requires a master’s degree or higher. They can show that they have it and are exceptional aliens. The third preference category is for skilled workers with a bachelor’s degree or higher, or unskilled workers. These are the people—think about factory workers, chicken processing plants, people on the line. The fourth preference category is for religious workers, special immigrants, and Iraqi translators.

The fifth preference category is your EB-5 workers. The EB-5 is also split up. We have direct EB-5 offerings where you have people making an equity investment into a business, and you have people in the regional center program. Within the regional center program, we also have the new visa set aside categories, which you can see. You can see the general pool broken out, and then you can see the visa set aside categories. When there is the letter C next to a particular category, it means it’s current and that means you can submit your immigration application—not your I-526, your I-526 is presumably pending. It also means that you can pursue your immigrant visa, which is the document that you need to enter the US and get the Green Card or your application for adjustment of status, which is your Green Card application.

If you are current, you can now file, as I said before, your I-526 and wait for it to be approved if you’re overseas and processed at the consulate. Or, if you’re in the US, you can choose to do it concurrently at the same time or you can file your I-526 petition and then decide six months later, “I’m still current, I want to submit my Green Card because I want to get work authorization. I don’t want to work for my employer anymore. I don’t want to be tied to a work visa, I want to work for whoever I want. I’m going to apply for work authorization.” You can do that either at the time of filing or at any time afterwards where you see the dates on the Visa Bulletin. The Visa Bulletin is issued monthly by the Department of State. Basically, what they’re doing in the Visa Bulletin is monitoring how many visas they’re giving in each category.

If you look, you can see that Chinese nationals are backlogged. As I said, 10,000 visas in EB-5 and for people who filed under the old law or not in one of the set-aside categories—they cannot proceed to file their Green Card application until their priority date becomes current. The priority date is the date that the I-526 was filed with the USCIS. If you look at China, you can see that the backlog is quite lengthy; it’s September 8th, 2015. Those people who filed their I-526s on that date or earlier can apply for the Green Card. If you filed later, you’re in a backlog; you have to wait. In the August Visa Bulletin, which came out today, we saw a huge backlog in EB-1 India.

I do a lot of EB-1 cases. I work a lot with extraordinary ability aliens, these amazing people who are superstars. I also work with a lot with multinational managers because, besides doing EB-5, I do a lot of business immigration and represent a lot of companies who bring their employees here.

Today, we saw this date go back 10 years until 2012. The employment-based first preference was another way. If you can meet these strenuous requirements—multinational manager, extraordinary ability, or outstanding researcher—they are difficult to meet, and many applicants were applying for a Green Card. But India, with its very well-educated and numerous population, has exceeded their quota. They retrogressed it back 10 years, and we expect because of that to see a lot of Indians now applying for the EB-5. If you look down the Visa Bulletin, besides religious workers, and as I mentioned, certain special immigrants, the fastest way remains for them to do EB-5.

This is something that needs to be monitored monthly. Usually, the government slows down its visa issuance towards the end of the year. The government’s fiscal year runs from October 1st to September 30th. As we get to the end of the year, they’re seeing that their visa numbers are running out. That’s why you see things like that—the retrogression—because they’ve realized they’ve used up their visa numbers.

Mike:
Kate, I think that that’s going to be one thing that a lot of our viewers have a question on: How can that happen where all of a sudden it goes from 2022 to 2021, what happened? Is it purely end of the year?

Kate:
They were issuing a lot of Green Cards and now they realized, “Hey, we’re running out. India’s reaching its 7% maximum in EB-1; we have to slow it down and retrogress it.”

Mike:
Got it.

Sam:
Got it. A couple of follow-up questions. These set asides, the 32% in these three new set aside categories at the bottom, how do those interact with the fifth unreserved? What’s the interaction between those two?

Kate:
Good question. People who filed under the old law (I get this question a lot), they cannot upgrade their petition to be in one of the new visa set aside categories. Even if the project they picked in 2018 was a rural project, there’s no way to change it. This is only for applications filed after the implementation of the RIA. Now, there is a chance that these percentages that you see 2010 are used up because many people are going to try to get into the categories. So, it’s very important to try to file as quickly as possible to secure your spot in them because, presumably, once this is used up, you’re put into the general pool of remaining EB-5 visas. As I said, there’s 10,000 total in the category. If we have more than 10,000 applications or a lot of applications from one country versus another, we can go back to a scenario potentially where we’re in a retrogression. With the new categories, of course the people filing first—or now while it’s current—are going to be able to secure a better spot than those later on.

Sam:
Just going through a hypothetical example here: everything is current today, but most likely, after some period of time (maybe it’s eight months, 12 months, 16 months), eventually, given the demand, the same thing that happened years ago (which has caused those two red priority dates) will eventually happen for these new set-aside categories. Keeping that in mind, if I’m an Indian software engineer working at Amazon and I invest today, what’s my real benefit that I don’t know exactly how long it’s going to—?

Kate:
That’s a great question. One is you’re securing your place in line. Two, if you file while it’s current, you can do the concurrent filing. If you wait for it to be retrogressed, you may not be able to submit your Green Card application later because your visa number has to be current to file concurrently. If I’m an Indian engineer, as you said, and I see that many Indians may be applying or the EB-5 resurgence is making demands very strong, I’d want to get my application in now—so that I can file my adjustment of status and secure an EAD. The EAD has an immeasurable benefit; it doesn’t require an employer sponsor. If you’re tired of working with the same company, you don’t have to go out and find somebody who’s going to file another H1-B for you. You have blanket work authorization; you can choose to work, you can choose not to work. You can take some time off. You have that flexibility. If you’re an H1-B and you’re terminated, you have 60 days to leave the country, and if you haven’t filed your adjustment, what’s your ability to stay here?

Sam:
Got it. Obviously, there’s a quota issue. There’s a number of visas that are available in each of these categories, but is there any quota with respect to the EADs? Let’s say they’re only handing out a certain number of visas per year and the number of applicants today far exceeds the visas available. Can everyone still adjust status and get that EAD now even if they’re going to face a longer waiting time for the Green Card later?

