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OS ANGELES – Catherine De Bono Holmes, Chair of the Investment Capital Law Group at Jeffer Mangels Butler & Mitchell LLP and publisher of the Investment Law Blog, will participate on a panel at the IIUSA 8th annual EB-5 Regional Economic Development Advocacy Conference in Washington D.C. on April 14th.  The topic of her panel is “EB-5 & Securities Law: Compliance in Today’s Market” and her co-panelists include Michael Homeier of Homeier & Law P.C., Ozzie Torres of Torres Law P.A. and Lili Wang of New City Advisors.

“I am honored to be speaking at this conference, which draws international investment and economic development professionals from around the world,” said Holmes. “The EB-5 program has made a contribution to the economic development of the U.S. by creating jobs and providing needed capital for developers and business owners. This conference provides an important platform to discuss the myriad issues that make the EB-5 program a success.”

“Guest of Honor” speakers at the conference include Michael Chertnoff, former Secretary of Homeland Security; C. Joshua Felker, Assistant Director, Enforcement Division of the SEC;  Congressman Darryll Issa (R-CA); Senator Ron Johnson (R-WI); Congresswoman Zoe Lofgren (D-CA); Maria Odman, Ombudsmen, Citizen and Immigration Services; Charles Oppenheim, Chief, Visa Controls Office, U.S. Department of State; Peggy Philbin, Deputy Executive Director, U.S. Department of Commerce; James Wrona, VP and Associate General Counsel of FINRA.
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About the IIUSA Conference
The IIUSA 8th annual EB-5 Regional Economic Development Advocacy Conference, sponsored by Invest in the USA takes place from April 12-14 at the Hyatt Regency Hotel in Washington, D.C.  Click here for more information.

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Cathy HolmesCatherine DeBono Holmes is the chair of JMBM’s Investment Capital Law Group, and has practiced law at JMBM for over 30 years. She specializes in EB-5 immigrant investment offerings and hotel and real estate transactions made by Chinese investors in the U.S. Within the Investment Capital Law Group, Cathy focuses on business formations for entrepreneurs, private securities offerings, structuring and offering of private investment funds, and business and regulatory matters for investment bankers, investment advisers, securities broker-dealers and real estate/mortgage brokers. Contact Cathy at CHolmes@jmbm.com or 310.201.3553.

 

 

 

 

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By Catherine DeBono Holmes and Bruce Baltin

This article was first published in the Winter 2015 edition of EB5 Investors magazine.     

For EB-5 financing of hotel projects, proving that new jobs will be created requires evidence that there is a market demand for an additional hotel in the local market. The basic requirement for any EB-5 financing is to show that a project will create at least 10 new jobs per EB-5 investor. For new hotel projects that use EB-5 financing, it is necessary to show that the new hotel is not merely taking jobs from existing hotels in the area, but actually creating new jobs. That requires evidence that there is enough guest demand in a local market to allow a new hotel to open without causing existing hotels in the area to lose occupancy. If the project owner can demonstrate that the demand for hotel rooms already exists, it can show that opening a new hotel will create new jobs, without taking away the jobs of the existing hotels in the area. How can a project owner demonstrate that this demand for new hotel rooms exists?

Hotel valuation experts have developed a method to determine market demand in a local market that can be used for EB-5 financing. Hotel consultants such as PKF and HVS have developed standards for determining what they consider the natural optimum average occupancy rate for each local market, which we will call the “optimum occupancy rate.” The optimum occupancy rate refers to the percentage of occupancy that will maximize the profitability of the hotel, based on the market conditions in that local market rate. If the average occupancy is 80 percent but the optimum occupancy rate is 70 percent, hotel consultants conclude that there is a demand for hotel rooms that is not being met, because more people are staying in existing hotels in the market than the rate that would allow maximum profitability for all hotels in the market. This article explains how hotel consultants set the optimum occupancy rate for each local market, and why an average occupancy rate in excess of the optimum occupancy rate indicates a demand for additional hotels.

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JMBM and AAEB5 Announce New Publication on EB-5 Financing and U.S. Securities Laws

Jeffer Mangels Butler & Mitchell LLP (JMBM) and Advantage America EB5 Group are pleased to announce the publication of Regional Centers & Sponsors and U.S. Securities Laws: How to evaluate broker-dealer, investment company and investment adviser registration requirements.

