[PPT] - THE HE E EB-5 P PROGRAM A AS S AN ALTE TERNATIVE VE SO PowerPoint Presentation

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THE HE E EB-5 P PROGRAM A AS S AN ALTE TERNATIVE VE SO SOURCE O OF FU FUNDIN ING

Debbie A. Klis, Esq. klisd@ballardspahr.com

2015 ULI FALL MEETING – Latest Foreign Import: EB-5 Financing

October 7, 2015

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Agenda

Overview of the EB-5 Investment

Visa Program and its Requirements

Types of EB-5 Projects and Ways to

Use the EB-5 Program

The Regional Center and Job

Creation

EB-5 Successes
Criterion for EB-5 Real Estate

Projects

The Benefits of the EB-5 Program

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The EB-5 Investment Visa

The EB-5 Visa for Immigrant Investors is a U.S. employment-based (EB)

visa created by the Immigration Act of 1990 to stimulate economic activity and job growth, while allowing eligible aliens to become permanent residents.

The EB-5 Program provides a method of obtaining a Green Card for foreign

nationals who invest money in the United States.

This Program enables a foreign national to obtain permanent residence status

more expeditiously than would most other options.

The EB-5 Program has evolved into a low-cost source of alternative

financing for U.S.-based projects.

To obtain the visa, individuals must invest at least $1,000,000 creating at least 10 jobs

full-time (35 hours) for qualified employees.

By investing in certain qualified investments or regional centers with high unemployment

rates (i.e., "Targeted Employment Areas”), the required investment amount is $500,000.

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EB-5 Investment Requirements

Investment Amount
The investor is required to invest $1,000,000 (or a reduced amount of $500,000,

if the investment is within a Targeted Employment Area (TEA), i.e., 150% of the national average unemployment statistic).

Job Creation Requirements
Each investor must create 10 full-time U.S.-based jobs from their investment.
Job creation can be through both direct and indirect jobs.
Source of Investment Funds
Investor must demonstrate the EB-5 Visa investment capital is from a legal

source, acquired, directly or indirectly, by lawful means (e.g., no criminal acts).

Investor must document the path of the funds with bank statements plus

supporting documents to establish the source.

Investor can demonstrate a valid "pattern of income" such as through income

tax records and savings records to prove funds were accumulated over time.

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Types of U.S. Projects Using EB-5 Funds

Private Equity Investments

Originally, EB-5 project money was

used for loans to businesses that demonstrate a new commercial enterprise or a troubled business, in industries as diverse as:

manufacturing plants, fishing

businesses, dairy farms and IT technology firms

medical device companies,

hospitals, and universities

major motion picture films
other business seeking working

capital with job creation to support the investment

Real Estate Investments

Most projects pursued by Regional

Centers involve real estate including:

office and retail buildings
shopping centers & strip malls
hotels, conference centers, dorms,

ski villages and ski resorts

casinos, shipyards, senior care
big box stores and sports stadiums
apartments, condos and single-

family home developments

solar-plants and wind farms
other mixed-used developments

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Key Ways to Use the EB-5 Program

Form your own Regional Center
Loan to your own project(s)
Loan to third-party projects
Procure a loan from an USCIS-approved Regional Center
Confirm the RC’s approval in the project’s geographical area
As of 2013 Policy Memo, pre-approved labor codes not required
“Rent” a USCIS-approved Regional Center
Per a rental agreement for a fee or a % of a project’s revenues
Actual partner in a joint venture proposed by an outside party
Direct Investment by an EB-5 investor directly in a project

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The Regional Center

Most EB-5 investment occurs through a Regional Center, which is –
An economic entity involved with the promotion of economic growth,

regional productivity, job creation, and increased capital investment.

An entity that has received “Regional Center” designation from the

USCIS following the submission of documents supported by an economic report, showing:

How the regional center will promote economic growth in a region,
How, in verifiable detail (using economic models), it will create

jobs directly and indirectly through capital investments, and

The amount and source of capital committed to the regional center.
Regional Centers match foreign capital and local developers in need of
funds. More and more, the developers are launching their own Regional

Center to cut out the middleman.

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Job Creation is a Key Factor

Direct Jobs
Identifiable jobs within a new commercial enterprise
Permanent full-time jobs defined as a minimum of 35 hours

per week over the course of that project

Construction jobs exceeding 24 months
Indirect/Induced Jobs
Jobs shown to be created collaterally, or
Jobs shown to have resulted from the investment in the new

commercial enterprise

To include the indirect/induced jobs, the project must be

funded through a regional center

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Regional Center Basics

Investor must invest 100% of the $1,000,000 ($500,000 in a

TEA plus an admin fee – currently approx. $53,000).