Kate:
Yes, and that’s the huge benefit and the change in the law; even if there’s a retrogression, “Look, I came into the US and I filed my adjustment, or I was already here and I filed my adjustment. I have the ability to stay in the US. I have the ability to put my kids in school even if it takes three years to process. I have the ability to work, I have the ability to travel, I’m not dependent on another status, and I’m not forced to sit outside the US.”

Sam:
And there’s absolutely no limit on that. Literally, 100,000 people could apply for EB-5 tomorrow and every one of them could successfully adjust status. Yes, it would take a lot longer than expected to get the Green Card eventually, but all of those people could adjust status and the government would just hand out an EAD for everyone who qualified.

Kate:
With the caveat that they’re unlawful status in the US, so you have to be unlawful status to adjust status. Obviously, they need the adjustment of status requirements, but that’s a separate discussion for another time that you’re not inadmissible because there was some crime in your past or something else that perhaps would make you inadmissible. But generally, the answer is yes.

Sam:
One last comment on that before we shift over to the project side. How does that work permit interact with the ability to travel? What do investors also need to think about if they want to travel internationally and they’re going to get off their H1-B?

Kate:
If you’re on an H1-B, I would suggest staying on an H1-B, filing the adjustment, and waiting for your advanced parole document to be issued. They are taking a little bit of time, anywhere from six to 10 months from the time of filing the adjustment. If international travel is important to you, part of your job, the H1-B (as opposed to a student visa or a tourist visa) gives you the ability to have a Green Card pending and work on the H1-B. You can travel on the H-1B until you get the advanced parole, and then you can stay on the H-1B or you can move to the EAD. At that point, you have the flexibility to do what you choose.

Sam:
Last thing for investors who are now seeing this large retrogression for EB-1, particularly for India, and are saying, “Oh, well it looks like that door is closing; now, I really need to get serious about EB-5.” What are the next steps for someone like that if they wanted to explore doing an EB-5 application with you and your team? How long is it going to take, what documents do they need, and how long before they can apply and get that EAD?

Kate:
It typically takes us two to three weeks to put together an investor petition as long as they get us all of the required documents. There’s going to be two sets of documents that we need. For the adjustment, we’re going to need biographic documents, birth certificates, marriage certificates, divorce certificates, employment history, educational history, medical. For EB-5, we need the source of funds documents. If you’re an H1-B and you’ve been working in the US and your source is your salary, then we’re going to need information about your salary and your tax returns.

If the source of funds comes from overseas, the beauty of EB-5 is it’s very flexible on what your source can be, and it can be a combination of sources. It can be a sale of real estate, it could be a sale of stock, it could be money you got awarded in a divorce, it can be salary, it can be a gift from parents. I even had somebody I did an EB-5 for who was a professional poker player and used his winnings. It can be anything as long as we can document it and it’s lawful. We work with investors; they can contact us by emailing for a consultation to tailor the list of documents that we need from them in order to file a successful EB-5 petition.

Mitigating Financial and Immigration Risk in EB-5 Investments

Sam:
Thank you very much, Kate. That’s super comprehensive, and we’ve heard nothing but positive feedback from our clients who’ve used Kate and her team over the years. If that is of interest, given this recent change literally today on EB-1, it’s definitely something to look into and at least get the full picture of what it would look like, how much it would cost, and what the benefits would be and how long it’ll take to get those.

Now, we’ll shift gears and chat a little bit (now that we’ve covered the integration side) about the benefits, plural, because we now have the concurrent filing available. Now, how do we safeguard the investment? We know it has to be at risk, but like Kate mentioned, it doesn’t have to necessarily be unnecessarily risky, but it does have to have some element of risk in order to qualify for the EB-5 program.

With that, Bruce, do you want to walk us through a couple of these major buckets and topics that you always want to be keeping in mind as an investor considering one project over another? We can get into some follows-up on some more specific questions.

Bruce:
Thank you very much. To begin with, really, what I want to do is make sure that when you’re looking at the risks, the risk can go from very small, it’s never going to be zero… there’s always going to be risk in any project, to a very, very high level of risk. When looking at any project as an EB-5 investor, (whether you’re coming in as a lender or perhaps as a preferred equity investor), you really want to put on a hat like an underwriter at your bank. You want to assess the risks that are inherent in the loan, and there are a lot of factors that you’re going to look at when you do that.

This is all about making sure that the risks are measurable and that you’re comfortable with them, understanding what those risks are, assessing then, and then, ultimately making sure that, not only are the risks comfortable for you, but also that the jobs are being created—as was expressed by Kate and Sam in the prior portion of this presentation. Everybody needs to really put on their due diligence hat, as I said, and act as an underwriter.

One of the first questions that I would look at when looking at any project: who is the developer, and what is their track record of success? Do they have a long track record of doing a lot of development and completing those developments on time and on budget? Is this the first EB-5 project that they have ever done, and so on, and that’s going to be an important metric for you.

Additionally, you want to look at whether or not they’ve had failed projects. Many developer supports will have projects that have never failed—in some projects, it’s going to be more evident that they’ve struggled completing projects on time and on budget. Obviously, that’s a risk that you want to weigh.

Another good measure here is taking a look at the financial wherewithal of any developer, and that’s where the balance sheet comes in. I would recommend that everybody looking at any project, take a look at not only the balance sheet of the developer, but if there’s a guarantee involved, the balance sheet of the guarantor. You want to make sure that they have the wherewithal to go through this project should something happen; that they can support the project and help get this project to a successful ending and the creation of the jobs.

You can now turn the slide.

An additional metric that I always want to look at too, because this really impacts, I think, to a large extent: whether or not the loan documents or the investment documents that you’re receiving are fair and balanced. What we look at here is whether or not the general partner is wearing more than one hat. Certainly, if the general partner is involved both on controlling the NCE as well as being an affiliate or controlling the JECE, there’s going to be an automatic conflict of interest and then the question is going to arise as to whether that developer is really incentivized to provide a fair deal, if you will, to the investor or the lender. You’re going to need to take a look at the loan documents very carefully, and that’s where we can come in to help you to make sure that they are fair and balanced and that there are favorable protections for the investor.

