Webinar: EB-5 Job Creation Spending and Bridge Financing with Klasko Immigration Law Partners

Sam
Hi everyone. Thank you for taking time to join us on today’s webinar. Today we’re going to be chatting about calculating EB-5 job creation with bridge financing. We’ll talk about why projects with advanced construction with significant expenditures lower EB-5 Green Card risk. This is definitely an important topic that’s relevant for both EB-5 investors and for their EB-5 immigration attorneys as they’re evaluating potential projects for investment.

During the webinar today, please use the chat box to submit any questions and we’ll try and cover as many questions as we can at the end. This is a table of contents overview of what we’re going to discuss during today’s webinar. We’ll talk a little bit about EB5AN; a little bit about our guest panelists from Klasko Immigration Law Partners. We’ll talk about EB-5 job creation, how are jobs counted, what’s the math and how does that work. We’ll talk about bridge financing in the context of the USCIS EB-5 program policy manual, and we’ll talk specifically about how replacing bridge financing works in the context of the current EB-5 program rules.

First, a quick overview about EB5AN: we’re a national leading investment fund manager. We’ve worked with several thousand investors from many different countries around the world. This is a map showing where many of our clients are from. This is another map showing all of the regional center coverage that we have. By the end of this year, we should have most of the remaining states approved as well. And as I mentioned earlier, I’m Sam Silverman, one of the two managing partners. My background and bio is there on the left-hand side. I’ll let Mike Schoenfeld jump in and introduce himself and share a little bit more about our company.

Mike
Perfect. Thanks Sam, and really appreciate everybody taking some time today to join us on bridge financing and job creation. This is one of the more important and complex topics in EB-5 that there’s a lot of confusion on, so we appreciate you spending the time. As you can see, my background is on the right-hand side of the screen. Prior to starting this company with Sam, a little over 10 years ago, I was working in New York in private equity and at the Boston Consulting Group before that. And our philosophy in EB-5 has been pretty simple: we wanted to bring more of that institutional knowledge and transparency and best practices to the EB-5 industry. And over the past 10 years, we’ve built our company and our brand and reputation on being a best in class operator in providing helpful information, just like this webinar.

Klasko Immigration Law Partners

Sam
And this is a list of some of the different publications that we’ve been published in and our projects have been featured on over the years. And now we’ll shift and talk about our guest panelists, Ron and Alison. Ron, do you want to give a little bit of background on yourself and some context on Klasko Immigration Law Partners?

Ron
Sure. First of all, Mike and Sam, thank you so much for inviting us; we always look forward to collaborating with EB5AN. Klasko Immigration Law Partners, as many of you may know, is one of the largest immigration law firms in the world and certainly one of the largest in the EB-5 space. We’re 115 people spread around the country. All we do is immigration work; we do every type of immigration, but EB-5 is a major part of our practice. Our EB-5 practice is divided into members of our group who only deal with investors and members of our group such as Alison and myself, who work primarily with regional centers and developers, putting projects together and designating regional centers.

We have an EB-5 compliance group that Alison leads and we also do some major EB-5 litigation. I personally was the Chairman of the AILA EB-5 Committee for five years, and we have collectively represented hundreds of EB-5 projects, a large number of regional centers, and thousands of investors. And it’s certainly true that one of the big issues we’re dealing with these days is bridge financing, so I look forward to discussing that. Alison, tell them a little bit about yourself.

Alison
Hi everyone, my name is Alison Li. I’ve been an EB-5 attorney for almost 10 years. I specialize in regional center application filings as well as compliance. I have also done a lot of investor immigrant petition filings.

How EB-5 Job Creation Works

Sam
Perfect. Thank you. Thank you both, Ron and Alison. As the first step in discussing bridge financing, we’re going to spend a few minutes chatting about how EB-5 job creation works. A lot of investors get hung up thinking of how many physical human workers are going to be involved in a project, and so that can be a little bit confusing. Ron, do you want to walk us through this, how job creation requirements fit together with an investor’s application?

Ron
Sam, as you mentioned, the EB-5 program is viewed as a job creation program. At its heart, the issue is, “Does your investment create jobs for 10 US workers?” And the EB-5 program is divided into direct EB-5s, where you have to show that the 10 US workers are W-2 employees, and regional centers. Regional center EB-5s are probably about 90% of EB-5s. You still have to prove job creation, but you can include what’s called indirect and induced jobs, so if you’re building a building and indirectly there will be jobs created in the community using various accepted economic formulas. Then, you can count not only direct but also indirect and induced jobs.

