EB5 Investors Magazine - Page 32

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