O.K., before the International Council of Shopping Centers came to town, we were talking about a myriad of deals—nowadays, mostly office buildings and hotels (and yes, shopping centers too) are being financed at very low rates using EB-5 immigration visa program funding.
Again, the basics: Invest $1 million (typical individual investment) in a U.S. business, create 10 direct jobs for American workers, and you’re on your way to a U.S. green card. Far more popular has been the “pilot” or regional center program where you invest $500,000 in a business entity designed to create jobs in an area of high unemployment (a TEA, or targeted employment area), which has been approved by the Immigration Service as a so-called regional center, or RC. The regional center allows for pooling of EB-5 investor money, and as to job creation, it’s still required. But based upon sophisticated economic analysis of the geographic area and a business plan focused on development, the USCIS will consider both direct and indirect job creation,—for example, the need for more taxis (and drivers) to service a new ski resort, or the jobs created by tenants of that shopping center, far more numerous than the staff employed by the center’s management office.
A regional center can cover a wide range of businesses, with an emphasis on job creation and increased domestic capital investment. What next? Prepare and submit a proposal, supported by economically or statistically valid forecasting tools, showing: how the regional center plans to focus on a geographical region within the United States, how it will promote economic growth in that region and how in verifiable detail (using economic models in some instances) jobs will be created directly or indirectly through capital investments. Also, the amount and source of capital committed and the promotional efforts planned for the project. A rather thick dossier is compiled using USCIS form I-924 as its foundation. As to structuring the investment, the two models are investor as limited partner (this is the traditional approach) or investor as holder of a regional center’s debt. Ready to pull the trigger on this one? Well, currently the filing fee is $6,230. But if you’re trying to calculate the overall cost, be prepared to spend another $150 to $200,000 on legal and consulting fees. Government processing times vary, but with heightened scrutiny and large volume of submissions, an I-924 petition can easily take up to a year.
With long processing times and high costs per the above, an entrepreneur/developer will ask if there are any good workarounds here. (Trumpets, please.) Yes. It’s called “renting” a regional center. In return for a fee (fixed or percentage of profits or some combination) or sometimes an equity interest, the principals of a regional center can “rent” the facility for use by a third party. This practice has met with the tacit approval of the USCIS. (Outright sales are almost unheard of.)
Renting has its own potential problems and requires a great deal of due diligence. For example, identifying the regional center (geographic area covered, type of projects it is approved to develop). Questions to ask include: Who are the principals? What problems has the regional center encountered to date? Any pending litigation? Has the regional center been successful in attracting investors? Have their individual investor applications (I-526) been approved? Is there a solid marketing team in place? Will that team be available to promote your project? In the contract, will the “rental” be in the preferred form (a license)? Can you get a strong set of reps and a broad indemnity? That’s for starters.
At this time, there are approximately 400 RCs, a tenfold increase in the last five years, with more than 20 regional centers in New York State alone. (SEE uscis.gov for more details.) That means heightened competition for EB-5 investors. That said, if you’re a developer, it’s certainly an option worth exploring.