The concept of bridge financing is somewhat a function of the long delays in the EB-5 process. We all know that we’re stuck with very long processing times for EB-5 petitions, 3, 4, 5 years sometimes. We also know that there’s EB-5 quota delays, especially in China and to some extent in Vietnam, that result in it being many years before EB-5 investors can come to the US. It also takes a long time to market an EB-5 project and get the EB-5 money flowing into the project. And the EB-5 money can’t come into the project until the I-956F is filed, which takes time. The bottom line is in many, many cases, a project is going to have to go forward before the EB-5 money is in the project, and the project goes forward perhaps with some equity infusion by the developer, perhaps with a senior loan or a construction loan or some sort of temporary loan that is added to the equity. And based on that, the project can move forward.

But in the end, EB-5 money is intended to make up that part of the capital stack. And so if the money is already in from the developer and the lender, the EB-5 money comes in to replace some of the equity put in by the developer or to replace some of the money that came from the lender. And the question is, when can the EB-5 money take credit for the job creation that occurred before the EB-5 money was in? The project moved forward and the jobs started to happen before the EB-5 money was in, but the EB-5 money wants to get credit for the job creation. And the Immigration Service says, “Okay, the EB-5 money can get credit for the job creation, but only if the equity or the debt is considered bridge equity or bridge financing or bridge debt.”

And they have their own concepts of how that plays out. This is not something you can read in the statute, this is not something you can read in the regulations. Alison’s going to take us through the policy manual on this, but we’re going to see that the Immigration Service has created three concepts of when you can consider the equity or the debt to be bridge equity or bridge debt—such that when the EB-5 money comes in and replaces it, the EB-5 money gets credit for the jobs that were created before the EB-5 money was in. And the Immigration Service says, “There are three things we look at.”

Number one is that the debt or the equity being replaced must have been intended to be short term. Number two, which sounds very, very similar to number one, is the EB-5 money must have been intended to be temporary. And short term and temporary are somewhat different. If I could have a loan that’s going to be for 10 years, that’s temporary, that’s not permanent. After 10 years it’s going to be taken out. That may not be short term. It has to be short term, it has to be temporary.

And number three, you have to show that the equity or debt being bridged was intended to be replaced not necessarily by EB-5 money, but intended to be replaced by EB-5 money, other debt, equity, or something after the short term temporary period of time. This is what we’re going to be focused on.

And as I said, this is a huge issue that we deal with all the time on projects because so often, the project’s going to start before the EB-5 money is in and there’s the big issue hanging over the project: whether the EB-5 investors can get credit for the job creation when the project started.

And Alison, as we go through, will take us through what the Immigration Service has to say about this and I’ll talk a little bit at the end about some of what we do when we’re advising clients to try to meet the Immigration Service’s policy.

Sam
Got it. One question before we move to the next slide on job creation and it being able to be counted for investors in a project: Let’s say that the project gets started, gets moving, and then it’s using, let’s say temporary sources of capital or other sources of capital to get moving. Then, EB-5 money comes in and is basically directly spent on project costs and it doesn’t necessarily replace or repay some of that other financing that came in earlier. And so now you have a situation where, okay, the project needed a $100 and maybe $30 was spent on expenses and then the other $70 came in from EB-5, but that other $70 didn’t really replace any of the $30 that came in before it; all of $100 was spent on the project. How does the government look at the total jobs available to investors who join a project like that?

Is the government only going to look at the jobs created from just the EB-5 $70 that came in later? Or are you going to be able to count all $100 even though the $30 wasn’t actually replaced, but it was spent on the whole project?

Ron
The structuring of this is very important and we always try to have the documents and the structuring be done in a way that’s going to enable us to include all of the jobs. We can definitely count the… If the EB-5 money comes into pay construction costs, we certainly get credit for all of those jobs. We like to structure it where the EB-5 money is also coming in to replace the debt, the bridge debt, in order to be able to get credit for any of the jobs created through that debt. Structuring is very important when we do these cases.

Sam
Got it. But generally, if EB-5 doesn’t replace bridge, can you get credit for jobs created by the total project spend or are you only going to be limited to just the EB-5 component? Because some deals don’t need to replace money with EB-5, they just use EB-5 as it comes in. How do you think about that or what do you see projects doing for that?

