EB5 Investors Magazine Volume 2 Issue 2 | Page 41

Structuring the project
Before a project goes to market , its structure must be decided upon — direct investment or regional center project ? Where there are sufficient direct jobs , developers have the choice to structure the project as a pooled direct EB-5 or as a regional center project . Direct EB-5 projects have certain advantages , including fewer complex issues , no need to seek regional center sponsorship and prompter processing times , leading to quicker availability of the EB-5 capital . However , direct EB-5 projects have traditionally had more difficulty finding investors because exit strategy has typically been uncertain . Recently though , at least in part because of much quicker processing times , pooled direct EB 5s have become far more marketable . Prime examples are franchises , the leading group of which is restaurants . As with regional center projects , direct EB-5s with a real estate component may be favored , especially among the Chinese investors .
Among regional centers , the loan model has proven to be far more marketable than the equity model . A major reason for structuring an EB-5 project in this manner is that most EB-5 investors are concerned about exit strategy , which is far clearer with a loan model than an equity model . Assuming no default on the loan , at the end of the loan period , investors have a reasonable expectation of a return of the principal amount of their investment with at least a small rate of return .
Exit strategy and likelihood of return of the principal investment are generally of far more importance than the rate of return on the investment . Investors tend to be interested in collateral ( with real estate being a strong preference ) and the loan term ( with a maximum of five to six years being a strong preference ). Interest rate or other percentage return to the investor is rarely a determinative factor in the marketability of a project .
Stacking capital
The composition of the project ’ s capital stack is of critical importance . Although capital stack issues are generally of minimal importance to the approvability of a project , they are of critical importance to the ability of the project to find interested investors . The percentage of developer equity ( the higher , the better ), the percentage of EB-5 money ( the lower , the better ) and the position of EB-5 money in the capital stack ( the higher , the better ), if structured improperly , can render a project completely unmarketable . Counsel can be proactive in recommending the optimal presentation of land contribution , tax credits and loan-to-value ratios to maximize the marketability of a project .
wait that long for capital . Marketing agents have come to realize this and have become more flexible in agreeing to hybrid escrow terms on behalf of the investors whom they represent .
Various escrow options – no escrow , straight escrow , hybrid escrow – are perfectly legal ( assuming they are structured correctly ). The details of escrow structuring are critical to acceptance by USCIS , acceptance by the bank or escrow agent , and acceptance by investors and their agents .
Job creation
EB-5 , at its root , is a job-creation program , and job creation is of paramount importance in both the legal approvability and marketability of a project . Beyond the minimum 10 jobs per investor required , the investors look for a job cushion ( usually at least 20 percent ) to be better assured of the project ’ s ability to cover all of the investors ’ condition removal petitions .
In addition to the number of jobs , investors look at the type of jobs , and are often more comfortable with construction jobs than with operations jobs . When it comes to operations jobs , projects with jobs based on tenant occupancy may have difficulty , or find it near impossible , to attract investors ( with the possible exception of projects with exemplar approvals ), and jobs based on guest expenditures can also meet challenges in the marketplace because of varying USCIS policies . Indirect operations jobs based on direct employees in loan model projects can also be problematic , both legally and for marketing purposes , because of issues relating to whether such employees meet the definition of full time “ qualifying employees .” Investors are acutely aware of the importance of documenting job creation as a critical component of removing conditions on their residence .
Technically , a client who retains me as immigration counsel to provide EB-5 immigration legal services is not contracting for marketing advice . However , in my experience , the two are so interrelated that , by necessity and as a matter of client service , sharing my accumulated knowledge of the EB-5 investor marketplace becomes a critical part of my legal advice to clients .

Escrow considerations
Another key issue relates to when the investment money actually flows to the project . The developer generally prefers to have access to the investment money immediately , while the investor generally would prefer to have the money sit in escrow until the approval of his or her I-526 petition . The latter arrangement was the norm in the marketplace when the processing time of I-526 petitions was approximately six months . With processing times increasing to 12 or 18 months , that type of escrow arrangement has often become impractical to developers who simply cannot
Ron Klasko
H . Ronald Klasko ( Ron ) is recognized by businesses , investors and other lawyers as one of the country ’ s leading EB-5 lawyers . He has practiced immigration law exclusively over three decades . His firm was chosen by Chambers Global as one of six top tier business immigration law firms for the past 5 years . Ron was named by International Who ’ s Who of Business Lawyers as the world ’ s most respected corporate immigration lawyer . He can be reached at rklasko @ klaskolaw . com . www . EB5Investors . com 39