Saturday, February 9, 2013

EB-5 project developers embrace ‘EB-5 Lite’

     I am a principal in a regional center in the southeastern United States and represent a number of regional centers around the nation. Several years ago, I had just hung up on my umpteenth conference call with project developers interested in the EB-5 Program and using foreign investors’ capital when I had an epiphany. Why did project developers simply disappear after I told them about the costs of participating in the EB-5 Program? Simple. They called me to get money, not to spend money.
     That’s why I developed what I call "EB-5 Lite". The basic approach is to persuade EB-5 economists, business plan writers and translators to cut their normal fees in half to keep the costs of "EB-5 Lite" to less than $10,000. For example, the EB-5 economist, for a project in a regional center, will run the direct jobs or capital investment through a "reasonable methodology", such as RIMSII or IMPLAN, and issue a letter guessing at the indirect and induced job creation. The EB-5 business plan writer will write a 15- to 20-page document, not a 40-page plan.
     Project developers create an attractive brochure with some factual information about the project but heavily relying on photographs. Once completed, I turn this brochure over to translators to translate into Mandarin and Hangul for the Chinese and South Korean markets. I work with project developers on a termsheet that sets out the terms of the deal, including the capital raise from EB-5 investors, the ROI and takeout strategies for the investors.
     Then I package the whole thing up in a merged portable document file and send it to registered investor recruiters I know in China and South Korea. It is the best way I have found to get valuable feedback from the investor recruiters in the marketplace.
     I have been fortunate to be associated with some great EB-5 economists, business plan writers and translators. The greatest benefit of "EB-5 Lite", of course, accrues to the EB-5 project developers, who tell me they love this approach. It doesn’t cost a lot of money and they get something valuable for their money.
     Basically investor recruiters will come back to us with "no, I can’t sell it" to "yes, it looks great", to "if you changed this term and bumped up the ROI, I think I can sell it." They know what sells in the marketplace. Chief among these are big real estate projects. Unfortunately the Chinese and Koreans do not know that the U.S. real estate market — both commercial and residential — will probably not fully recover for three or four more years. Some of these big real estate projects are too big to succeed, in my opinion.
     I focus on small projects — $5 to $20 million, 10 to 40 investors — which produce a product or provide a service that is an absolute necessity in the U.S. marketplace and in today’s slowly recovering economy. Chief among these are assisted living facilities and the dairy industry. The former benefits from today’s demographics, i.e., the baby boomers are retiring and will soon need assisted living care if they don’t already. The latter benefits from a robust return of this industry as well as dairy contamination scares in China.
     Today’s EB-5 world is all about the investors. There are lots of EB-5 investment projects out there. Some are good; some are bad, and it is hard for EB-5 investors and their legal counsel to divine the difference. Due diligence is key. To my colleagues, I say please consult a qualified financial services advisor or broker/dealer to examine the securities offering and business plan for your investors. It is the best money you can spend. I wouldn’t buy a house without paying a few hundred for a home inspection. You shouldn’t put your client into a project without first having it professionally evaluated. Everything from the regional center, to the regional center principals, to the project developer, to the project itself should be scrutinized.
     With "EB-5 Lite" now a new tool in the toolbox, EB-5 project developers who call me no longer complain about the high cost of participating in the EB-5 Program. They now have a way to kick the tires or test the waters, if you will, and find out if their project is going to sell in the Chinese and South Korean marketplaces.

     Note about the author: Boyd Campbell has practiced immigration and nationality law in Montgomery, Alabama, since 1988. He served on AILA's EB-5 Investors Committee for four years, one year as vice-chair and one year as the EB-5 Committee liaison to the California Service Center. He has served as an AILA mentor for many years and is a frequent speaker at AILA national and chapter conferences and seminars. He represents regional centers and is general counsel and director of America's Center for Foreign Investment, the largest regional center in the nation. He is included in The Best Lawyers in America in the field of immigration law, and his law firm is listed in Best Lawyers / U.S. News & World Report Best Law Firms. His website, the Immigration Law Center on the Internet — visaus.com — which provides information about immigration and U.S. visas, has been on the World Wide Web since 1994.

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