Alison
Sam, I think in general you can, but there’s the concept of eligible expenditures, so not all expenditures can be used as input for the economic model to generate jobs. I’ll take RIMS II as an example. RIMS II uses construction expenditures, which means hard construction costs as well as soft costs such as FF&E and A&E, and also sometimes revenue if you’re accounting revenue as an input of the RIMS II economic model times corresponding multipliers for each category for the algebra expenditures or revenue. And then the output would be the number of jobs, but not all expenditures can be considered eligible. And this is something that we have to look at carefully and we need to consult with the economists as to what is considered eligible.

Sam
It’s essentially a math equation where you’re looking at total project costs, which costs are eligible— land obviously being one that’s not, the use of capital to purchase land doesn’t create jobs—but expenditures on concrete, steel, windows, roofs, things like that do create jobs. There’s a different economic multiplier that’s going to be assigned. And so, when we look at a potential project, here’s an example of that cost breakdown for our Twin Lakes project in Georgia. And here we can see total development budgets of almost $700 million and, through March a few months ago, we can see over $200 million was already spent. And a majority of that is hard costs. And the way the economic multipliers work on hard costs, you’re going to get the highest number of jobs per million dollars spent. Soft costs, most of them are going to be eligible, but the economic multiplier is going to be smaller and most of the financing costs typically are not going to be eligible, so we would have to remove those along with land costs, in terms of how we’re going to calculate the potential number of jobs.

But I think what’s important here is looking at how much money has already been spent in the project before an investor joins. And here we talked about removing ineligible expenditures, so if we look at which categories are eligible for this project, we can see the real cost is about $662 million. But when we break it down in terms of which expenditures are eligible, and then you’ll see these names don’t match up exactly because the RIMS II specific economic multipliers are named a little bit differently, so we have to re-categorize out of the more traditional development names. But we see here that about $517 million out of $662 are going to be eligible. And most of those are related to residential construction, which is the vast majority.

Once that filtering is done and we can figure out which expenses we are going to get jobs for, then we basically run the numbers and it’s just a simple math formula where we’re looking at, okay, there’s $510 million of residential structure expenditures and we’re adjusting it for inflation, and then we’re getting the most current RIMS data II, RIMS II numbers so that everything is matching up with the correct year. And then once that’s done, then we basically look at the current RIMS II table and then we can determine exactly what the math is.

So, looking at residential structures, according to the RIMS II table for the project in this area, we can see that construction jobs for residential structures provide 15.7 jobs per million. And after we’ve deflated the total spend down to the 437, then we just multiply across and then we can see exactly how many jobs that activity is going to create.

And so, Alison, from your side, obviously these are projections. In this case the developer Kolter has already spent about $200 million, but this projection is based on them spending the entire amount. What’s important from your side, in terms of actually getting credit for these jobs when it comes time for investors to start filing their I-829s? What are some of those pieces that you’re looking for to be able to prove that these jobs actually happened?

Alison
If the jobs have already happened, if you have already incurred expenditures, then obviously you want to provide general ledger, Sample invoices received showing that you have spent the money. If the expenditures haven’t been spent yet, then we would generally include something—for example, in the construction industry, there’s the Turner Construction Index, things like that, that we can show that your construction expenditure projection is reasonable and it is in line with the industry standard. And that’s also the other important thing that we look at to determine whether your job creation projection is reasonable.

Sam
And so in terms of documenting job creation for a project that’s well under a construction, to really prove those jobs have been created, you really just have to show that that money was spent and on exactly what it was spent on. Because the type of expense is going to vary with the number of jobs you’re going to get credit for. And so you’re going to be looking for things like bank statements, construction, general contractor invoices, general ledger, all the records that show that money came in and was actually spent on those different buckets of expenditure. And I guess since money, just by virtue of being money, once it’s been spent and it leaves the account and it pays all these expenses, then you essentially get those jobs from an EB-5 job creation perspective; the second the money leaves the account and pays the bill, you get the credit.

And so from that perspective, then you want to have as many jobs already created as possible at the time if you’re an investor that joined the project.

Minimizing EB-5 Immigration Risk Through Job Creation

Ron, from your perspective, from an immigration risk perspective, could you talk to us a little bit about how that impacts an investor’s risk of making it through the EB-5 process, if they’re looking at a project that hasn’t started construction at all—versus one that has spent a significant amount of capital and already created a lot of jobs prior to that investor joining?