Money can go:

 To the project immediately  To escrow and release subject to a holdback  To escrow and release upon a benchmark

Regional Center – administers the EB-5 projects
New Commercial Enterprise – investors subscribe to this entity
Job Creating Entity – recipient of the EB-5 funds that creates

the actual jobs

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Pros & Cons of Using an Existing Regional Center

The benefits to the developer of using an existing Regional Center:

Avoidance of the time and expense associated with setting up a Regional

Center (approval time right now is approximately 9 months)

Developer’s only responsibility is to negotiate the investment for the project

from the Regional Center

The Regional Center is responsible for locating foreign investors

The downsides to the developer of using an existing Regional Center:

Regional Center might reject the project or might require unfavorable

terms and high fees & interest rate, and/or proceed at a slow pace

Regional Center would receive the profit spread between the 0.5-1% pref

to the EB-5 investors + marketing fees (1.0-3.00%) and the 4.0-7.0% (or more) interest charged to developer

Developer is missing the opportunity to have a Regional Center in place

to fund a pipeline of future real estate projects

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Advantages of Creating a Regional Center

Regional Center certification provides legitimacy for the project,

which may help in marketing to foreign investors.

Regional Center designation is a one-time designation allowing

future projects to be marketed without incurring delays.

A project may be pre-approved by USCIS.
In addition to funding their own projects, Regional Centers can

profit by funding projects developed by others.

May count indirect and induced jobs plus direct jobs, in meeting

the 10-jobs-per-investor requirement.

The Regional Center is an asset that can grow geographically

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Disadvantages of Creating a Regional Center

Regional Center certification takes between 9 and 12 months.
Regional Center certification is not the same as approval of any

particular Regional Center project unless the application included an “actual” project vs. an exemplar project.

Newer Regional Centers find it a bit more difficult to compete

in their marketing efforts with long-existing regional centers with a track record of many immigration approvals

The costs of locating investors have increased in recent years
Annual marketing fees of 2-4% of funds raised
Regional Centers have ongoing filing requirements with the

USCIS to avoid de-certification

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Summary of EB-5 Program Successes

Since 2008, the EB-5 Program has generated $11.92 billion in foreign

direct investment.

The EB-5 Program contributed $9.62 billion to gross domestic product

from 2010-2013 while supporting an average of 29,300 jobs per year, making the EB-5 Program a valuable tool for job creation and economic growth.

For I-526 petitions, from July–September 2014, USCIS received 3,240

petitions; 1,100 petitions were approved and 73 were denied. According to the latest statistics released, the I-526 approval rate has reached all-time high of 94%!

For I-829 petitions, from July – September 2014, USCIS received 977

petitions; 642 petitions were approved and 48 were denied. The most updated I-829 approval rate from the fourth quarter of 2014 is 93%. A very high percentage.

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Criterion for EB-5 Real Estate Projects (1 of 2)

Is your real estate development project appropriate for EB-5 funding?

Real estate development projects with a tight timeline are preferred as job

creation is dependent on the completion of the project.

Best to avoid real estate developments that are not in a TEA.
Infrastructure phases can be separated into separate EB-5 projects.
Projects with public/private financing are preferred but not mandatory.
Projects with “new” job creation are preferred by the USCIS as compared to

remodeling of an existing building with increase in size.

Residential projects work especially when construction periods exceed two

years, and the geographic area has a high indirect job multiplier.

Projects in perimeter states seem easier to sell than in Middle America.

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Criterion for EB-5 Real Estate Projects (2 of 2)

It is preferable but not required that before raising EB-5 funds:
Horizontal development is completed.
Loan commitment from a bank for some of the project costs. More and more

senior lenders are comfortable with EB-5 funds in the project

Banks are even designing EB-5 bridge lending platforms for developers whilst

awaiting EB-5 funding

Anchor office and retail tenants have committed to leasing the spaces and area

vacancies in comparable surrounding buildings are low.

Construction jobs count if the construction period ≥ two years.
If the project’s completion is protracted, best to bring in EB-5 money later in the

project – in fact, okay to us EB-5 money to repay bridge debt or equity.

The USCIS does not approve “indirect” job creation for remodels.
New structures are most favorable for both direct and indirect job creation.