“When it comes to the EB-5 investment market, the SEC provides clear guidance in some areas and very little in others,” said co-author Catherine DeBono Holmes, Chair of  JMBM’s Investment Capital Law Group. “The information in this publication covers the complex compliance issues associated with EB-5 offerings.”

Written in response to hundreds of queries received from EB-5 professionals and developers, the articles in the 30-page booklet were first published as a four-part series on the Investment Law Blog.

“Regional Centers and project sponsors are right to be concerned with complying with U.S. securities laws,” said co-author Victor T. Shum, CEO of Advantage America EB-5 Group. “Violations come with penalties that can jeopardize both the project and its investors, so the EB-5 investment must be structured properly.”

Holmes and Shum each have significant experience as securities counsel on a wide range of investments – both public and private – and have many years of experience in the EB-5 arena, representing numerous clients on projects funded in part through EB-5 financing.

Click here to download a copy of the booklet on EB-5 Financing and U.S. Securities Laws.

 

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通过使用尽职调查最佳实践保护EB-5投资市场

在芝加哥会议中心案件以后，EB-5利益相关者必须有所行动，保护EB-5投资市场的诚信度。EB-5投资移民项目为美国企业创造就业提供了重要的资金来源，但为了保护这个投资市场的健康发展，EB-5团体必须有所行动，保护EB-5投资者不受欺诈性操盘者的伤害。自美国证监会关于芝加哥会议中心案件以及其区域中心管理者Anshoo Sethi的行动曝光之后，使得很多EB-5投资人质疑到底有多少其他的EB-5投资项目也是由这样不择手段的管理者在他们的发售文件和宣传文件中进行欺诈性的陈述。一些好的区域中心已经建立一些与美国证券发售类似的标准实践，用以防止项目开发商在使用EB-5融资的时候发生欺诈的现象。而那些尚未使用上述实践的区域中心应当将此作为头等大事，这样才能使EB-5投资人确信EB-5投资市场是基于与美国证券市场一样的基本原则：诚信与公平交易。我们建议所有的区域中心与律师一起检视他们的尽职调查实践标准，以确保其与最佳实践保持一致。

美国证券市场得益于相关的法律和规章，要求发行人和保荐人使用合理的尽职调查核实他们发售文件中陈述的准确性，而相似的实践也应当被所有的区域中心在其推广的每一个EB-5项目上使用。美国证券市场的个人投资者依赖于美国证券发行的发行人和保荐人对未来企业发展做出事实及合理的预估并进行相关陈述。美国证券法赋予发行人和保荐人很大的法律责任，他们需要证明其在证券发售文件中所作的陈述是真实的并且不具有误导性，如果他们不能证明这一点，发行人和保荐人将可能对任何事实上的错误陈述负法律责任。这些问责标准为证券市场投资人提供了保障，使他们确信发行人和保荐人会尽最大努力核实事实陈述并决定其在证券发行中所作的未来预期的合理性。为了提高EB-5投资市场的诚信发展，我们认为所有的区域中心都应当在准备和使用发售文件时纳入类似的在美国证券市场所使用的标准实践。区域中心应当让潜在的EB-5投资人知道区域中心所使用的保护投资人的尽职调查标准，这样投资人可以使用已由区域中心核实之后的信息来评价他们所投资的EB-5项目。

区域中心是EB-5投资市场的“看门人”，他们应当为保持市场的诚信度负责。区域中心收到了美国移民局的批准，准许他们发起EB-5投资产品，而超过95%的EB-5投资产品发售都是通过区域中心完成的。而在EB-5的发售中一般情况下没有美国券商的介入，因为大多数的EB-5投资机会都是在美国证券交易协会S法令的规定（本法令允许没有证券发行资格的实体在美国以外发行EB-5产品——译者注）下，通过在国外的宣传或移民中介卖给居住在美国以外的投资人。一般情况下对外国投资人或中介来说亲自对EB-5投资产品做尽职调查是不太现实的，主要有以下几个原因：包括语言障碍、地理位置以及在美国和其他EB-5投资人所居住的国家之间不同的风俗和商业习惯。而对于区域中心而言，他们则可以评估EB-5投资产品的发行人陈述内容的真实性以及发行人的商业计划是否具有合理基础。而当区域中心是发行人和发售文件撰写人时，区域中心则负担着向市场提供其陈述的真实性与预期的合理性的证明责任。区域中心通常会参与准备EB-5投资产品发售文件，并且要查阅发行人的商业计划。并且，在所有的计算了间接工作岗位的EB-5投资产品中，区域中心的参与都是必不可少的。因此，区域中心应该保障其发行的项目在出售时使用的是真实的发售文件以及合理的经济计划。最好的实践是由区域中心监督或撰写经济计划和发售文件。如果区域中心只是监督上述文件的制作的情况下，也应该核实这些文件中所作的一切陈述的真实性。

