A Secondary Liquidity Market
Could Benefit EB-5
by Jon Baker
There is a growing discussion about liquidity, the ability of
EB-5 investors to sell out of their qualifying investment, both
inside and outside of the EB-5 market. This discussion is in
response to the maturing of the market both in terms of the
number of visas issued and, maybe more importantly, in the
amount of money raised. With success comes scrutiny and the
EB-5 market is no exception as competing capital markets and
the securities regulatory bodies such as the U.S. Securities and
Exchange Commission (the “SEC”) and the Financial Industry
Regulatory Authority (“FINRA”) begin to take notice. Some
issues relating to the securities nature of the EB-5 capital stack and
others related to the evolution of the EB-5 market as a whole are
being addressed through legislation proposed by Senators Grassley
and Leahy, as well as Congressmen Polis and Amodei. Internally
the various stakeholders in the EB-5 market are addressing these
issues through self-regulation. But questions about how retrogression, processing backlogs or even pending changes in interest
rates would impact the ability of projects to execute on their exit
strategies and how that would affect the return of investor funds
are not being discussed.
Liquidity in the EB-5 Context
In a recent discussion about liquidity with David Hirson
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of David Hirson & Partners, LLP, Mr. Hirson indicated that
the “burgeoning EB-5 market” could run into liquidity issues
“when a promissory note comes due and the project can not
pay” and that he himself had already witnessed such issues. Each
of the participants in the EB-5 process already has a stake in
liquidity, although they may not always think in such terms. For
regional centers and project sponsors, a well-developed secondary
liquidity market would allow them to sell more realistic project
timelines without over promising on how a long an investor
would expect to have their money locked-up. For investors,
access to liquidity would help when life events change how long
an investor can wait for a project to go full-cycle. Because the
EB-5 marketplace is so young and just beginning to hit its stride,
each of the EB-5 market stakeholders, regional centers, project
sponsors, immigration lawyers and agents not only has a say in
how liquidity plays out with respect to EB-5 offerings, but more
importantly, they also have the opportunity to create a liquidity
market the right way.
The Need for a Secondary EB-5 Market
Meanwhile, unbeknownst to many in the EB-5 marketplace,
EB-5 investors are already seeking liquidity in the secondary
markets set up to service other real-estate-based illiquid securities,
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