EB5 Investors Magazine Volume 3 Issue 3 | Page 88

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 86 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, EB5 INVESTORS MAGAZINE