区域中心并不是EB-5投资项目的保证人，但他们应该在发起EB-5投资项目发售的过程中遵守适当的标准。区域中心不是，也不应该是他们所发起的每一个EB-5项目的保证人，因为为了满足EB-5签证的要求，EB-5投资必须是有风险的，同时也因为每一个商业企业在本质上都是有一定风险的，而这些风险均由其企业的投资者适当承担。然而，每一个区域中心应当有一个合理的基础来判定他们发起的每一个EB-5投资产品所陈述的事实都是真实的且没有误导性，并且如果EB-5投资人投资这个项目，这个项目有合理的机会可以按照其发售文件里的商业计划完成。

区域中心应当使用与美国证券发行的发行人和保荐人类似的尽职调查实践。区域中心所使用的项目评估与选择标准不应当与银行或其他投资来源的标准有所不同。尽管每个投资来源在风险评估上都有所不同，但有一些都是基于风险投资的风险评估原则应当是相通的。例如，私募基金投资人一般都愿意接受比银行更高的风险，来换取私募基金投资人所期待的更高的收益。EB-5区域中心在为其资金定价的时候会独立于其在资金结构中的位置（即独立于风险），但其风险评价和项目评估标准应当与其替代的机构融资类似。如果区域中心替代的是银行贷款，那么区域中心所使用的尽职调查标准应当与银行类似。如果区域中心替代的是私募投资，那么其使用的尽职调查标准则应当与私募投资提供者类似。这并不是说资金的成本应当与其替代的融资成本相同，而是说区域中心所应遵循的尽职调查程度应当丝毫不比其他金融投资者在同一个项目中所做的尽职调查程度低。

尽职调查指的是核实发售文件中的事实陈述，并确定是否有其他应该纳入而没有纳入的事实，以确保发售文件不具有误导性。核实发售文件中的事实陈述指的并不是依赖于项目方填写的调查问卷以及和项目方的谈话，而是要求开发商提供从而获得事实陈述的文件证据，并且由专家来评估项目成本和未来运营收入和开销的预估在项目特定的行业中是否合理。核实发售文件中事实陈述的方法主要有下面几种：（a）核实项目开发商在相关行业的经验，询问其背景的详细情况以及开发商主要管理人的经验，包括他们雇主的名称、雇佣的时间以及他们在与项目相同的行业中所参与过的项目的细节；（b）核实发行人是否有与项目密切相关的一个或多个合同，比如酒店项目是否已获得酒店特许经营协议，要求查阅所有重要合同的签署版本，并与酒店特许人核实合同是否有效；（c）核实发行人已收到或将要收到项目计划所需的政府许可，要求发行人提供相关政府部门批准项目计划的证据；（d）核实出资土地的价值，要求查阅最近的土地价值评估的副本，或自己雇佣第三方独立评估，如果之前的估值超过12个月或市场条件自上次估值后有变化，应当要求重新估值；（e）核实对特定行业市场条件陈述的真实性，要求提供支持上述陈述的数据的副本；（f）核实项目预算以及项目建设时间表，雇佣一个对项目类型比较熟悉的建筑顾问来审查项目预算和建设时间表并提出意见；（g）核实项目未来营业收入与支出的预估，雇佣一个行业专家顾问审查此预估并提出意见。这与美国证券发行的保荐人承销证券或银行对贷款人或商业借款人对商业贷款进行审核时自己所做的尽职调查的程序是一样的，而这一般是由开发商承担费用的。上述核实过程一般均要求有一个独立的第三方专家参与。

