Immigrant Investor (EB-5) Program An Additional Source of Project Funding OEDA Fall Conference 2013
Agenda EB-5 Program Overview Why Investors and Developers are Interested in EB-5 Access to EB-5 Financing Conclusion Q/A 2
EB-5 Overview Congress created the Immigrant Investor Program, also known as EB- 5, to encourage job creation and foreign direct investment in the United States. U.S. Customs and Immigration Service (USCIS) sets aside 10,000 EB-5 visas each year for immigrant investors who invest through EB-5. An EB-5 Regional Center is a private enterprise regulated to do business by the USCIS in a defined geographic area and in specific industries. 3
EB-5 Overview For each EB-5 immigrant investor, at least 10 fulltime jobs must be created through a $500,000 USD investment in a project located in a rural area or an area of high unemployment, known as a Targeted Employment Area (TEA). Areas outside of a qualified TEA require a minimum investment of $1 million USD. Immigrant investors are primarily motivated by access to Green Card not solely by financial return. Consequently, EB-5 investments have become an attractive alternative source for competitive cost capital. During the last fiscal year ending Sept. 30, more than $1.8 billion was raised through EB-5 7,641 foreign nationals received EB-5 visas 80% from China 4
EB-5 Overview Two Types of EB-5 Investments Direct EB-5 Investment Investor buys business or starts new business Investor must play active role in business Must create 10 FT direct W-2 employees Few applications Investment through EB-5 Regional Center Can be in the form of equity or loan Direct, indirect or induced jobs may be considered Regional Center tracks jobs and submits reports to USCIS 90~95% of all applications 5
Basic EB-5 Deal Structure EB-5 Investors Common Member Principal plus Interest Investment Capital NEWCO Management Regional Center Managing Member Interest Security Interest/Mortgage Investment of capital Interest on Financing and Principal Repayment Borrower (Business entity receiving capital and creating Jobs) 6
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EB-5 Overview United States EB-5 Program is NOT Unique Countries with Similar Immigration Investment Programs Canada Australia New Zealand United Kingdom Austria Singapore Bulgaria Cyprus 8
EB-5 Overview EB-5 Visa Allocations 10,000 immigrant visas per year maximum This includes family so 4,000 investors 3,000 visas reserved for targeted employment areas 3,000 visas reserved for regional center affiliation More than 90% are regional center affiliated and in TEA Most Recent usage: 7,641 Visas 9
EB-5 Overview Top Countries for Issued EB-5 Visas Country FY 2011 1. China-mainland 2,408 2. Korea, South 254 3. Taiwan 122 4. Iran 117 5. Great Britain 57 6. Mexico 53 7. Venezuela 46 8. India 37 9. Russia 30 10.Vietnam 26 11.Canada 26 12.Netherlands 26 13.Japan 20 14.Turkey 20 15.South Africa 19 16.Brazil 16 17.Italy 16 10
Why developers are interested in EB-5? Capital unavailable from traditional sources Can help lower the borrowing costs EB-5 financed projects may be combined with financing sources State Port NMTC Historical Tax Credits Location Targeted Employment Area (TEA): High unemployment area (150% of national average) Rural area (not in MSA or town of more than 20,000) 11
Why are Investors Interested The Motivation Primarily motivated by Green Card No quota wait No job offer or employer sponsorship required Spouse and children included Location flexibility Business/Investment type flexibility No residency requirement 12
Investor requirements Document lawful source of funds Document path of funds Otherwise eligible to apply to immigrate to the US 13
EB-5 Investor s Concerns Job creation Financial risk Immigration risk Project pre-approved Project solvency Insufficient investors 14
EB-5 Process for Foreign Investor Investor makes initial deposit to escrow account: Regional Center and investor submit I-526 to USCIS Investor s money is returned Denial USCIS Review (8 Months) Approval Funds released to project; Investor granted conditional visa Investor submits I-829 with USCIS 21 Months Investor returns to home country and possibly loses investment Denial USCIS Review (6 Months) Approval Investor is granted permanent Green Card 15
EB-5 Regional Center Program Regional Centers: Are licensed and regulated by USCIS Have limited scope based on geography, industries and economic methodology Can be public, private or quasi; engaged in the promotion of economic growth Work closely with the developer/borrower; have an established broker network to find investors and manage the reporting requirements. Investors in a project affiliated with a USCIS-approved Regional Center may count direct jobs as well as indirect and induced jobs 16