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Residential EB-5 Projects

Residential EB-5 projects are growing in popularity
Assuming no or very few direct jobs on the premises of the

apartments, condos or housing development, job creation numbers for residential projects rely on:

Two year construction period to make use of the construction jobs

in the job count

If one project’s construction period is less than two years,

considering bundling one or more projects as one project (must have the same developer)

Still doable even with less than a two-year construction period
Approved hard and soft costs to benefit from the indirect and

induced jobs created in the regional center

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EB-5 Program Benefits to the Project

The EB-5 Program can be used as an alternative funding source –

 When traditional forms of capital come up short or are too costly and would affect the ROI, developers seek low-cost funds.

Investors receive a de minimis pref (0.5% to 1.0% lately), which makes

this investment a low-cost source of funding.

Investors pay an upfront administrative fee ranging between $50,000 and

$60,000 each to cover the program promoter's broker costs.

Marketing agents in the foreign countries market the project and locate

eligible investors for a portion of the administrative fee and an annual percentage (1.0% to 4.0% lately).

EB-5 funding works well along side Historic Tax Credits, New Markets

Tax Credits, Bonds, TIFs, Low Income Housing Tax Credits, etc.

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Status of the EB-5 Program

Congress passed a short-term extension on September

30th to prevent the EB-5 Program from expiring.

The Continuing Resolution will extend the EB-5

Program through December 11, 2015.

The extension affords the House and Senate time to

develop proposed EB-5 program legislation further.

Myriad bipartisan-supported Congressional extension

bills were proposed so far in 2015 in anticipation of the expiration of the last extender bill:

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New Legislation

In March, Representatives Jared Polis (D-CO) and Mark Amodei (R- NV) introduced H.R. 616, the American Entrepreneurship and Investment Act, which would make the EB-5 Program permanent, while also making reforms and enhancements to the program. In June, Senate Judiciary Committee Chairman Chuck Grassley (R-IA) and ranking member Patrick Leahy (D-VT) introduced S. 1501, the American Job Creation and Investment Promotion Reform Act that would reauthorize the EB-5 Program for five years, while overhauling it with oversight tools, security enhancements, and anti-fraud provisions to make the program more transparent. In July, Representative Zoe Lofgren (D-CA), ranking member of House Judiciary Committee Subcommittee on Immigration/Border Security, and Representative Luis Gutiérrez (D-IL) introduced Entrepreneurial Business Creating Jobs Act of 2015, to reauthorize the EB-5 Program permanently and introduce reform measures.

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Pending Legislation 1 of 3

Senators Grassley & Leahy’s bi-partisan American Job Creation and Investment Promotion Reform Act bill would --

extend the program for 5 years to Sept. 30, 2020.
increase the minimum investment amount to $800,000 for

investments in a TEA and $1.2 mil for investments not in a TEA.

The minimum investment amount will adjust every five years.
The minimum investment in a TEA cannot be less than half, nor

more than three-quarters of the non-TEA minimum.

implement Regional Center Oversight and Compliance measures

for regional center principals.

Change the TEA consisting of a single census tract that has

150% of the national average unemployment rate

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Pending Legislation 2 of 3

Job Creation -- An investor in a commercial enterprise affiliated with a

regional center can use jobs predicted to be created indirectly to satisfy up to 90% of the job creation requirement. It is not clear if the NCE must have direct employees, or economically direct employees, as calculated by an economic model such as RIMS II or IMPLAN can be

counted. This is a significant change from current practice.
A maximum of 30% of the total jobs that are created can be created

as a result of non-EB-5 investment, even if the non-EB-5 investment represents more than 30% of the project’s funding. This is a significant change from current practice.

EB-5 investors can use economic models and valid forecasting

tools that are accepted by the BEA. We presume this means at least RIMS II.

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Pending Legislation 2 of 3

Changes in Processing -- Pre-approval of projects mandatory.
The Bill sets a limit of 120 days for the processing of exemplars, and

allows for premium processing with an additional fee.

Processing times for an I-526 petition are limited to 150 days, on

average, and I-829 processing is limited to 180 days.

Source of Funds -- Administrative fees must be sourced.
7 years of tax returns mandatory for investors.
Gifted funds allowed only from spouse, parent, child, sibling, or

grandparent.

Capital based on loans to be collateralized on investor’s personal assets.

Loans must be obtained by a reputable bank or lending institution that is properly chartered or licensed under laws of state, territory, or country.

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For Questions and Additional Information

Debbie A

A. K

Klis, s, Esq sq.

1909 K Street, NW, 12th Floor Washington, DC 20006-1157 Tel 202.661.7661

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