Percent C
-20
Construction Manufacturing
Retail
Trade
Continued from page 29
What financiers and investors are relying upon is that an experienced developer has seen it all and can usually resolve even very
difficult problems that would otherwise cause a less experienced,
and possibly thinly capitalized, development team to fail.
Percent Change From Beginning to End of Recession at Annual Rate
Percent Change From Beginning to End of Recession at Annual Rate
Job Openings, in Millions
2
130
1
128
0
126
2011
5
132
Total Nonfarm
Employment
(right axis)
2010
Percent Change in Employment During Recessions, at Annual Rate
Selected Industries, 1973-2009
3
134
2009
Dec 2007Jun 2009
4
2008
Mar 2001Nov 2001
136
Job
Openings
(left axis)
2007
Jul 1990Mar 1991
5
2006
Jul 1981Nov 1982
138
2005
Jan 1980Jul 1980
6
2004
Nov 1973-
Mar 1975
Table 1
140
Shaded Areas Denote Recessions.
2003
Many industries (and the businesses therein) suffered greatly
-15
during the last U.S. economic recession. Why is this important
to the EB-5 investor? Because if the investor invests in an EB-5
project in an industry that is highly likely to be impacted by a
-20
Construction Manufacturing
Retail
Financial
Professional
recession (see Table 1), then the project may Business Education
Trade
Activities
& not have Health
& all the
Services
Services
jobs exactly when they are needed. If that happens, the EB-5
investor and family can be Recession Periods deportation.
subject to
7
2002
Navigating a shifting economy
0
One of the most difficult problems for most any real
estate-based business or project to deal with is the issue of
-5
unpredictable economic cycles. Revenues and profitability can
be good for all project types and industries during economic
expansion, whether or not the projects would have otherwise
-10
been successful. As the saying goes, a rising tide lifts all boats.
Table 2
Job Openings and Employment, January 2001-October 2011, Seasonally Adjusted
2001
Many financiers have seen how online technologies impacted some brick and mortar retail operations, such as with
Blockbuster Video and Barnes & Noble. Astute financiers and
Percent Change study the long-term industry trends as
EB-5 investors willin Employment During Recessions, at Annual Rate well
Selected Industries, 1973-2009
as the short-term local market demand to assess the safety or
5
predictability of success of a project.
Education
& Health
Services
Employment, in Millions
Planning ahead. The project financier (as well as the EB-5
investor) is also assessing the long-term industry demand for
the project. Almost all EB-5 investments are put into real
estate-based operating businesses. As a result, when the EB-5
investor gets repaid in around five years, there will have to be a
lender who will want to put a 20 to 30 year loan on the business
or facility. As a result, the industry projections have to be very
strong for many decades ahead.
Professional
& Business
Services
Let’s look at this issue in more detail. After an investor preRecession Periods
Nov 1973Jan 1980Jul 1981Jul 1990Mar 2001Dec 2007pares and submits their I-526 petition, USCIS adjudication can
Mar 1975
Jul 1980
Nov 1982
Mar 1991
Nov 2001
Jun 2009
take over a year. Add several more years for the time to prove job
creation and now the job creation counting is taking place three
to four years after the I-526 submission. If a recession occurs
during the time the jobs need to be counted, revenues can be
way off, layoffs can occur and the needed EB-5 jobs may not
materialize (see Table 2).
Job Openings, in Millions
six-month archeological dig and assessment on the site. The
developer was able to survive that delay because they were very
experienced and had a strong balance sheet.
Financial
Activities
Source: U.S. Bureau of Labor Statistics
Regardless of the type of economic study model used for
the job creation projections a recession can, and usually does,
negatively impact job creation or job retention. The difference
in job impact is tied to the project’s industry. Depending on
the industry, developers should have safeguards in place to
ensure that all of the EB-5 investors that invest in a project are
thoroughly protected, in case a severe recession hits again.
Conclusion
In summary, EB-5 project developers need to create and
sponsor projects that are very safe—more akin to putting funds
in a bank than venture capital funding; secure, in terms of job
creation; and predictable, in terms of returning investor funds
in a reasonable timeframe. Despite challenges, EB-5 capital
remains a very attractive funding option for projects. Investors,
however, are looking for credible projections of project success,
and high project supply means that they are able to get their
demands met. Before embarking on a capital raise, it is important to understand what goes into a successful and marketable
EB-5 project.
★
0
-5
Job Openings and Employment, January 2001-October 2011, Seasonally Adjusted
7
140
Shaded Areas Denote Recessions.
-10
6
138
3
-20
2
136
Job
Openings
(left axis)
134
132
Total Nonfarm
Employment
(right axis)
Construction Manufacturing
Retail
Trade
Financial
Activities
Professional
& Business
Services
1
Recession Periods
Mar 2001Nov 2001
2011
2010
Jul 1990Mar 1991
2009
2008
Jul 1981Nov 1982
2007
30
2006
Source: U.S. Bureau of Labor Statistics
2005
Jan 1980Jul 1980
2004
2003
Nov 1973Mar 1975
2002
2001
0
Employment, in Millions
5
-15
4
130
Education
& Health
Services
128
126
Dec 2007Jun 2009
Greg Wing is the managing partner and co-founder of Education Fund of
America, a company that funds public charter schools with EB-5 capital. To
date, his company has financed the development of 13 charter schools with
over 30 more planned during 2015. Greg is also founder and president of
Bedford International. The Bedford companies have closed over $5.5 billion
in commercial real estate loans and investments.
EB5 INVESTORS MAGAZINE