Typical Regional Center EB-5 Investor Does not want to start/manage business Inexperienced individuals or retirees Wants to be geographically mobile Wants/needs to do something quickly Prefers hands off approach Immigration is driving force, not investment Does not want to deal with complex legal issues 17
Typical Direct EB-5 Investor Actually wants to start, manage and control business Knows project will create 10 new direct full time jobs for U.S. workers Investment is driving force Wants total control of investment Wants to maximize profit Understands they are responsible for legal and reporting issues 18
Direct & RC EB-5 Investor Direct Investment Investor has reduced risk due to equity ownership and control of the project Investor must play more active role in business or project Investments must be in the form of equity. Loans are not permitted in most cases Direct investments usually command higher earnings. Only direct jobs created by the project or business will be counted There is no limit on the number of EB-5 direct investors on any project as long as 10 fulltime jobs per investor are created Investor must track job creation and submit detailed reports directly to USCIS Typically offers faster visa approval for investor Investor can sell a profitable business when they are ready to exit Regional Center RC can apply to USCIS for project designation preapproval to reduce risk RC decides on new projects based on business strength and ability to market the project to overseas investors Although debt (loan) is typical, investment through a RC may be in the form of either a loan or equity. Investor can live anywhere. Can work anywhere, or not work Direct, indirect and induced jobs created by the project or business may be considered Investor can start business or make investment/loan RC tracks the direct, indirect and induced job creation. RC manages ongoing administration and compliance responsibilities RC monitors compliance with business plan and foundation facts in economic report 19
Bad Press Some Noteworthy Bad EB-5 Deals: Northern Beef Packers South Dakota El Monte Regional Center in El Monte, California Noble Outreach New Orleans Chicago Convention Center 20
EB-5 Regional Centers in Ohio Cleveland International Fund, Ltd 1240 Huron Road E. Suite 420, Cleveland, OH 44115 CMB Summit LLC RC 7819 42 Street West, Rock Island, IL 61201 Midwest EB-5 Regional Center LLC 1021 Delta Ave., Cincinnati, OH 45208 Northeast Ohio Regional Center 542 E. Liberty St., Wooster, OH 44691 Ohio Development Regional Center 6592 Woodbriar Lane, Greenville, OH 45331 21
Next Steps Can EB-5 Fit Your Project If you have a project Developers Company Community If you know a potential investor High net worth individuals 22
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Contact Keith Conroy keith.conroy@hickspartners.com Emily Turner emily.turner@hickspartners.com 21 East State Street, Suite 2200 Columbus, OH 43215 (614) 221-2800 Confidential and Propriety 2013 Hicks Partners LLC. All Rights Reserved. No portion of this presentation may be reproduced or distributed without express written permission of Hicks Partners LLC. 3/2013 24
Why Support the EB-5 Program? Since FY2005, it has attracted over $4.7Billion in foreign direct investment, accounting for the creation of over 95,000 American jobs - all at no cost to the taxpayer. With over 3,200 immigrant investor petitions filed in the first six months of FY2013, the Program is well on its way to another recording breaking year of economic contribution to the U.S. There are currently almost 6,000 pending immigrant investor applications pending with the federal government - awaiting on decisions upon which almost $3 Billion waits, ready for infusion into the U.S. economy for the purposes of U.S. job creation. The Program is versatile, allowing diverse industry sectors to put EB-5 capital to work in projects that transform regional economies - including: assisted-living, commercial real estate, construction, education, energy, entertainment, infrastructure, healthcare, hospitality, logistics, manufacturing, transportation, and more. Over 95% of EB-5 investment capital is invested in "targeted employment areas" that are experiencing high unemployment or are considered rural - thereby making traditional sources of financing more expensive and difficult to come by. The Program has become a reliable and vital source of capital for local economies - rural and urban. The U.S. is in fierce competition for immigrant investor capital around the world.