If the GP, as part of those loan documents has waived its fiduciary duty, then they’re basically telling you out front, they’re not responsible for acting on your behalf as an investor, as a fiduciary. That should be a red flag to you, and you should look at those provisions very carefully and decide whether that is something that you’re going to be comfortable with.

You can turn that slide out.

Sam:
Before we move to the next slide, can you walk us through a hypothetical conflict of interest situation where the general partner and the project borrower are controlled by the same person? Obviously, if the project exceeds expectations and is highly profitable, there is not going to be an issue, but where’s the most common situation where that kind of a conflict can be negative for investors?

Bruce:
Where I basically see the conflict of interest is… You’re correct, the fact that there’s a conflict of interest does not mean that the project is not going to be built, that there’s not sufficient financing or that the jobs are not going to be created. But where I really see the issue coming in hand is in the loan documents or the investor documents themselves to see whether or not the basic protections are there in the event things go wrong to protect the investor or lender, as the case may be. That’s just an analysis of the agreements that you need to take a look at.

Sam:
I guess what I’m getting at there is if I’m the general partner, but I’m also the borrower and I make a loan for $30 million and then, all of a sudden the project doesn’t do well, can’t meet the debt service, can’t pay the interest payments, or can’t repay the loan—then I can modify the loan agreement, restate it, make changes that a normal lender wouldn’t make because I’m also the borrower? I’m acting as the developer trying to make money for my project, but I’m also acting as the steward of the EB-5 investor funds. And if there is that conflict, and it’s been waived, right, then I’m probably going to do what’s better off for me as the developer, because that’s where I’m going to make money, and I’m probably going to do what’s worse off for the EB-5 investors. In that situation-

Bruce:
Correct. And that’s why I’m saying there needs to be someone to look at the loan agreements and the covenants to see that they’re fair and balanced, right?

Because if I’m wearing two hats, I am likely, in the event things are not going as they should, if you will, to be wearing my general partner hat more than my taking care of my investor hat, right? And those are serious conflicts. Now, do they often come into play? The answer is no, not all the time, but you need to assess it on a job-by-job basis.

Sam:
Yes, exactly.

Mike:
Exactly, Bruce. And this is something that we like to think about is, when everything goes right, everyone’s happy. When there’s no problems, there’s no problems. What you really need to look out for is, when things actually go wrong, how do the chips fall? Because, again, that doesn’t get uncovered until it’s too late.

Bruce:
That’s correct. And I will tell you, oftentimes when we advise general partners that may have those conflict of interest, we will come to the table and almost wear the investor hat and say, “Hey, you need to market and sell this project. You need to be competitive with other projects. The terms and conditions need to be fair so that the investor does have the basic protections in place should things not go as they should.” Most of the time, I will tell you that the GPs will follow that kind of advice.

Mike:
That’s good.

Sam:
Exactly. Let’s move on to the structure chart, just so we can make this a little bit visual for investors to understand.

Bruce:

Yeah, I think this chart is a perfect picture of what you just described, right? So here, you have the general partner on the left side of the screen controlling the NCE, or the partnership, but also having some sort of control or affiliation into the developer, and that’s where the added financial risk is going to exist. A deeper dive into the loan agreements or the investment agreements should take place in order to make sure that you’re being fairly protected.

Sam:
One general point I want to make on that is that, if the general partner does have that type of a conflict, generally they would have the ability to amend, restate, or make adjustments to that loan agreement. In that situation, by nature of having that right, to be able to do that while also controlling the borrower… Two people would have to agree, but in this case, both of those people are the same person. … Then, the nature of being able to make those amendments without any third-party check or oversight, just like the US government has checks and balances—that type of decision with no check and balance, because it’s being made by the same person, means that no matter what’s in the documents the investor’s going to initially approve, that could all completely change later when the developer decides to change the terms of the loan unilaterally, right? That ability at the beginning means you’re opening yourself up to an unlimited, unknown amount of changes with no oversight.

Bruce:
Correct. So before it’s too late, before you see that red flag, you want to look into the loan documents to make sure that the material changes are going to require the general partner to go back to the lenders, if you will, for consent, at least majority consent.

Mike:
Exactly. So, what are a few other provisions you think would be absolutely critical to… If there is going to be that developer wearing two hats, what are some of those other provisions that you would strongly recommend those clients put in to make it more balanced, even though there is that conflict?

Bruce:
Yeah, I mean, that’s a pretty broad question. I mean, we would want to take a look at all the affirmative covenants and the negative covenants that are within the loan agreements that are going to tie the hands of the developer to make unilateral changes that impact the ability of the project to: number one, move forward as a going concern or; number two, that adds risk to the lender. And so, that’s sort of a unique analysis that’s got to be done in every doc… In every project, I should say. This is not a case of… It’s not going to be the same for every project, so you need to look at the covenant that’s specific to that particular project.

Sam:
Right.

Bruce:
Because the developer may give you one or two covenants that are balanced and five others that are not, and so you really need to take a careful analysis and look at it.

Sam:
So, said differently, if a project does have that conflict of interest where the general partner is the developer, they need to hire you, get you involved, look through the documents and make sure there’s nothing really, really unfavorable that would allow some of these unilateral changes that could really put their funds at risk.

Bruce:
Yes, and we could sit there and guide you in terms of what’s market standard, because we do enough of this that we know what other projects are doing. We could say, “Look, this is completely out of market and should not be acceptable. Perhaps you should be looking at another EB-5 investment,” or, “This is something that we generally see, but we normally can tweak it or put some caveat on and provide some basic protections to you and move forward.”

Sam:
That’s super helpful. Because, obviously, there are a number of projects in the market that do have this type of conflict of interest blatantly present, so it is important for investors to recognize that that requires an additional level of scrutiny with someone who’s familiar with what’s happening in the market today.

Bruce:
Again, as I stated in the beginning, you need to put on your own hat as a bank underwriter and do a deep dive into these documents, because that’s what’s going to protect you at the end of the day.

Sam:
Let’s shift over to the capital stack. For our investors, oftentimes investors are engineers, they’re musicians, or they’re poker players, like Kate’s client. They’re not real estate development underwriters or investors. Knowing that, what is a capital stack? What are these different components that investors really do need to familiarize themselves with before they can really make an educated decision about how their funds are going to be used in the project?