区域中心应当记录他们的尽职调查过程，以及他们收到的相关证据，用以支持事实陈述和发行人的项目成本以及将来运营收入和开销的分析。为了保持有效性，尽职调查的审核过程应该以书面的形式加以记录。有很多记录尽职调查的方法可以使用。一种方法是做一个私募备忘录或其他发行文件带注释的版本，在其中添加脚注以注明用来核实每一个事实陈述的文件。另一种办法是做一个表格，将所有的发售文件中的事实在其中一栏中列出，同时在旁边的另一栏列出核实每一件事实的证据。这样当一个投资人或是市场中介问区域中心都做了哪些尽职调查来核实项目事实及经济计划的时候，区域中心可以提供一份尽职调查文件的副本，展示其为尽职调查所做的工作。项目事实的证明材料应当在区域中心的尽职调查文件夹里随时可供查阅。尽管大多数的区域中心不会允许这些保密性信息离开中心或以电子邮件的形式发送出去，一些做得好的区域中心会允许任何投资人或顾问去他们办公室查阅他们相关投资项目的全部尽职调查文件。

区域中心应该要求项目开发商在发放发售文件前证实其发售文件不包含任何错误陈述。作为EB-5发售的尽职调查过程的一部分，区域中心应该要求一个或多个项目开发商的高级官员证实EB-5发售文件中不包括事实上的错误陈述或隐瞒。区域中心也可以让其他对项目有重大关系的第三方核实发售文件中由此第三方负责的部分。这样，区域中心可以记录其在尽职调查过程中纳入了项目开发商和其他重要的第三方，并且尽了合理的努力来保证他们已经披露了发售文件中所有的重要事实。

与EB-5投资发行人有附属关系的区域中心应当考虑使用第三方做尽职调查报告。因为尽职调查的目的是对发售文件的事实陈述做一个独立的审查以及对发行人的商业计划做一个独立的分析，因此与发行人有附属关系的区域中心在没有第三方参与的情况下无法提供一个独立的审查。我们相信为了EB-5市场的诚信发展，区域中心加入第三方来核实其自己准备的发售文件是很重要的。区域中心可以通过自己准备尽职调查材料并将其提供给第三方审查人审查来加快尽职调查的速度。第三方审查人可以证实审查人在审查区域中心提供的材料和文件时使用了与区域中心为第三方开发商发起项目时相同的尽职调查标准，并核实了发售文件中事实陈述的准确性。

区域中心作为EB-5合规的管理人而不发起一个项目的情况下应该要求项目发起人开展一般情况下区域中心所做的尽职调查。有时区域中心可能会作为一个发行项目的管理者而本身并不作为项目发起人参与项目或项目的销售。在这种情况下，区域中心应当要求项目发起人开展与区域中心自己发起这个项目一样的尽职调查，并由项目发起人提交一份第三方所做的尽职调查报告。

区域中心尽职调查的义务应延伸至整个发行完成之时。有些EB-5发行认购需要几个月的时间，而在此时间段里，有可能项目事实会发生改变。比如，一个使用EB-5的建设项目可能在EB-5融资募集完毕前已经开始，而建筑预算在此过程中有可能发生改变。除此之外，项目的融资状况也可能发生改变，或有其他的重要改变需要向投资人披露。区域中心应当经常与项目开发商沟通询问项目的重要变化，看是否需要在发售文件中做进一步的披露。

区域中心进行适当的尽职调查实践将实现多重效果。区域中心进行详尽的尽职调查审查可以在早期发现项目的弱点。有些弱点可以在早期通过干预而得到改正，这样可以避免其发展为一个严重的问题从而影响到整个项目的成功完成。进行尽职调查并妥善记录的区域中心对美国以外的投资人和市场中介来说更为可靠，从而其发售将比其他不能很好的证明其尽职调查实践的区域中心有更大的市场接受度。一个有强有力的尽职调查记录的区域中心在一个项目出现问题，但却跟项目发售文件虚假陈述无关时也会有相关的尽职调查证据，这样倘若投资人或其他与项目相关的第三方起诉时区域中心也可以用此证据来保护自己。最重要的是，区域中心执行尽职调查标准将加强整个EB-5市场的诚信发展，这对EB-5继续做为美国就业创造的一个重要融资来源十分必要。

我们认为所有的区域中心可以也应该遵守上述尽职调查最佳实践，以保护EB-5市场的所有参与者。

 

 

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This article is the fourth in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws.