Ron
In the EB-5 arena, a shovel-ready project is critical. A project that’s not only shovel-ready but is actually started construction ready is the least risk, because there’s all sorts of things that can delay or prevent construction from moving forward. But if you have a project that’s already moving forward, already has the expenditures, already has created the jobs, it’s definitely a lower-risk project for an investor.

Sam
And why is that? Why is that the case? How does that fit into the different stages of the investor’s journey through USCIS?

Ron
Well, the reason it’s critical is because the investor journey is going to include two main stages: one is getting the EB-5 petition approved, which is based on job projections, but not necessarily proving that the jobs have actually occurred. And at the I-829 condition removal stage, you have to show that the jobs have actually happened and the jobs are going to be proven in a regional center context, as Alison said, by the amount of hard costs, the amount of eligible hard costs, the amount of eligible soft costs, and FF&E. A project that has started already and already has the expenditures is a far lower risk.

Sam
So, looking at those two critical stages on the first stage: the I-526E, like you said, at that stage, it’s really a projection, but they’re approving the credibility of that business plan, of that economic activity. And so having demonstrated that money is being spent, things are happening on site—that really bolsters and increases the credibility of the plan that it’s already in motion. And so on the first stage, that’s the benefit. And then on the second stage, the 829, the removal of conditions, at that stage, it’s really demonstrating that the jobs have already happened or are in the process of happening. And so knowing at the time you join the project that a lot of jobs are already in place can really, more importantly, lower your risk later at the 829 stage, because that’s where you really have to have the jobs to successfully remove your conditions. That’s how it fits to both of the major steps.

Shifting gears, talking about those points in the context of our current Twin Lakes rural EB-5 loan project, this project has been ongoing for several years. In total, it is expected to create almost 7,000 jobs, including the current EB-5 raise for the project. We need approximately 1,510 jobs to satisfy the 10 job requirement for every one of our investors. As of March of this year, we’ve created more than 1,800 jobs already, just based on over $200 million of spend. That’s already happened. And because of that, we believe we have more than enough jobs for every investor in the project, which really helps to increase credibility for getting the I-526E approved together with the I-956F, but also reduces the risk of execution in terms of the project getting built—enough money being spent to have at least those 10 jobs for every investor to remove their conditions.

Mike
And Sam, since that job creation is already done, and this is probably a good question for Ron or Alison: As you’re an investor looking at a potential project, there’s a lot of ways that things can go wrong, but if you have a good immigration attorney that’s reviewed the project and knows it’s approvable (or even better, the 956F is approved and you can show that those jobs are created), how can things go off the rail on the immigration side, Ron and Alison, from that point on?

Ron
Well, okay, there’s a number of ways where things can go off the rails, but normally if that has occurred, if we have done a complete review of all the project documents… If the 956F is already approved and all of the necessary jobs have been created, then it is very unlikely the project will go off the rails. One of the things we said already is, when EB-5 jobs have already been created, we do have to make sure that later EB-5 money coming in can get credit for the jobs that have been created. So if you had a situation where the project moved forward based on bridge financing, that’s not considered bridge financing by the Immigration Service; if the Immigration Service views something as the project’s already completed, there’s no EB-5 money in and now we’re just going to put EB-5 money and say, “Give us credit for all the jobs,” that’s problematic.

And that’s the reason we’re talking about bridge financing, because we want to show that when the EB-5 money’s coming in later, after all the jobs have already been created, that it is being done in a way where we can get credit for the jobs that were created long before the EB-5 money came in.

Mike
Exactly. And I think that’s a really important distinction there on the bridge financing. As long as the EB-5 money is actually spent on the project or repays bridge, as the construction is ongoing, you take that risk away. And I see what you’re saying: let’s say the project’s completely done, everything’s been there and a year later, EB-5 money comes in. We can’t really say that that was bridge and that the EB-5 created jobs, but if the project’s still ongoing, jobs are still being created and you’ve already created… You’ve pretty much taken that job creation risk off the table, and then it’s purely immigration side prove where your monies come from.