Bruce:
This is really, from my perspective, one of the most critical aspects of doing your review and assessment of a project. Number one, you want to make sure that there’s adequate collateral in place. And that collateral has to have some real value, because you have to assume going into this that things may not come out the way everybody wants, and so you have to assess the value of the collateral versus the risk that you’re taking.

EB-5 capital is only going to be one part of the capital stack that we look at in a EB-5 project. And we usually see a portion of the capital stack being developer equity, another portion being a senior lender, and then the third portion usually being the EB-5 investor or lender making up the difference, if you will, the gap in those two numbers.

Many times we see projects where part of the collateral package is a guarantee. To the extent that there’s a guarantee involved, as I indicated earlier, you want to dive deep into the financial status of the guarantor. You want to look at those financial statements and determine whether or not those financial statements are strong enough to stand behind the risks that you’re going to be assessing.

Another thing to look at here is, of course, the cost of financing. A senior lender’s also going to be doing its own underwriting as part of this project. So, to the extent of senior lenders in place, they are going to do their own risk assessment. The terms that you’re going to see from a senior lender oftentimes are going to reflect the risk that the bank thinks is involved in this particular transaction. The higher the risk, the more stringent the loan terms are going to be, and probably the higher the interest rate is going to be. So as part of your analysis, you should be looking basically over the shoulder of the senior lender and see what they did and what concerns they have to make sure that it’s being properly addressed and analyzed by yourself as you look at the project.

Sam:
A few follow-up questions there. So first, just on the senior loan: having a senior lender in place is a good thing, right?

Bruce:
Yes.

Sam:
Can you explain why that’s the case and how having that extra set of professional investment lens on the project is valuable for investors?

Bruce:
Well, I think, just as you indicated, the senior lender is coming in as a professional. They do this for a living. They’re going to assess the risk better than you as am EB-5 investor who might be an engineer or another professional. This is not necessarily your skillset, right?

So, the senior lender is going to go through an underwriting process, it’s going to go through a loan committee, it’s going to have a lot of financial analysts looking over the history of the developer, the history of the guarantor, their financial wherewithal, the risks of the project in that particular market, perhaps in that particular sector of the market. So, they’re going to have a lot more familiarity and depth in terms of the analysis that they’re going to do, and you should take advantage of that and take a look at what their assessment has resulted in and use that as a leverage in assessing the risk on your own. I think it’s very helpful to have a senior lender in here. The senior lenders, by the way, for the most part like when EB-5 comes in, because EB-5’s coming in underneath them, and so the senior lender might have much less risk actually than the EB-5 investor who’s coming in at mezzanine level.

One of the things I mentioned before, that I do want to elaborate on again, is the fact that, when you look at the loan documents from the senior lender, they’re going to tend to have some very, very tight covenants in there—financial covenants, negative covenants, affirmative covenants. One of the things that you see in a lot of senior lender programs today is whether the loan-to-value ratio is maintained throughout the project, what the debt ratio is going to look like going forward.

And as the project changes, like in the situation we are in today, where you have higher interest rates and you have inflation with construction costs, a lot of projects are getting into situations where they’re out of balance with the financial metrics that are set by the bank. The bank is coming back to the developer and saying, “Hey, we need more equity capital underneath our capital stack.” That’s something that’s, I think, important for investors to take a look at in these loan programs, because if that’s here, within the senior loan document, then you need to be asking the question to the project, “Hey, what are you going to do? How are you dealing with this if there’s going to be a gap in financing as we go forward? Because you may look like you’re fully financed today, but a year or two down the road, you may not be. And what does that mean for the project and my ability to get the jobs I’m being guaranteed and, of course, the completion of the project?”

Sam:
I definitely want to spend a few more minutes on this topic, because I think this is a really, really critical point, and you’ve hit on a couple of the items. In terms of the most kind of applicable scenario, I always like to paint a real picture of where this is going to be a problem. When you tell me that a project’s nearing completion, but interest rates are up and it’s going to be dependent on an ability to refinance in the future, that sounds like a project like a big apartment building or a big hotel, maybe, that was started three or four years ago. It was underwritten based on more conservative interest rate assumptions, now maybe the project’s going to be done in the next year, year and a half, two years, and now rates are much higher. What happens in that situation, when the building gets done, but then the value is dropped because of interest rates? How does that situation play out for a developer? And why is it really important to look carefully at projects that are dependent on a refinancing event very close to being completed?

Bruce:
I think there’s a lot to your question. Let me begin by saying that there’s never full assurance, there’s always going to be risk, right? There’s no riskless project going into these. So, I think it goes back to the first slide that we looked at, where we’re talking about looking at the balance sheet of the developer. I’m looking at the balance sheet of the guarantor, if there is one, to make sure that they have the financial wherewithal to get through a downslide, if you will, in the market.

Many of these projects with senior financing, if you get into a situation with the covenants, it is going to mean a refinance of the project. It may also mean an extension with the senior lender. The senior lender may be getting more uncomfortable and say, “Hey, we’ll give you an extension, we’ll give you a forbearance, but it’s going to be at some additional extra cost.” And the developer may have to go out to the marketplace, outside the EB-5 investor, to bring in some additional equity on its own, which I’ve seen in many cases, and done very successfully. Because as you’re nearing completion of the project, there is a high risk that that project’s still going to be successful from an investor standpoint. The margin on the profitability of the developer might be reduced, but it’s likely that, if you’re getting near completion, the developer’s going to be able to finish that project through an alternate means of financing.

And so that is just part of the analysis that I think you have to go through and get comfortable with. Did that answer your question, Sam, or no?

Sam:
Yes, that’s great. Last point on the senior loan. Given the importance of that third party diligence on the project, how important is it for an EB-5 investor to actually get access to and review the senior loan agreement that’s in place for the project? Is that a critical item?

Bruce:
I think so. Yeah, I think it’s very important. I think it’s very important to not only look at the balance sheet and make sure that there’s plenty of developer equity there, but also to look at the loan conditions and loan covenants of the senior lender. That’s going to give you a lot of insight as to how little the senior lender is looking at this project, and that then translates into a risk level, if you will, of this project being completed successfully.