You may want to read:
Part 1 – EB-5 offerings do not fit standard SEC registration requirements;
Part 2 – Securities broker-dealer registration requirements and hiring U.S. and Non-U.S. brokers; and
Part 3 – Investment Company Act requirements.

Check back soon for new articles on raising investment capital, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

Investment Advisers Act or state law registration requirements for investment advisers may apply to managers of EB-5 funds

In a presentation on securities law issues applicable to EB-5 regional centers and sponsors at the May 2014 annual conference of the Association to Invest In the USA (“IIUSA“), the trade association for EB-5 regional centers, a representative of the Securities and Exchange Commission (“SEC“) stated that the registration requirements of the Investment Advisers Act of 1940 (“Advisers Act“) may apply to general partners and managers of EB-5 investment funds. It was recommended that EB-5 regional centers and sponsors consider this issue as part of their efforts to comply with U.S. securities laws. In our view, the Advisers Act should not apply to most EB-5 regional centers or sponsors, for reasons that relate to the characteristics of EB-5 funds in general. However, unless and until the SEC provides further guidance on this issue, it is necessary for every EB-5 regional center and sponsor to analyze the registration requirements of the Advisers Act and determine if they apply. In addition, the regulation of investment advisers is bifurcated between the SEC, for investment advisers with over $100 million in assets under management, and the states, for those with under $100 million in assets under management, and so it is also necessary to determine whether there is a requirement to register as an investment adviser under applicable state law. Continue reading →

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This article is the third in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws.

You may want to read: Part 1 – EB-5 offerings do not fit standard SEC registration requirements and Part 2 – Securities broker-dealer registration requirements and hiring U.S. and Non-U.S. brokers.

Check back soon for the rest of the series, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

As mentioned in Part 1 of this article, “EB-5 offerings do not fit standard SEC registration requirements,” U.S. securities laws were designed primarily for offerings of securities in the U.S. to protect U.S. investors, and these laws are not well suited to the EB-5 investment market. Nevertheless, it is necessary for EB-5 regional centers and sponsors of EB-5 offerings to understand the requirements of U.S. securities laws, and to structure EB-5 offerings in a way that will allow them to qualify for exemptions from the registration requirements. In Part 1 and Part 2 of this article, we discussed the requirements for exemption from registration of securities under the Securities Act of 1933 and exemption from registration as a securities broker-dealer under the Securities Exchange Act of 1934. In this Part 3, we discuss the registration requirements and exemptions under the Investment Company Act of 1940 (“ICA“).

What is an “investment company” under the Investment Company Act?

The ICA generally applies to every public or private company which invests over 40% of its assets in securities of one or more other companies, except securities of its own wholly owned subsidiaries. This definition includes any EB-5 fund, whether it is a limited partnership or limited liability company, that invests in the securities of a project company. For example, in the EB-5 “equity” model, if an EB-5 investment fund consisting of EB-5 investors (the new commercial enterprise or “NCE”, using USCIS terminology) purchases preferred equity interests in the project company (the job creating enterprise or “JCE”), the fund will be investing in securities of the JCE, and will therefore be deemed to be an investment company under the ICA. Loans are also considered securities under the ICA, meaning that in the EB-5 “debt” model, if an EB-5 investment fund makes a loan to a JCE, the fund will be deemed to be an investment company under the ICA. However, if the EB-5 fund itself owns the project (EB-5 investors are direct equity holders of the JCE), or one of its wholly-owned subsidiaries owns the project (EB-5 investors are equity holders in the fund, and the fund’s wholly-owned subsidiary owns the project), then the fund will not be considered to be investing in securities, and so will not be an investment company under the ICA. If an EB-5 investment fund meets the definition of an investment company under the ICA, the fund will be required to meet all of the requirements of the ICA, unless the fund is able to rely on one of several exemptions from the ICA, which will be discussed further below.