Sam
And having a large margin of safety obviously is always helpful. No one knows how USCIS is going to accept or reject a position on jobs being counted or not. But if your project has significantly more expenses and more jobs than are needed, then you’ve got a big cushion, a big margin of safety in case there’s any questions as to how you’ve structured it. That’s also pretty important when you’re looking at different projects. And also, in EB-5, the name of the game is just reducing risk; there has to be some risk in order to qualify for the Green Card, that’s the spirit of the program, but you don’t have to take an unnecessarily high level of risk. There’s immigration risk and there’s financial risk.

And on the immigration side, the way to mitigate risk is a project, as Ron mentioned earlier, that’s financed, is already happening, ideally it’s profitable and it’s created a lot of jobs and it needs a lot more capital to continue, and EB-5 funds are going to be spent directly on job-creating activities. And all of those things combined are going to really reduce the immigration risk side on the project itself. And obviously, if you hire Ron and his team to help with the source of funds, on the personal side, which we haven’t really talked about at all, that’s really the other bucket of potential immigration risk, on the personal side. Has the investor documented correctly where their source of investment funds are from? Are they not a criminal? Are they not a terrorist? Have all the taxes been paid on their funds? And has all that been correctly documented and shared with USCIS along with the project documents, so that the government will approve both?

It’s not just about the project; you also have to work with an experienced attorney to document on your personal side where the funds are from. Because even if the project goes perfectly and has all the jobs, the government could still point out an issue with your personal documents, where your funds are from; and so, you’ve got to make sure you’ve got both things covered. A project that has a lot of jobs that you believe is credible and is going to be economically successful, a project that is profitable and economically works, typically will cure any potential project issues you have.

If the underlying business activity is profitable and works, that usually eliminates most potential problems that you’d have on the investment side. And then you’re left really with just the personal source of funds issues that you need to address.

Bridge Financing and EB-5 Job Creation

A little bit more about bridge financing.

Mike, do you want to give us some context here on bridge and how bridge can be debt, equity and how we’ve seen that in different deals over time? And then have Alison talk to us a little bit about how USCIS has published language on this topic over the years.

Mike
As Alison mentioned before, USCIS defines bridge in three very clear ways. But putting on more of the development hat and the regional center project structuring hat, the key things that we look at is that bridge truly has to be short-term in nature and EB-5 needs to take it out, or it’s contemplated that will be taken out by something else. Trying to say that a permanent debt facility is bridge in nature, is not going to fly with USCIS. When we’re looking at deals, what we like to find are deals that are fully capitalized in the sense that, let’s say a hotel costs a $100 million and the developer’s going to get $60 million from the bank, a somewhat traditional 60% LTC loan. That developer wants to put in $20 million of their own equity and they want $20 million of EB-5, they may advance the additional $20 million that they want for EB-5 themselves off of their balance sheet as bridge equity until EB-5 is available, even though they’re anticipating the EB-5, but they don’t want to stall the project out waiting for it to come.

That’s a great use of bridge capital, whether it’s developers, keeping it on their balance sheet or finding a short-term bridge facility until the EB-5 is available. Those are both great options. And many developments we see that are built by large developers and institutional quality partners, do have those types of bridge facilities available, whether internal or external.

Now, the thing that doesn’t typically work well is, a developer’s building that hotel and they get a $60 million construction to permanent loan that’s meant to be there forever, and then they say that it was a bridge after construction and have the EB-5 take it out after the building’s done: that’s not a great use of bridge and something that could raise some red flags. I’ll hand it over to Alison to run through it a little bit more. As they’re reviewing projects from the immigration side, what exactly are they looking for? What are their checkboxes that they need to see on bridge?

Alison
Sure. Under existing USCIS Policies, for EB-5 investors to use jobs created by bridge financing to remove condition at the I-829 stage, the replacement of bridge financing with EB-5 capital in general should have been contemplated prior to acquiring the bridge financing. But even if the EB-5 financing was not contemplated prior to acquiring the bridge financing, as long as the bridge financing to be replaced was contemplated as short-term temporary financing that will be subsequently replaced by more permanent long-term financing such as EB-5, then the immigrant investors may still receive credit for jobs created with bridge financing.

And as a best practice, we should document this intent of bridge financing being replaced by EB-5 financing as early as possible and preferably before we secure the bridge financing and before EB-5 capital is invested in the project. And this can be done by, for example, a memorandum of understanding with the bridge lender and the JCE or by including a provision in a term sheet or loan agreement itself. The other thing that we should pay attention to is that, the full amount of the EB-5 investors’ investment capital must be made available to the business most closely responsible for creating jobs. In the regional center context, if there’s an NCE and a JCE, then the EB-5 investors investment capital must be invested first in the NCE and then made available to the JCE. This is a very technical requirement that EB-5 projects are generally required to satisfy. This was clarified by the USCIS, in at least one of the in-person stakeholder meeting several years ago, and this is also written in USCIS Policy Manual Volume 6 Part G Chapter 2.