Sam:
So, a regional center sponsor telling an investor, “Hey, we’ve got a senior loan in place,” but refusing to provide it, probably not a good sign.

Bruce:
I don’t think that’s a good sign. I believe in transparency.

Sam:
Kate, so shifting back to the immigration…

Bruce:
And I’m not always that close to this, Sam. I mean, let’s walk outside of the EB-5 investment realm, okay? If you’re dealing with a second mortgage lender or some sort of other subordinated lender, using any alternative financing in any market, there is no way the deal’s getting done without that subordinate mezzanine level investor looking at those senior loan documents. It’s just not going to happen.

Bruce:
No, but it doesn’t happen outside EB-5, it shouldn’t happen in the EB-5. It’s critical.

Mike:
I think that’s the key point is: yes, this is an EB-5 investment, you’re doing it for the benefit of the Green Card, but at the end of the day, this is just an investment. It should be the same diligence, same everything as a non-EB-5 investor for this type of deal.

Bruce:
Exactly.

Mike:
I think that is probably the most critical thing that you can say.

Bruce:
That is absolutely correct.

Bruce:
Look under the hood.

Sam:
Right, exactly. Not only the senior loan agreement itself, but also the balance sheets, the financial statements, so you can actually get an accurate picture of what’s happening in the project at the time you invest, right?

Bruce:
Correct.

Sam:
And I know that, unfortunately, it’s not standard for many EB-5 projects to make available the financial statements as part of their documentation package, but that doesn’t mean they don’t have them or that they could share them if asked, right?

Bruce:
Well, they certainly have them. If they don’t want to share them, that’s a big red flag.

Sam:
So, Kate… On the topic of guarantees, obviously there’s the at-risk requirement. How does that link together with these guarantees, which are very common? I know this is a confusing topic, funds have to be invested, but there can be a guarantee. How does that all make sense and get allowed?

Kate:
Funds have to be at risk of loss, right? That’s what the law says. But that doesn’t mean there can’t be things like a completion guarantee or, if the investment application, the 526, is denied, that you can’t have a developer or a regional center that’s working with a certain project offer to guarantee the return of funds in case of denial.

What you can’t guarantee is that 100% you will get your investment back. It’s just, as you said before, treated like any other business investment. There’s no guarantees. And we’ve seen lots of funky structures, where people will come to us and they have the great idea that they’re building a condo project and they want to say, “If you invest the EB-5, you get either a discount or you get a condo.” Immigration looks at those types of arrangements as a sort of guarantee, because you’re getting something that has the value of the investment.

So, it’s very important to work with counsel to evaluate these types of arrangements and make sure, if you see the word “guarantee”, that it’s structured in a way that is permissible under the EB-5 requirements.

Sam:
Got it.

Bruce:
To add to that, of course, senior lenders may often have a corporate guarantee or a personal guarantee as part of their senior loan package.

Sam:
Got it.

Bruce:
That doesn’t guarantee they’re going to get paid either, because the guarantor may not have the wherewithal to support the guarantee if there’s a default on the senior loan. So that’s why I think USCIS says, “Yeah, it’s still at-risk money.” There’s no guarantee you’re going to get paid. It’s just another form of collateral to provide a little bit more comfort that there is another financial source to help complete the project and get paid at the end of the day.

Sam:
Right, right. So, all things equal, comparing one project without a repayment guarantee to one with [a repayment guarantee] from a very large, well capitalized entity—obviously, you want the one that has the guarantee, because that’s going to limit or reduce your investment risk. Maybe not to zero.

Bruce:
Right, because you want one that has the guarantee, but also has a balance sheet behind the guarantor. Otherwise, it’s not worth the paper it’s written on.

Sam:
Right. Exactly. Generally, going back to the at-risk Green Card concept, you could make a loan to a company like Microsoft, a large company, well capitalized, with a big balance sheet. But theoretically, Microsoft is still a going concerned business, they could still go under, just like any other business in the United States.

Bruce:
Right.

Sam:
Very unlikely, but it’s possible. And so that possibility satisfies the at-risk requirement. Now, it’s very low, maybe it’s one in 10 million that Microsoft is going to go bankrupt, but it’s possible, and that theoretical possibility of loss checks the box for keeping funds at risk. So, you definitely don’t need to take unnecessary risk, but you want to find a project, ideally with a large, well-capitalized, separate guarantor, with a balance sheet you can review, that’s going to give you enhanced financial security on your funds.

Bruce:
Right.

Sam:
Switching gears now, we talked a little bit about the capital stack generally, but you’re the expert on this, Bruce. Give us the different flavors and how you see EB-5 kind of fitting in in most situations today.

Bruce:
Sure. So the chart that you depicted here, Sam, is pretty standard in terms of how you see the sources of capital in most of the EB-5 projects today. The common equity is usually put up by the developer, and it could be a combination of cash and/or perhaps land contribution, right? Because they may already own the real estate underneath it, and they’re contributing the real estate to the project, and, of course, that has some real value. So, they may usually make up between… We usually see it between 15% and 20% of the capital stack.

Then, you normally have the mezzanine debt level, and that could be and/or preferred equity from an EB-5 investor or a loan from EB-5. And generally speaking, those two will work out to be about 35% of the capital stack. Then you might see the senior loan come in for 45% or 50% of the capital stack.

Now, from a risk standpoint, what the investor has to understand is that the senior lender is senior because it’s going to get paid first if there’s a default on the loan. And whatever collateral exists, they’re going to grab hold of that collateral. They’re going to pay themselves back before anybody else gets paid off. So, when looking at this chart, you really look at it from a reverse standpoint. The senior lender is going to be first to get repaid, then the mezzanine debt EB-5 person will get a second bite at the apple, then it goes to the preferred equity EB-5 investor, and then ultimately back into the developer if there’s any money left over in the project upon failure of the project or foreclosure. Most of the time there won’t be any equity in the deal.

So. when you look at the structure of the capital stack, if there is an EB-5 project that offers both preferred equity and mezzanine debt as part of their EB-5 capital program, the preferred equity usually is going to have a higher coupon, a higher interest rate, and perhaps some better terms. They’re at higher risk of losing their money than the mezzanine debt EB-5 investor.