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On August 25, 2014, Catherine DeBono Holmes was featured in the GlobeSt.com article, Financing Projects with EB-5 Funds?, posted by Natalie Dolce, national executive editor of the publication:

“Some of the largest real estate developers in the country, including Related Cos., Silverstein Properties, Forest City Ratner, and many others, have raised hundreds of millions of dollars through the EB-5 program to help finance their largest real estate developments,” [Holmes] says. “Smaller real estate developers have also been successful in raising EB-5 financing to support their development projects.”

“There have also been some EB-5 financed projects that have failed, and some cases of blatant fraud by a few bad actors, she notes. “The recent Fortune Magazine article about the Chicago Convention Center case that occurred in 2012 painted a dark portrait, making it appear as if this one case was representative of the entire EB-5 program. The article failed to present an accurate portrayal of the EB-5 program as a whole, failed to mention the multitude of EB-5 financed projects that have succeeded, and caused confusion among real estate developers about whether or not EB-5 financing is a viable source of capital for their projects.”

Dolce wrote:

“In response to the questions real estate developers are asking today about whether they should consider EB-5 financing as a potential source of capital for their projects, we talked with Catherine DeBono Holmes about some key facts about the requirements, timing, marketing, risks and recommended procedures for EB-5 financing.”

In this article, Catherine DeBono Holmes answers the following questions about financing projects with EB-5 funds:

• What are the most important elements of a successful EB-5 financing?

• How long does it take before a developer receives the proceeds of an EB-5 financing?

• How much does EB-5 financing cost?

• What are the risks of using EB-5 financing and how does a developer protect against those risks?

Click here to read the full article.

Catherine DeBono Holmes is Chair of the Investment Capital Law Group at Jeffer Mangels Butler & Mitchell LLP, and the is the publisher of the Investment Law Blog. She has represented more than 50 real estate developers in obtaining EB-5 financing for their projects.

To review all of her articles on this topic, click on “EB-5 Financing” in the Topics menu to the right, and scroll down through all the articles we have posted.

In addition to forming EB-5 Regional Centers for investment in U.S. business through the EB-5 immigrant investor visa program, JMBM’s Investment Capital Law Group assists clients with forming U.S. and non-U.S. private investment funds for investment in real estate, mortgage loans, securities and other investments; sourcing and raising investment capital for hotel, multi-family and mixed use real estate developments throughout the U.S.; acting as securities counsel in connection with offerings of investment securities in compliance with exemptions from registration under the Securities Act of 1933 in the U.S. under SEC Regulation D and outside the U.S. under SEC Regulation S; and assisting securities issuers with crowdfunding.

Click here to see a full list of the services provided by JMBM’s Investment Capital Law Group.

Cathy HolmesCatherine DeBono Holmes is the chair of JMBM’s Investment Capital Law Group, and has practiced law at JMBM for over 30 years. She specializes in EB-5 immigrant investment offerings and hotel and real estate transactions made by Chinese investors in the U.S. Within the Investment Capital Law Group, Cathy focuses on business formations for entrepreneurs, private securities offerings, structuring and offering of private investment funds, and business and regulatory matters for investment bankers, investment advisers, securities broker-dealers and real estate/mortgage brokers. Contact Cathy at CHolmes@jmbm.com or 310.201.3553.

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This article is the second in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws.

You may want to read: Part 1 – EB-5 offerings do not fit standard SEC registration requirements

Check back soon for the rest of the series, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

Part 2: Securities Broker-Dealer Registration Requirements and Hiring U.S. and Non-U.S. Brokers

As mentioned in Part 1 of this article, “EB-5 offerings do not fit standard SEC registration requirements” the Securities and Exchange Commission (“SEC“) is studying the EB-5 investment market, but there is no indication whether or when it will issue any guidance regarding the registration requirements applicable to the sale of EB-5 investments.  At the May 2014 annual conference of the Association to Invest In the USA (“IIUSA“), the trade association for the EB-5 regional center program, representatives of both the SEC and the Financial Industry Regulatory Association (“FINRA“) gave presentations regarding the potential application of registration requirements to EB-5 regional centers and others engaged in the marketing and sale of EB-5 investments, but there was no indication that the SEC or FINRA had developed any policies specifically addressing the unique characteristics of the EB-5 market.