Sam
Working with developers on many projects over the years, having a developer who’s successfully gotten bridge financing and job creation associated with it approved historically in multiple projects in the past; obviously that’s a good sign in terms of it being done correctly. It’s all about consistency. And again, it takes years for the government to review these applications. And so you want to ideally try to identify a project where you’ve gotten the benefit of knowing that this same structure, the same approach, the same bridge financing documentation that’s being used in the project that you’re looking at—has successfully been approved in a prior project that’s very closely resembles the one that you’re considering investing into.

There’s no guarantee that that means it’s definitely going to be approved, but having many projects with the same structure helps reduce some of that uncertainty around how the USCIS is going to interpret the bridge component. And also, if it’s a developer who’s used EB-5 for an extensive period of time, that’s also a factor in favor of financing coming in and being temporary with the expectation of EB-5 coming in, because it’s been done successfully many times by that same party over a period of time.

Alison helped us with some of these specific provisions, so we won’t go through every one of these, but what’s really important generally, is that the government has specifically published information on bridge financing and it’s easily available online. We’ve pulled out some of the most important quotes here. The project starts on interim financing and subsequently replaces it. You can still get credit and it goes into detail out some more context around what is required for that to be possible. From the development standpoint, it’s just really important to consult with Ron, Alison, experienced EB-5 attorneys who understand the project side of EB-5 to make sure that this is documented at the beginning of the project. That way there’s no issue later on.

Careful planning is really important, especially if it’s a multi-year project, you want to just, to the extent possible, get this documented early. And it’s not like we’re talking about very substantial amount of documentation that needs to happen, it’s more about the timing, right Alison? It’s not so much, “We need a 30-page document explaining exactly how this is going to work,” it’s more of “When did that get memorialized?” And timing is much more important than length. Share your thoughts on that point.

Alison
Yeah. I agree, timing is more important than length. I don’t think you need a 30-page memorandum of understanding to document your intent. I do think that, like I said, you should document that intent as early as possible. And like Ron said, definitely not after years or after EB-5 investment was made to the project and not after 10 years of securing the bridge financing. We should document that intent as soon as possible, and like I said, preferably before the bridge financing is infused into the project and definitely before EB-5 capital is infused into the project. And this is also suggested in the USCIS Policy Manual.

Sam
Exactly.

Ron
When we have the ability to deal with this upfront, as Alison said, we’re in a lot better shape. We may be able to negotiate to get something in the loan agreement that makes it clear. We may be able to have a contemporaneous memorandum of understanding. We always prefer to be part of the deal before the bridge financing is committed to, and then we can create the record. It’s more difficult but not impossible when it comes afterwards, and we use everything at our disposal, sometimes we can show emails between the parties that show that they were already looking at EB-5 financing. It may not have been in the actual bridge loan documents, but we have contemporaneous emails showing that they were considering EB-5, maybe there’s even minutes of meetings. Sometimes we actually use affidavits; we get affidavits from parties saying, “I was there, I know we discussed EB-5 at the time.” These are not ideal, it’s way better if we have it in the documents, but there are things we can do after the fact.

A lot of time, it’s if you get into this late, it can be easier to deal with bridge equity than bridge debt, because with bridge debt, if it says it’s a 42-month loan or a 60-month loan, it’s hard to get around that. With bridge equity, there’s no specific document, but if we have affidavits or emails or whatever showing that the developer always intended to get as money out as quickly as possible and to replace it with something, ideally EB-5, then we have a credible case.

If we’re getting in late, hopefully sooner rather than later, it’s easier to deal with an issue, if we’re getting it, even if it’s a 3, 4, 5 year loan, if we’re replacing it after six months, we have a much stronger case than if we’re replacing it after three years. These are some of the things that we regularly deal with our developer clients on. But the point you made at the beginning, which is, it’s a heck of a lot easier to deal with this when you’re part of the deal upfront and you can have it in the loan documents upfront, then you’re in better shape.