Sam:
Got it. Yes.-

Bruce:
I should say here, by the way, if the developer’s not putting their own money at risk next to yours, I wouldn’t invest in the deal. You want them to lose their money because, if their money is at risk, they’re really incentivized to do everything they can to make it a successful project, right? That’s common sense.

Sam:
Exactly. And so, if there is the opportunity to choose between preferred equity EB-5 or mezzanine debt, it’s really just risk tolerance, right? If things go wrong, you’re safer.

Bruce:
It’s risk tolerance. Yeah.

Sam:
But you’re chasing a higher return, and so you got to have that family conversation and just decide, “What do I really want to prioritize here: the Green Card, getting the money back, or chasing a little bit higher yield on the fund?

Bruce:
Right. That’s correct. That’s an individual decision by the investor.

Sam:
We’ve talked about the capital stack generally. The one point I want to make on this slide is having all the funds identified to build the project. Particularly if it’s a single structure, like a hotel or an apartment building, having all those documents executed, in place, money being funded, so that you at least know that the structure is going to get done. That’s really critical, especially if your money’s coming in early. Because if there is no senior loan that’s actually in place and all the equity is actually there, then the project could get stalled, like Kate described earlier, or it could just not ever happen at all—in which case funds could get lost, no jobs created, and Green Card problems. So, making sure the project is fully financed is critical. And obviously, photos, seeing what’s going on on-site is important, but looking at the paperwork and verifying… Looking at the balance sheet, the financial statements to see, “Is this thing actually working and is all the money really there?” is critical.

Bruce:
Just before you leave that point, Sam, I want to just add one other thing: even if the project is fully financed and looks great—good developer, strong track record, it’s fully financed. But still, ask the question, the what-if question, what if something happens during the project and it’s not fully financed for whatever reason? Is there going to be additional bridge money that can come in, additional equity money that can come in from the developer to close that gap and really make this a success? So, don’t forget to ask the what if question no matter how good the project is.

Mike:
That’s a great point. And some of the other things are: it might look fully financed, but do they actually have a GMAC contract, where there’s a fixed price?

Bruce:
Right.

Mike:
Or, if costs go up, is the developer going to be in the situation where they’re $20 million short? So that’s a very important point.

Sam:
Right, or construction got delayed, the budget went up, and now they have to refinance within six months of being open, of opening an apartment building or hotel. And now, yes, they got fully financed, they built it, but then they’re facing a very difficult situation of paying back their loan in a short period of time.

Bruce:
Correct.

Sam:
So, that’s why it’s really important.

Bruce:
No more advances to you until you do X, Y, and Z. And so, we have to plan for those and understand what those risks are.

Sam:
Right. And that’s where really reviewing the current senior loan agreement and any other financing agreements is important to realize. It’s like buying a car. It looks great, it’s driving, but then if you look under the hood, you see the spark plug is almost dead. And so, one more turn around the block and then it’s going to shut off. Same concept.

Bruce:
Right.

Sam:
Walk us through a little bit how a project typically looks without EB-5, and then how it looks with EB-5 coming in. Because obviously, there are a lot of projects that happen without EB-5, so what does that difference typically look like?

Bruce:
Yeah, and I think your chart shows (the left hand of the chart shows)what happens or what a project looks like before EB-5 investment comes in. You’re still going to have that 15 to 20% equity from the developer. The senior loan could be as high as 75% with no mezz equity in there. But oftentimes, there is a preferred equity piece or other sort of subordinated loan piece that may come in behind the senior loan and above the developer equity, and this is generally what you would see.

So, the senior lender would basically be between 50 and 80%, developer equity, 15 to 20%, and then there’s usually going to be some sort of either bridge financing, subordinated lender, or preferred equity for the gap. Many times, that mezz piece will be the bridge financing that we’re going to take out if we are then going forward with an EB-5 project, which is the right-hand side of your chart. The EB-5 loan is basically coming in and replacing that mezzanine level financing.

Sam:
Got it. The other main point I want to make in this chart is that, ideally from a risk mitigation perspective, you want to look for a deal where you’ve got the whole capital stack identified without EB-5, and the project isn’t necessarily dependent on any specific amount of EB-5 coming in at any specific point.

Bruce:
Yes, I think that’s an excellent point. We see a lot of projects where the developer might put in their 15, 20%, he has the senior loan commitment in place, and perhaps the senior loan commitment, like I said, could be more than 50%, it could be 70 or 80%. But the EB-5 is going to come in now, and their portion of the 35% could pay off either a portion of the senior lender or that mezzanine level. So, to the extent that it’s fully financed going in, that all looks great.

If you’re going into a project where it’s not quite fully financed because they’re depending upon the EB-5 loan to come into place, you have a higher risk as EB-5 investor. Then, we have to say to the developer, “How do you finance this thing if you’re depending upon $20 million of EB-5 money and you only get $10 million of EB-5 money; how do you bridge that gap?” If the developer hasn’t done that and put those commitments in place beforehand, you’re substantially increasing your risk that the project’s not going to be completed and the jobs are not going to be created.

Sam:
On that point, are there enough projects in the market where investors could go into a project that wasn’t dependent on EB-5? Is that pretty common or very uncommon, since it’s obviously a major driver of risk?

Bruce:
That’s an interesting question. I want to say that I’ve seen a change in the marketplace. I would say that in the past, it was more uncommon to have the project fully financed, and the projects were more dependent upon EB-5 coming in. I want to say today that I’m seeing the trend where there’s many more fully-financed projects that exist in the marketplace. But again, that’s sort of a regional center-by-regional center assessment, because some regional centers are more stringent in looking for projects that have the full financed capital stack in place before they go and risk the marketplace—because it obviously impacts their reputation as well as the ability of the investors to get the jobs and their return on their money. So, I think you need to look at the regional centers very carefully and need to look at the projects very carefully to make sure that they fit into the requirements that we were talking about in this presentation.

Sam:
Got it. So, all things equal, you want to find a project that’s fully financed and not dependent on EB-5, as an investor.

Bruce:
Yes.

Sam:
If your project meets that, you’ve eliminated a major source of potential risk.