There are exemptions from broker-dealer registration that are available to EB-5 regional centers and entities which act as general partners or managers of EB-5 investment funds.  In addition, there are exemptions that apply to non-U.S. broker-dealers in connection with the sale of U.S. securities that could be applied to the sale of EB-5 investments.  However, there is a lack of clear guidance specifically applicable to the broker-dealer registration requirements that apply to persons engaged in the marketing and sale of EB-5 investments outside of the U.S.  Until such time as the SEC provides specific policies, the EB-5 community is in need of practical advice on how to conduct their business in compliance with U.S. securities laws, and in a way that fits the realities of the EB-5 market. Continue reading →

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This article is the first in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws. Check back soon for the rest of the series, or subscribe to the Investment Law Blog, and you will be notified when the next article is published.

Part 1:  EB-5 Offerings Do Not Fit Standard SEC Registration Requirements

  • The SEC has not provided clear guidance on how to comply with U.S. securities laws requiring registration as a securities broker-dealer, investment company or investment adviser when conducting EB-5 offerings

The U.S. Securities and Exchange Commission (“SEC“) has stated in open meetings with the United States Citizenship and Immigration Services (“USCIS“) and the Association to Invest In the USA (“IIUSA“), the trade association for the EB-5 regional center program, over the past two years that EB-5 investment offerings are subject to U.S. securities laws, even though EB-5 investments are offered primarily outside the United States to persons who by definition are not currently U.S. residents but are seeking to become U.S. residents as a result of making their investment in an EB-5 offering.  However, the SEC has not provided any specific guidance to the EB-5 investment community on the ways in which they can comply with the registration requirements that apply to the registration requirements for securities broker-dealers, investment companies or investment advisers under U.S. securities laws, other than to suggest that they speak to an experienced securities lawyer.  This advice leads to conflicting opinions among lawyers, and makes it difficult for everyone involved in the EB-5 investment market to know exactly what they are required to do in order to comply with these registration requirements under U.S. securities laws. Continue reading →

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Competition for EB-5 Financing is Strong.

Demand for EB-5 financing among U.S. real estate developers is at record high levels, and demand for high quality EB-5 investments in China remains strong. Marketing agents in China and elsewhere are looking for the “best” EB-5 projects, meaning those that will be viewed by potential investors as the ones with the best chance for approval by USCIS and the best chance for the investors to receive a return of their investment after the investors receive their permanent green cards, in about five years from the date of their investment. At the same time, U.S. real estate developers are looking for the “best” marketing agents in China, meaning those who have a good track record of selling other EB-5 Projects, are direct and honest in communicating with the developer, and charge competitive fees for their services.

Most U.S. real estate developers have heard a great deal about EB-5 financing over the past five years. Those who are new to the market have a number of questions on how the EB-5 financing market works, how to structure a successful EB-5 offering, and how to find the right marketing agents to sell their EB-5 offering. Those developers who have some experience with EB-5 financing want to know what is selling in the EB-5 market now in China and how they can find good marketing agents in China to sell their EB-5 investment offerings. Here are some of the answers we provide to these questions:

What are the basic requirements for projects to obtain EB-5 Financing?

For those new to the EB-5 financing market, here is a thumbnail description: The EB-5 investor visa program allows non-U.S. persons to invest at least $500,000 or $1,000,000 in a business that is expected to create at least 10 new permanent jobs per investor, and to obtain a conditional visa upon review and approval by the United States Citizenship and Immigration Service (“USCIS”). EB-5 investments can be pooled to raise any amount of funds necessary to finance a project, provided that enough new jobs can be created to support the amount of financing being raised. Because the requirement is that new jobs be created, it is almost always the case that EB-5 financing is used for the development of new businesses, such as building new hotels or multi-family projects or major renovations of old buildings. EB-5 financing cannot generally be used to buy existing businesses, because the existing jobs cannot be counted toward the new job requirement. Due to USCIS policies, jobs of employees of tenants that lease space in a building cannot usually be counted toward the job creation requirement, which means that development of office and retail projects are generally not a good fit for EB-5 financing, other than in large projects seeking to raise a small percentage of EB-5 financing. Continue reading →