Forming a Regional Center and Other Options for Developers

Transcription

1 Forming a Regional Center and Other Options for Developers Philadelphia H. Ronald Klasko, Esq. New York 1800 JFK Blvd., 17 th Floor 317 Madison Ave., Suite 1518 Philadelphia, PA New York, NY

2 Why are real estate developers so interested in EB-5? Capital unavailable from traditional sources Foreign investor cheap source of capital

3 What are the advantages and disadvantages of creating a regional center?

4 Advantages Developers can count indirect and induced employment opportunities, and not just direct jobs, in meeting the ten jobs per investor requirement. A particular project within the regional center may be pre-approved by USCIS. Regional center certification provides an aura of legitimacy or endorsement that may help in marketing to foreign investors.

5 Advantages Regional center designation is a one-time designation allowing future projects to be marketed without incurring delays. In addition to funding their own projects, regional centers can profit by funding projects developed by others.

6 Disadvantages Regional center certification may take a lengthy period of time six months to one year. Regional center certification may entail a significant expense, including hiring an economist, hiring a business plan writer, hiring immigration and securities attorneys and other expenses. Regional center certification is not the same as approval of any particular regional center project.

7 Disadvantages (cont d) Regional center certification is no longer a small, privileged group. Over 135 regional centers have now been certified. Many regional centers have not been able to attract any investors. Newer regional centers find it difficult to compete in their marketing efforts with long-existing regional centers with a track record of many immigration approvals, some with both I-526 and I-829 approvals. Regional centers have ongoing administrative and filing requirements with USCIS in order to avoid decertification.

8 How does a developer create a regional center?

9 List of Professionals and Institutions Required for Regional Center Designation Application/Exemplar I-526

10 Immigration Lawyer Economist EB-5 Business Plan Writer Securities/Corporate Attorney Bank/Escrow Agent Marketing Firm/Commissioned Agent

11 Choices for Developers Establishing New Regional Center Geographic scope of regional center Whether to seek project pre-approval EB-5 capital raise vs. developer equity and traditional debt Equity or loan model Escrow or not? Amount to be charged over $500,000 Marketing plan/choice of marketing agents

12 Regional Center Geographic Reach No exclusive jurisdiction Key issues Too small may need to amend Too large difficult to get approved Just right justify as economically interdependent region Role of economist

13 How much must Investors Invest? TEA or bust Proof of rural area; or Proof of high unemployment area (150% of national average) Employment statistics State designation letter Census track aggregation When is TEA determined? Role of economist

14 How much Capital can be raised? Depends on job creation Economist report projects job creation Divide by 10 = maximum number of investors Multiply by $500,000 = maximum capital raise

15 Economic Report Critical to prove indirect and induced employment Choice of economist Choice of input-output model Economic impact on region

16 Key Issues in Review of Economic Reports Consistency between business plan and economic report Aggressive vs. conservative inputs Economist direct jobs vs. USCIS direct jobs Timeline for job creation Transparency

17 Business Plan Key issues Credibility Consistency with economic report Timelines General vs. specific avoiding material change

18 Securities Documentation Offering Memorandum Subscription Agreement Key issues Disclosure of immigration and financial risks Finders fees

19 Where to market? How to market? Friends and family migration agent Marketing Plan Issues in dealing with marketing agents Marketing issues Immigration track record Security/rate of return Project pre-approval Escrow

20 Regional Center EB-5 Entities

21 Regional Center Entity Applies to USCIS for designation approval Ongoing administration and compliance responsibilities Markets for investors Due diligence regarding investors source of funds Prepares I-526 packages

22 Regional Center Entity Oversight of I-526 filings Obtains signed Subscription Agreements and Escrow Agreements Monitors employment creation Tracks infusion of capital into job-creating enterprise Monitors compliance with business plan and foundation facts in economic report (cont d)

23 Regional Center Entity Allocates jobs between investors Prepares annual reporting (Form I-924A) for filing with USCIS Prepares I-829 packages Decides on new projects (cont d)

24 Operational Plan Regional center overview Marketing Recruitment of investors Regional center funding Administrative oversight

25 New Commercial Enterprise Limited partnership (or LLC) Investors make equity investments Invest (equity or debt) in job-creating enterprise

26 Job-Creating Enterprise Development project Borrower in debt model

27 What is the Procedure? File Form I-924 with: Business Plan Geographical area (TEA?) Operational Plan Offering Memorandum Subscription Agreement Economic Report Marketing Plan Bank (Escrow Agreement?) Project preapproval (optional)

28 Project Pre-Approval Difference between Approval of regional center Pre-approval of project Project pre-approval is optional Other choice is project review with each investor s I-526 petition