Bruce:
This game is all about minimizing risk, not eliminating it, because that’s not going to happen. But you want to minimize it. If you go into this blind, you’re going to end up in a situation where you may not be happy in a couple of years.

Kate:
I just want to add, we’ve seen projects fail at this point in the program. We’ve seen projects not be able to secure funding, to be severely delayed. So, investors are savvier too. Investors watch the market, they have chat groups, they all communicate, and they’re attuned to it, whether they’re in the US or they’re overseas. So, they’re very much involved in monitoring stuff. Their appetite for projects to be in different stages has also changed over time.

EB5AN’s Twin Lakes Georgia Rural EB-5 Project

Sam:
That’s a great point. There definitely has been a shift over the last couple of years in terms of the quality of projects that are coming to market and the level of sophistication. And also, from our perspective, we’re always trying to increase transparency. There can never be enough transparency, or you can never provide enough. You’re always chasing that mirage in the desert. And so, in the last year, we’ve done a lot to really try to increase that as much as possible so that our clients have all the information on our projects that they need to make an informed decision, but also just generally are educated with what questions they should be asking. Not just for us, but for any potential project that they’re considering.

All right, great. I think now we’re a little bit running over time, so we’ll quickly run through these few slides on one of our current projects, and then we’ll open up just for a few questions at the end.

So, one of the most exciting projects that we’ve worked on pretty much over the last 10 years is our new Twin Lakes Georgia loan EB-5 rural project. This is a project with the Kolter Group. They’re one of the largest developers in the southeastern United States. We’ve worked with them exclusively over the last 10 years on 14 prior EB-5 investment projects, all of them with 100% USCIS project approval.

This particular project is a large single-family home community with amenities. You can see an aerial photo there on the left-hand side. The project’s been under development since 2019. There’s 1,300 single-family homes total. As of the end of June, more than 520 homes have already been sold. Almost 400 homes have already been built. And so, you can see that the project is very far advanced. It does qualify as rural, so it is in a rural TEA location. EB-5 is approximately 12% of the total cost. There is an executed senior loan in place with Third Coast Bank. Previously, there was also a separate senior loan with Wells Fargo Bank, one of the most conservative commercial lenders in the United States.

Almost 2,000 EB-5-eligible jobs have already been created as of March. We talked a little bit earlier about the benefits of going into a project where a lot of job creation has already happened. That job creation is the result of over $200 million of project costs already been spent to date in the project. That results in each of our EB-5 investors joining the project today knowing, on the first day that they join the project, that they already have more than the 10 jobs they need individually to complete the entire EB-5 process. Those are a couple of the key aspects of the project.

Twin Lakes is one of 13 Cresswind communities. Cresswind is an active adult retirement community brand developed and owned by the Kolter Group. They have 13 total communities like this where they’re targeting active adults. Basically, wealthy 55 and up seniors who are retiring in warmer weather, warmer climate. You can see all these projects are located in the southeast United States.

And the main takeaway here is that this is a proven formula. Kolter’s been doing this for years. Highly, highly successful. The Twin Lakes project is already profitable. We’re happy to make available all the financial statements for the project as well as a separate guarantor entity that’s guaranteeing the repayment of the funds. So, it’s a proven model. There is demand for these homes. It’s already happening. Hundreds have already been built and sold.

A couple of unique aspects of the project: one of Kolter’s parent companies is providing three key guarantees. One is a repayment of the loan. So, even though EB-5 funds are being used in this project to satisfy EB-5 program rules for job creation, the actual promise and obligation to repay the funds is from a much larger, well-capitalized parent company that has significant assets and owns almost 40 different Kolter development projects.

So, unlike many EB-5 projects, where money is being loaned to a single address, and for the money to come back to you, that specific building or hotel—whatever it is at that one address—has to be successful in order for you to get repaid. In our project, that promise is from a much bigger, diversified entity. Essentially like investing in an index fund instead of one stock. So, you have that protection for both the repayment of the funds at the end of the loan as well as the I-526E approval refund guarantee. Essentially, if an investor is denied for any reason, including source of funds issue (but we know that won’t happen if you hire Kate and her team) then you’re getting repaid much faster, in a matter of months instead of waiting until the end of the investment.

And lastly is the job creation guarantee. Although that really isn’t very applicable because we’ve already created all the jobs already. So that I-829 permanent Green Card approval risk has been effectively removed.

This is a little more information about the guarantee. I know we chatted about it earlier in the webinar with Bruce, but the mechanics for how this works: their separate entity owns a substantial number of projects. That entity is promising to repay the EB-5 investors. So, you can see the direct link between that promise to repay with our EB-5 fund, in which each EB-5 investor is a partner. And most importantly, this entity is well-capitalized, hundreds of millions of dollars of assets. We have the financial statements which we can make available for investors to review.

But then, even more important than that: Kolter as a company, over the last 25-plus years, has invested in over 180 projects; $24 billion including over 20,000 homes. This particular project is 1,300 homes. They’ve successfully repaid billions of dollars in debt. They borrow funds from five of the top 10 largest US banks. They’ve never failed to repay a loan or complete a project in the last 30 years. So, although it is possible that they don’t complete a loan repayment in the future or complete a project in the future, it’s unlikely.

There still has to be an element of risk, as we discussed earlier, so the best you can do is find a company that’s been doing that specific business on a large scale for a long period of time and has never not repaid. That’s kind of the best you can do in terms of financial safety.

On the job creation side: as I mentioned, we’re already above the total jobs that are needed. We needed 1,510 total. We’re already almost at 1,900, and these numbers are several months old. Total job creation will be almost 7,000 when the project is done.

And then from a unit economic perspective, it’s always just critically important. All these financial documents, hundreds of pages; there’s a lot of different moving pieces. But just stepping back, use common sense. Is this project going to be successful in the economy? What is the basic business of the project? In this case, we’re building and selling retirement homes for seniors. You have to be 55 and up to buy a home. So, if you think that over the next 10 years there’s going to be wealthy seniors who are going to buy new homes in warm weather, in tax-free states, that’s going to match with what your investment preference is. Do you think that that is going to be feasible? Obviously, you’d want to look at what homes have sold so far, has it been profitable? And obviously, the information for this project shows that substantial homes have been sold. It’s already profitable. So, the odds of it continuing to be profitable is a little bit more clear because we have that track record.

