A CLOSER LOOK AT THE LAW
who have not received their temporary residency status.
Once this status is obtained, then the issue of materiality
should no longer be an issue.
Corporate Issues: The limited partnership and operating
agreement needs to address how decisions are made
when things do not go as planned. The general partner/
manager of the NCE would need to become very proactive
in managing the workout process and trying to salvage
the investment for the investors.
The applicable agreement needs to be reviewed to
determine if the adequate authority to take action, or
investor consent may otherwise be required. The voting
provisions of the entity document needs to be carefully
reviewed or drafted to determine the voting percentage
required to approve major decisions.
Investor Consent: Investor consent may be required
or appropriate to material changes in the project or
the NCE’s proceedings to fund the EB-5 capital to the
project once it has been released from escrow. The
general partner or managers shall not want to take an
undue risk of making an ultimate decision and being
held responsible without investor consent.
developer not obtaining the projected brand for a hotel,
the loss of a key tenant in a commercial transaction
that impacts the revenue potential, significant cost
increases or a change in financing terms for any senior
indebtedness. The potential for an SEC investigation
of the regional center, the developer and/or their
principals.
ROLES THE VARIOUS PLAYERS HAVE
IN THE EB-5 PROCESS
In connection with these issues, it is important to review
the roles of the various players in the process and engage
the appropriate professionals who can execute on a plan
to salvage the project from both standpoints.
Immigration Attorney: Due to the sensitive immigration
issues involving “Matter of Ho” compliance and the
creation of jobs, especially given the status of the
delay in investors obtaining visas from China, the issue
of materiality must be taken into account. If there is a
potential material change in the project prior to investors
receiving their visas, this could negate the ability to
proceed with the immigration process for those investors
Legal Protections: For a loan model, the issue is the
ability of the NCE lender to take legal action to protect its
interest of the NCE under the applicable loan documents.
Has the developer/borrower defaulted under the loan
agreement by failing to achieve certain targeted results?
Has the senior lender declared a default under the senior
loan or is the developer otherwise in non-compliance with
the provisions of the senior loan?
Is there an inter-creditor agreement and what restrictions
or protections does it provide? Is there a developer-
principal guaranty of completion that can be enforced?
Do such principals have the ability to actually perform?
FINANCIAL ISSUES AND
RESTRUCTURING
In a troubled project, there are financial issues that
need to be addressed. Is there a shortage of capital
to complete the project or operate the business and
what opportunities exist to salvage the investment.?
Experienced regional centers or general partners/
managers may have the capacity of obtaining outside
capital and work out a deal for the NCE lender/equity
provider to bridge finance what capital is required to
complete the project.
This can include even taking over operations based
upon either an adverse action against the developer or a
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