29 Project Pre-Approval (cont d) Procedure for project pre-approval Everything that would be in investor s I-526 petition, except: Source of funds Path of funds Can be filed concurrently with I-924

30 Project Pre-Approval Advantages of project pre-approval Avoid multiple adjudications of projects Marketing Disadvantages of project pre-approval (cont d) Adds significant time, unless concurrent with I-924 CIS examiners may disregard pre-approval

31 What are timing and cost issues in creating a regional center?

32 Cost Issues Professional fees Government filing fees Regional center recoupment of costs through charges to investors

33 Procedures/Timeline for Regional Center Designation/Exemplar I-526 File I-924, Regional Center Designation Application, with USCIS Approximate processing time 6 to 9 months File exemplar I-526 for a specific project (specific project pre-approval) Decision concurrent with approval of regional center designation application

34 Procedures/Timeline for Regional Center Designation/Exemplar I-526 Investors file EB-5 petitions (Form I-526) (cont d) Approximate processing time 7 to 8 months

35 New USCIS Proposal Background of proposal Overview of suggested changes in proposal Premium processing/accelerated processing for shovel-ready projects Added expertise (economists; business analysts) Hearing process Timing/Prospects for implementation of proposal

36 When is Money Available to Developer? Investor must invest 100% (usually $500,000) before I-526 filed Money can go To project immediately To escrow Released when investor s I-526 is approved

37 Hot Issues in Regional Center EB-5s TEAs/State Designation Letters Material changes in business plans Capital investment after job creation/ cause and effect issues Timelines/delays Investment at risk Third party insurance allowed?

38 Ongoing Regional Center Reporting Requirements Filed with Form I-924A each FYE 9-30 Include for each commercial enterprise and/or job-creating enterprise: Total EB-5 capital invested Job creation Industry focus

39 Ongoing Regional Center Reporting Requirements Number of approved and denied I-526 petitions I-829 Petitions

40 Regional Center Amendments Expand geographic boundaries Add new industry designation Change economic methodology

41 What other options may exist for raising capital under the EB-5 program? Having project adopted by certified regional center Purchasing certified regional center Pooled investment with individual EB-5 petitions

42 What are the advantages and disadvantages of the other options?

43 Having a Project Adopted by an Existing Certified Regional Center Advantages All of the time and expense involved in developing a new regional center are eliminated. The existing regional center may have a marketing plan in place, and may even have existing investors ready to invest. Project pre-approval is available.

44 Having a Project Adopted by an Existing Certified Regional Center Disadvantages Some of the developer s profit may be siphoned off to the regional center operators. The developer needs to do serious due diligence with respect to the regional center. If the regional center operators are less than scrupulous, or provide less than complete information, the developer may be affiliating with a regional center with which, in retrospect, it wishes it had not been in association.

45 Having a Project Adopted by an Existing Certified Regional Center Disadvantages (cont d) The developer is ceding some control of its project to the regional center operator. The developer assumes the risk that the regional center operator may become de-certified. The regional center may need to amend its certification with USCIS in order to incorporate the new project, thus entailing delay.

46 Purchasing Existing Regional Center Advantages All of advantages of having project adopted by existing regional center No need to negotiate away profit or control

47 Purchasing Existing Regional Center Disadvantages Potential liabilities? Negative goodwill? Due diligence required

48 Advantages Pooled Investments with Individual EB-5 Petitions There is none of the expense involved with obtaining regional center certification or ongoing administration. No delays as soon as investors are identified, the EB-5 petitions can be filed. Ongoing reporting requirements to USCIS are eliminated.

49 Pooled Investments with Individual EB-5 Petitions Disadvantages This is only an option if 10 direct employee positions will be created for each investor. The option of project pre-approval is not currently available. Marketing to foreign national investors may be more difficult without the aura of regional center designation. USCIS EB-5 adjudications are often quite restrictive if the 10 full time employees are not already employed. Ultimate removal of conditions for investors is dependent upon 10 full time employees being employed at time of condition removal, or within a reasonable time thereafter.

50 What is the role of immigration counsel? Advising developers of options Putting together team of professionals Reviewing all documents for immigration compliance Ensuring consistency and credibility of all documents Filing regional center application Preparing and filing application for project preapproval Preparing I-526 packages? Preparing I-829 packages?

51 Sources of Information

52 Questions?

53 For Further Information H. Ronald Klasko, Esq. Telephone: Websites: Blog: (Philadelphia) (New York)

54 COPYRIGHT NOTICE The materials contained in this PowerPoint does not constitute direct legal advice and is for informational purposes only. An attorney-client relationship is not presumed or intended by receipt or review of this presentation. The information provided should never replace informed counsel when specific immigrationrelated guidance is needed. Copyright All rights reserved.