Sam
And Ron, just given the broad scale of your practice, particularly with developers and out of a 100 projects, how many of them are really dealing with this specifically, and it’s a major point that the project is planning to use bridge financing and replace it with EB-5?

Ron
I’m not going to give you an exact percentage, but I can tell you this is a very, very normal part of our practice and the normal part of our advising on projects, because it’s not in the least bit unusual that a project is going to start with equity or debt that is intended to be replaced. This is not a hypothetical issue, it’s really, I’d say one of the more prevalent and important issues we deal with. And it’s different than other issues. You may get RFEs that are questioning policies and procedures or questioning different things that you can give them what they want at a later stage, but if they’re questioning bridge financing and they’re adjudicating a petition three or four years after you filed it, and you now have to go back and prove it was bridge financing four or five years ago, that can be very difficult to do on an RFE. Again, our advising on this is, very frequent, comes up very often and it’s one of the more important things we do.

Sam
That’s a really good point: if there’s some policy question or something later, it’s more easily addressed at that time. But with this, because there’s that large gap of adjudication and can even be longer depending on the timing of when that RFE is, maybe that RFE is at the 829 stage and is not at the 526. By then, the project could be completely finished and shut down and amount of records and people involved may not be reachable, and records are limited. That can definitely be problematic if you don’t have the right memo, the right documentation of that early on. That’s a really good point. Mike, anything else you want to add before we shift to the Twin Lakes project for the last five minutes?

Mike
No, I think that’s perfect. Just absolutely critical, structure your project in the right way upfront to avoid pain later. Work with good immigration council on your project and know what you’re doing to avoid mistakes.

EB5AN’s Twin Lakes Georgia, With All EB-5 Jobs Already Created

Sam
I know Ron’s got to go in about 10 minutes, so we’ll quickly spend five minutes talking about our Twin Lakes Georgia project and then we’ll have just a short five minutes of questions at the end. One of the current projects that we’re working on today is our Twin Lakes Georgia loan project. It’s a rural project located just outside of Atlanta, Georgia. The project is a single-family home project for active adult retirees, so you have to be 55 years or older to become a resident there. It’s one of a number of Cresswind-branded retirement home communities. This particular project has already sold more than 500 homes, and almost 400 homes have been constructed. It is in a rural area, which means it qualifies for faster processing and a larger visa set aside, which is really important for clients born in both India and China.

The project’s fully financed, it has a senior construction loan, and it’s created almost 2,000 jobs already. And on the left-hand hand side here, you can see a recent drone photograph of the community. This is a map showing 13 different similar retirement communities that Kolter is developing, so this is one of 13, one in the middle there in green. And main purpose of this slide is really just to illustrate that this is a successful, proven model that Kolter is replicating across the Southeast.

This particular project is a little bit unique amongst other rural loan projects in that it has unique safety with the developer’s parent company, KL Holdco, providing a number of investment guarantees for investors. The first is a loan repayment guarantee that’s securing the loan of the capital itself, the second and approval refund guarantee. Basically saying that, if an investor gets denied, they’re getting a full refund of their capital back in just a few months. And then a job creation guarantee to address jobs being created. Although in this project, that’s not really very applicable because we’ve created more than enough jobs already for all the investors. Of those three, the most unique is the loan repayment guarantee, and essentially what that is, is a financial obligation from Kolter’s parent holding company which is promising to repay the EB-5 loan funds.

Most EB-5 loan projects funds will be loaned to one particular address, one particular site, and the repayment of the EB-5 funds is really tied to the economic success of that one address, that one location. And so that really is concentrated risk in one particular asset and that one location being successful, to result in funds getting returned. In our project, EB-5 funds are being used at the Twin Lakes project to qualify for the Green Card, but the obligation, the promise to repay those funds is from a much larger parent holding company that owns many, many projects. And so it’s really a diversified obligation, which we think really reduces the investment financial risk for our clients. And this does satisfy USCIS requirements with respect to maintaining funds, funds at risk. And we’ve used this same structure in many prior Kolter projects with a 100% USCIS approval.

Second point on this: Kolter as a borrower, over the last 25 plus years, they’ve done almost 200 projects, $24 billion of development, over 20,000 homes. They’ve successfully borrowed or repaid billions of dollars from many of the top public banks. They’ve never failed to repay a single loan or to complete a project in 25 years. And their parent company, KL Holdco here, is promising to repay the funds. Those factors combined, we believe give us one of the lower risk investment projects available on the market today.

