EB5 Investors Magazine Volume 1 Issue 1 | Page 55

In 1992, the United States government created the EB-5 Pilot Program, giving life to the EB-5 Regional Center. These private entities are given the responsibility of matching foreign investment with new businesses in the United States. Though it has been a learning process, since 2003, EB-5 Regional Centers have invested over $3.1 billion dollars of foreign capital in the United States economy, creating over 65,000 jobs for U.S. workers.1 As one of the older regional centers, receiving designation in March of 2009, Chicagoland Foreign Investment Group, LLC (CFIG) has watched the EB-5 industry grow from infancy into its rebellious adolescent years. This has been characterized by concerns raised over tenant occupancy methodologies, California’s succinct definition of Targeted Economic Areas (TEAs), and the cavalier increase of regional centers from twenty-seven in 2008 to 251 in 2013. EB-5 financing has certainly caused both enthusiasm and headache over the past 5 years. One noticeable aspect of the EB-5 industry has been its glamour. With the level of investment set at either $500,000 or $1,000,000 dollars, this program targets high net-worth foreign nationals interested in becoming United States permanent residents. With a limited pool of potential investors and an evergrowing need for new capital in the United States, marketing is a big piece of the EB-5 financing puzzle. To reach these foreign investors, the question becomes: what appeals to the wealthy elite so that they’ll invest in my project? An answer that the EB-5 industry continues to rely on is: glamour, allure, luxury. This is one reason why a majority of EB-5 projects are concerned with constructing resorts, exclusive hotels and residential communities, gold mining, and sports arena renovation. With the price tag for these projects being in the hundreds of millions of dollars, they simultaneously can afford significant capital investment, while superficially appealing to the lifestyle of high net-worth individuals. A larger project budget means that the EB-5 investment will be a piece of the overall financing structure. Some investors feel more protected if regional centers involve multiple sources of equity and debt financing for their total project budget. However, multiple financing methods can give the illusion that a project is safe for investment. With issues of timing and public/private partnerships, multiple sources of financing can put substantial pressure on the project and may decrease the profitability of the project. This would then lower the investment returns for the EB-5 investor, and possibly, the ability to create the jobs required under the EB-5 Program. Mr. Joseph Barnett, Esq., an experienced EB-5 attorney with The Law Offices of Kameli and Associates, P.C., explains the hazards of multi-tiered financing, “a large project that is only partially funded may not be able to create the number of jobs stated in the projects’ business plan, decreasing the chances that the immigration application will be approved.” Mr. Barnett is getting to the crux of this EB-5 marketing mirage: enamored with luxury, investors are putting their permanent residency more at risk if a project has not identified its financing partners and does not have a clear, committed timeline for its financing structure. It is with all of this in mind that CFIG wishes to make a suggestion. A sophisticated investor should be looking at 4 things when considering which EB-5 project to invest in: 1. Is this project real? 2. Will this project create jobs? 3. Will my investment be returned? 4. Will this project give my family and I green cards? Mr. Taher Kameli, Esq., Executive Director of CFIG, believes the answer to these questions is yes, if the project size is kept small and the industry within which one is investing is naturally job-creating. Naturally job-creating refers to industries that require either a large number of employees, like manufacturing facilities, or 24/7 on-call staff, like nursing homes and assisted living facilities. Mr. Kameli considers small projects those with a total budget under $20 million dollars. Small projects minimize the risk that a project will have the sufficient capital needs necessary to create enough jobs to support approvable immigration applications. Every investment is going to be a risk, but there are ways to diminish the risk if an investor is willing to do their due diligence, and with the number of regional centers continually i