But the same question needs to be assessed whether it’s an apartment project in New York City or a hotel in the Bay Area. Do you think that there’s going to be demand for that product in that market? Because if there’s not demand, it really doesn’t matter what all the papers say. If the project just economically is not going to make money, then you’re going to have problems. Big picture, always keep that in mind. If you pick a project that just financially succeeds and just makes sense from a business perspective and you can see that it’s working, you’re going to be in a much better position than in a project that doesn’t have that product market fit. It’s going to be a very difficult path to becoming profitable post-investment.

Mike, I’m sure you’ve got some thoughts. I’ll let you jump in.

Finding a Safe EB-5 Project

Mike:
I think that was a good summary, Sam. And what I’d say is that we’ve been in this industry for a long time, and now with the new rural set-asides, it’s really important to evaluate what type of projects are likely to be successful in the current environment. Much higher interest rates than before. The economy isn’t quite as strong as it used to be. And evaluating deals based on, as I mentioned, common sense. Like, what makes sense from a macro perspective? Which areas of the country are growing, which ones aren’t? Then, also getting into the legal documents and figuring out on the immigration side, how do you mitigate all the risk? Or, as much as possible. Same on the financial side. And as a company, we pride ourselves in being that independent third party that evaluates deals from all over the country, from all different types of developers—and only selecting the ones that we feel match what we’re looking for.

Sam:
Digging in, looking under the hood, the famous saying that I like to come back to is, “Trust but verify.” Right? It looks good from the outside, but let’s take a look at those financial statements. Where are these assets? What are the requirements for assets to remain there? How do I make sure that the information I’m being told over the phone by a salesperson is actually accurate? They told me the project does have a senior loan, but they haven’t given me the senior loan agreement. Or they told me that there’s a guarantee in place, but they’re not willing to share the financial statements. Not willing to share any requested documents; typically not a good sign. So, all things equal, you want to go with a project that’s at least going to give you all the information that you could possibly look at to make an informed decision.

And that’s a core foundational piece of how we approach these investments, and we hope that in the future that we’ll be setting that trend where that will become a standard: for investors to ask for financial statements and other records to really dig in and verify details about projects, because we really think that will give investors the best shot at making the best decisions that they can.

Bruce and Kate, I think we’ve got a couple questions, but before we get into the questions: what would be just your one or two main points for investors considering picking a project, from an immigration perspective and then from the financial perspective as well?

Kate:
I think from an immigration perspective, track record is important. The RIA, we didn’t get into it, but it has a lot of new requirements with respect to compliance. And making sure that the regional center is in good standing. Making sure that the job-creating entity and new commercial enterprise are in good standing. For past projects: they’re a good indicator of how future projects are going to do on the immigration side. Who are they working with? How many times have they done this? Have they done it successfully? These are all super important questions that nobody should shy away from asking.

Bruce:
Sam, I thought you did an excellent job in your summary in terms of highlighting what the financial risks are as well. Don’t believe the sales pitch, as I said earlier. Sometimes it’s surprising to get feedback on what investors may be hearing from the sales side versus what the loan documents or the investor documents are actually stating. So, you need to be careful, you need to do your homework. You need to put on your bank underwriter hat and do a deep dive into the financial covenants of the senior lender in terms of the guarantees and collateral that are being offered to the mezzanine-level loan investors. And look at the background of the developer, their successful track record, the track record of the regional center, how transparent everybody is being, providing all the documentation that you should be getting as part of your due diligence package. I think that about sums it up. Just be careful.

Sam:
On that point, helping review those types of documents—I asked Kate this earlier too, but how do you work with clients who want… Obviously, let’s say they’re working with Kate on getting their petition together, but let’s say they’ve narrowed it down to two or three projects. But they’re a physician from Egypt and they don’t really have any idea where to or how to go about accurately comparing one project to the other. How do you work with a client like that, who just wants to safeguard their funds and make sure they’re getting fair terms?

Bruce:
What we can do, and what I’ve done in the past, is basically put together a pros and cons list for each of the projects. Obviously, we cannot make the investment decision for the client, because that’s not our scope, that’s not our role. The investor has to make that investment decision on their own. But we can point them, and we try to do this in a summary fashion, with just a pros and cons checklist of points that they should be looking at, what we think has been covered or not covered, in particular loan documents, and walk them through that. Give them the best information that we can and guide them to making an intelligent investment decision.

Sam:
I’m just looking through the questions here. I think we actually covered a lot of these. A couple just common sense ones that I can just quickly address here. We will make these slides available, so if you are interested in getting a copy of these slides, you can send an email to me and I can provide you with a copy of the slides. Or you can just email the email address on the screen here, info@eb5an, to send a request for the slides, and we’re happy to provide those.

Then there are a couple of questions about video recording. This has been recorded, and we will be doing a post with this entire video along with the PowerPoint download. Probably will take a few days for us to get that organized, but eventually, probably in a week or so, it will be featured on our blog. And we’ll also have the contact details for Kate and Bruce for any investors who are interested in getting started on an EB-5 application.

Just looking down the list of questions here. I know we’re way over, so I think any specific questions that we weren’t able to cover, please reach out to Kate and Bruce. Their contact information email is on the screen, and they’ll be able to help point you in the right direction in terms of evaluating projects and getting started with a new I-526E petition.

And then anything related to the project side, any questions related to the Twin Lakes Georgia rural project, please feel free to reach out via email. You can go on our website, book a call, shoot a text or a WhatsApp message to us, and we can get you more information. All the offering documents, senior loan agreements, balance sheets, everything is centrally stored in a single Dropbox folder that we’re happy to provide access to you and any attorney or consultant that you have.

I think that’s about it. Mike, anything else before we wrap up?

Mike:
No, I think that’s great. Thanks again. We know this was a long one and appreciate everybody that stayed on for the whole webinar. And we look forward to speaking again soon.

Sam:
Yeah, thank you, Kate and Bruce. Sorry we’re way over time here. But I think we got a lot of good information out there, so we really appreciate it.

Kate:
A pleasure.

Bruce:
Thank you, everybody.