While EB-5 Centers Need Scrutiny, Projects Viewed As King

Following a government action against two Washington regional centers, attorneys say it’s wise to thoroughly scrutinize regional centers being considered by EB-5 investor clients, but the merit of the project itself is often more important when it comes to choosing an appropriate EB-5 venture. 

Under the EB-5 program, which is highly popular with real estate developers, investors can commit as little as $500,000 to a project and eventually come away with a green card, provided a job creation requirement is fulfilled. Regional centers are used to pool investor funds, and roughly 90 percent of EB-5 investments go through them, according to a U.S. Citizenship and Immigration Services spokesman.

Given the prevalence of regional centers in the EB-5 program — and their ability to jeopardize an investor’s immigration case if they’re terminated — attorneys encourage performing due diligence on any regional center affiliated with an EB-5 project.

“The regional center needs to be evaluated ... because if the regional center becomes terminated, then everybody who's sponsored by that regional center could end up losing their immigration case, no matter how well the project would turn out,” said Robert C. Divine of Baker Donelson Bearman Caldwell & Berkowitz PC.

This advice rings especially true in the wake of a recent U.S. Securities and Exchange Commission suit accusing two regional centers and a prominent developer of targeting investors in a “scheme” to finance buildings. The agency alleges that the centers fraudulently raised millions through securities sales, with most of the money coming from Chinese nationals who were told their investments could lead to a visa through EB-5.

Still, despite their pervasiveness in the EB-5 program, most centers are viewed by attorneys as middlemen between projects and investors. With that in mind, several lawyers said that when it comes to selecting an EB-5 venture, the project itself is typically more important than the center pooling the funds.

“It does help just to see if it's an experienced regional center, but it's always the project that you look at,” said Mona Shah of Mona Shah & Associates PLLC, an experienced EB-5 attorney. “Never the regional center.”

As for what they look for in a project, attorneys pointed to the experience of the developer heading it up as well as its construction team. Even if a developer or project manager doesn’t have EB-5 experience, that shouldn’t necessarily be the deciding factor, according to Shah.

“Somebody who's opened like 15 senior assisted living homes knows how to get these things running ... That's the type of project you want to look at,” she said, noting that it’s good to consider the location of a project and its capital stack.

However, telling clients which specific projects to select is avoided by some immigration attorneys, who are concerned with running afoul of the SEC. Dawn M. Lurie of Polsinelli PC said she doesn’t feel comfortable recommending a particular project, although she doesn’t mind providing clients with a list of regional centers or projects used by other investors.

But even if Lurie doesn’t tell investors which specific projects to go after — leaving that task to financial advisers — she performs due diligence on projects her clients have looked at, examining whether jobs will be created on time.

"The project needs to be tracking the job creation, and the regional center should be monitoring it,” Lurie said. “And not every regional center or project ... not all of them understand what all the responsibilities are.”

Asked whether immigration attorneys could advise clients to invest in specific EB-5 projects, a representative for the SEC declined to comment, while a spokesman for USCIS did not respond to a request for comment.

When it comes to setting up a regional center, Shah said, anyone interested in doing so should also already have a project idea, a location, a team that could run it and a plan for getting investments.

“I think there's been a lot of regional centers set up where people are just setting it up and expecting that now I have a regional center, the money's going to come pouring in,” she said. “And that's not how it happens."

Lurie also sits down with potential regional center operators to make sure that they have enough funding and time for the endeavor, saying she would rather lose a client after making sure he or she understood the implications of the program than set up a center and simply "hope for the best."

And as for the kinds of projects that are drawing EB-5 investors, Shah said their focus on real estate development may be shifting, pointing out that she’s currently working with a successful project that’s tied to transportation.

“Real estate has dominated for one reason: People like something which has got ... an asset value,” Shah said. “This is an at-risk program. So people are scared of putting it into maybe manufacturing, where there is really less assets.”

But real estate can also have a host of problems, like delays, permit issues and construction hang-ups, she said. In general, Shah recommended “recession proof” projects, like charter schools and senior assisted living facilities.

Debbie Klis of Ballard Spahr LLP also suggested that more EB-5 investors may start looking at clean energy projects, especially as more states are forcing local utility companies to wean off traditional fuels in favor of green energy.

“One of my clients is building a large solar project in Riverside County, California, which will help Southern California with the local company there,” said Klis, noting that the project is slated to get $100 million of EB-5 funding.

Given the program’s popularity, it seems too hard to believe that lawmakers would fail to renew its crucial component dealing with regional centers, which expires on Sept. 30. But Congress has yet to act on the three major EB-5 bills on the table or a fourth bill that is expected to be introduced by Rep. Darrell Issa, R-Calif.

http://www.law360.com/articles/702978/while-eb-5-centers-need-scrutiny-projects-viewed-as-king

Mentions

• Mona Shah
• Debbie Klis
• Ballard Spahr, LLP
• U.S. Citizenship and Immigration Services
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION
• Robert Divine
• Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
• Polsinelli PC

States

• New York