Audience Questions

And with that, we’ve got three or four minutes left, and so we’ll open it up for a few questions. Give me a second here and let’s see, and we’ll try and cover as many of these as we can. First question, “Is webinar the recorded?” Yes, this is being recorded and we will have a full version of the video if there’s any particular section you’d like to cover. It will be on our YouTube channel and transcribed probably in about a week. Let’s see. Okay.

Ron, couple of questions related to short-term and temporary. Obviously, those are vague words in the policy manual, what do you see in real life in terms of timelines, ranges of things being accepted by USCIS in terms of temporary and short term with respect to the bridge capital coming in?

Ron
I have not seen them define this in any way, and Alison, I’ll be interested in hearing what you have to say about that. What I would say is this, and I’m just giving you my best thoughts on what appears to be USCIS Policy; I can’t give you anything in writing on this. One year or less, not a problem generally. One to two years, probably not a problem if it’s documented well. Over two years, much higher percentage of a possible problem, in terms of whether they would agree that that’s short term. How would you answer that, Alison?

Alison
I agree. I think USCIS is generally more comfortable if bridge financing is repaid by EB-5 capital within a year. But this is not a hard investor and like Ron said, there’s nothing in writing. Some projects we’ve seen, they will have this model, so they will initially have bridge finance that matures in a year, but for whatever reason, if they don’t have enough EB-5 capital coming in to replace bridge, then they’ll extend it for another year. And like Ron said, in general, that’s probably okay if you document the intent very well ahead of time. I personally will not feel very comfortable if the bridge financing has a term that’s over two years.

Sam
We’ve got time for one other question, so the other question here is, if an investor comes in, they invest their funds and then a year or two later they get approved, they get their Green Card, they hold it for two years, then they go to remove their conditions: When do those jobs that they’re going to show need to be created? What is the timing requirement? Can that job creation happen any time before they have to file 829 or does it have to happen only after their funds are in the project? How does that work in terms of the timing of the job creation for an investor showing that?

Ron
I’m not sure I totally understand the question, but if the issue is that the jobs were already created before the investor invested, well that’s what we’ve just spent the last hour talking about. And in some cases you are able to get credit for those jobs. If the issue is the end date of when the jobs must be created by, certainly it is best if the jobs are created no later than when the I-829 is being filed, so you’re perfectly fine, even though you may have projected that the jobs were going to be created much earlier, which resulted in the 526 or 526E being approved. If the project is delayed by years and years and years and the jobs didn’t occur years ago when they were supposed to, but by the time you get to the 829, the jobs have been created, you should be fine.

Sam
Even if you’re not replacing bridge financing, but your funds went in and were directly spent on expenses and created enough jobs after your money was available to the project, but before your 829, you could just look at those jobs and completely ignore any jobs that may have been available from bridge?

Ron
And bridge financing may not be an issue, because the EB-5 money is being used to pay construction costs, and that’s fine. The bigger issue is when EB-5 money comes in, after all, or almost all of the construction costs have been spent, and their only way that the EB-5 money is going to get credit for jobs is if it’s replacing something that the Immigration Service agrees is a bridge. But when the EB-5 money is coming in to pay for actual construction costs, then bridge financing may not be an issue.

Sam
What I’m hearing there is just, the lowest risk approach is that your money comes in and it’s directly spent on ongoing construction costs. That’s the best, out of-

Ron
That’s the lowest risk. Yes.

Sam
That’s the lowest risk.

All right, Ron, Alison, thank you very much for taking the time today. That was great. I think we had a record turnout, almost 200 people signed up for this.

And we will make the full set of slides and the video transcription available, so if you are interested in getting a copy of the slides, please feel free to reach out, just email us here info@eb5an.com; happy to share the slides. And the video recording and transcript will be on our blog probably in about a week or so.

And again, if you need help on documenting bridge financing for a project, Ron and his team are best in class, certainly the most experienced. We’ve been working with them for 10 years and they are definitely the go-to team for dealing with this early on.

And then also on the source of funds side, for investors who are considering projects, again, find a project that’s got a lot of jobs, already under construction where your money is being directly spent on jobs or directly spent on expenses, and you can see that expenses are happening at the time your money goes in. Because then you can really understand and get comfortable that the money is actually going to be spent; if you can see a lot of money is being spent already on a monthly basis. With that, thank you again for joining us today, and we look forward to doing another one soon.