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This document summarizes an agenda for an EB-5 financing forum. It provides background on the EB-5 visa program, including its history, investment requirements, and the typical structure of EB-5 deals. EB-5 visas allow foreign nationals to obtain permanent residency by investing in job-creating US businesses. Typical EB-5 deals are arranged through regional centers and involve debt or preferred equity investments of $500k-$1M. Funds are released from escrow once certain approvals are received. Regional centers facilitate EB-5 investments and compliance, while project partners work with regional centers on fundraising and job creation requirements. The majority of EB-5 investors are high-net-worth individuals from China seeking education
Power point presentation for ali
- 1. EB-5 Financing - IMN's 15th Annual US Real Estate Opportunity & Private Fund Investing Forum Thursday June 12, 2014 New York City
- 2. Agenda • Introductions • Background On EB-5 • Discussion • Questions
- 3. • Moderator: Ali Jahangiri, Founder & CEO, EB5Investors.com • Panelists: David Hirson, Fragomen, Del Rey, Bernsen & Loewy, LLP George Ekins, Principal, American Dream Fund, Inc.
- 4. Background on EB-5 Program • The United States Congress created the fifth employment- based preference (“EB-5”) immigrant visa category in 1990 • The EB-5 Program is administered by the U.S. Citizenship and Immigration Services (“USCIS”), a component of the United States Department of Homeland Security • EB-5 visas permit a qualified foreign national to obtain a permanent US Visa (a “green card”) if the foreign national (i) makes an investment, (ii) in a US business that (iii) creates or saves 10 US Jobs
- 5. Background on EB-5 Program Investment Requirements EB-5 Investments must: - Create at least 10 US Jobs - Be equal to at least $1M If the investment is made in an area where the unemployment level is at least 150% above the national average (a “target employment area” or “TEA”), the investment may be $500k - Be actively managed by the foreign national. Ownership of a limited partnership interest satisfies this requirement. - Be made in a new or substantially reorgianized commercial enterprise - Be at risk (no guaranteed repayment or job creation) - Be made from lawfully obtained funds
- 6. Typical Deal • Typically arranged by “regional center” - Allows a larger number of jobs to be counted through economic modeling • “Migration Brokers” market interest to EB-5 investors • Debt or preferred equity - Typically fixed rate – 4% - 8% • Generally 5 years, interest only, balloon payment • Funds must be “at risk” until Green Card (I-829 Approval)
- 7. Typical Deal Sizing • Project Budget Determines # of jobs through economic model - Budget applied to model (e.g., $x construction budget = 1,000 jobs) - Typically, a “job cushion” is applied (e.g., 10% reduction = 900 jobs) - Max Investors (900/10 = 90) - Max size (90 x $500k = $45M; 90 x $1M = $90M) • Economic model prepared based on projections and prepared by third party economist
- 8. Typical Deal Funding • EB-5 Investor subscribes and pays fees ($50K) and EB-5 investor submits “I-526 Application” to USCIS • Investor’s subscription funds ($500k/$1M) deposited in escrow • Funds released from escrow to lender and available for advance under two primary models: 1. “Hold until Approval” – An investor’s funds released from escrow when USCIS grants “I-526 Approval” 2. “Early Release” – All or a portion of an investor’s funds released from escrow when I-526 Application submitted; if any “holdback”, released when investor (or certain number of other investors) obtain I-526 Approval
- 9. Typical Deal Cash Flow – The Principal Challenge • Frequently structured like a construction loan – Borrower makes draw requests, construction monitor reviews, advances made • BUT, • Advances: unlike traditional construction loan, proceeds may not be available on demand, depending on fundraising success and release mechanism • Repayment: Funds must be “at risk” until I-829 Approval – no prepayment, no “release pricing”
- 10. Typical Deal Other Unique Features • Job generation – Covenant to “create” jobs – spend more! • Reimbursements – Frequently permit EB-5 funds to be used to reimburse prior costs • Interest – Some EB-5 loans charge interest once funds available for advance, not once drawn • Advance Early – Advance to Borrower as soon as released from escrow, regardless of whether current required for construction • Fallow Money Solutions ($ Too early and prepayment lockouts) – Distribute, defease • Securities risks
- 11. EB-5 Financing
- 12. EB-5 Financing Timeline Funds Returned to Investors Release of funds Investor EB-5 funds must begins 3 months Approvals be spent and job after start of creation requirements met recruitment Funds can begin to be released as early as 6 months from the start of the partnership with the Regional Center Year 4 Year 5Year 2 Preliminary Work 3 Months Investor Recruitment 3-6 Months USCIS Processing 12 Months Year 1 Year 3
- 13. EB-5 Immigration Timeline I-526 approval and receipt I-829 approval and receipt of conditional green card of permanent green card Files I-526 and funds File I-829: Funds are released to EB-5 Funds must be spent and job Retuned to project upon filing creation requirements met Investors Year 4 Year 5Year 2 Preliminary Work 3 Months Investor Recruitment 3-6 Months USCIS Processing 12 Months Year 1 Year 3
- 14. EB-5 Investor Profile High-net worth individuals seeking immigration to the U.S. Motivation for Immigration: Quality education for their Children (primary) Diversification of asset-base (secondary) Prefer reliability/security versus high returns Prefer established project partners Majority of investors from China
- 15. EB-5 Financing and China Top 5 Countries 0.00% 20.00% 40.00% 60.00% 80.00% 2012 0.00% 20.00% 40.00% 60.00% 80.00% 2011 0.00% 20.00% 40.00% 60.00% 2009 0.00% 20.00% 40.00% 60.00% 2010
- 16. Number of EB-5 Investors 2005-2012 0 1000 2000 3000 4000 5000 6000 7000 2005 2006 2007 2008 2009 2010 2011 2012 2012 total 6,041
- 17. Today: EB-5 Investment Immigration Majority of EB-5 Projects are Real Estate Based Projects Industry Standards Investor Interest Larger Established Firms Participation Government Investment
- 18. Roles
- 19. Regional Center Role “Regional Centers” are licensed by USCIS to facilitate EB-5 investment. The San Francisco Bay Area Regional Center provides the following Services Services To US-Based project partners • Compliance with EB-5 requirements/USCIS reporting • Design and implement an EB-5 specific marketing strategy and collateral with project partner integration/participation • Direction on production of investor documents • Responsible for sourcing foreign investors • Investor Relations, Reporting and Management Services to Foreign Investors • EB-5 Immigration process (I-526 and I-829) • Project status monitoring/quarterly reporting • Found Tax Compliance • Quarterly Investor Financial Statements • Referrals to the other professional services • US “Landing Services”
- 20. Project Partner Role Pre-Funding • Work with Regional Center to structure EB-5 investment based on jobs economic analysis • Full participation in design and implementation of marketing strategy/collateral Fundraising • Participation in “roadshow” investor events as a speaker • Support Regional Center and Regional Center partners in answering investor questions Fund Management/Compliance • Compliance with USCIS EB-5 requirements to fulfil job creation count • Provide Regional Center with updates on project progress and implementation
- 21. Thank You