In China today, immigration agents know that after Spring Festival there will really be a New Year to think about. A new crop of 60+ EB5 projects are on their way to Chinese EB5 investors. EB5 agents are even now commenting about the sheer size and efforts needed to analyze (or most likely not) this huge volume of work. They wait with both happy anticipation and worry if their new million dollar player will perform as promised or push them out of business with some tricky financial deal they don’t see coming.
Why? Happy anticipation; it looks like this:
US Representative Office
• To developers and RCs, buying the market is the new phrase in EB5, (or is it just a knock off of the old P&G model of buying brand identity and shelf space with cash?)
• Developers have secured astonishing capital resources to pay agents outside of administrative fees – where does this money come from? Oh, the investors are paid 1% a year.
• Agents are getting dizzy. Common project incentive packages as of this January are a 40,000.00 base and 1-3% back-end payment on capital raises for the period of the project per investor. On a 30mm EB5 raise (average size these days) this is up to, yes, 115,000 per investor, at 60 investors, a lot of cash for former travel agents and student visa consultants.
- Money still gets the attention and action of agents.
- Weak projects grow in Herculean strength and resolve as back-end payments increase, oh well, the damn thing can always be refinanced, maybe.
- The fallout of investors from dead and dying projects (now at least 8) are dropping fatigued investors into the new investor baskets like pennies from heaven.
The flip side:
- Wonder which project is a walking time bomb ready to go off at any moment. We can name more than 20 of them that fail the smell test, let alone serious analysis.
- The daily parade through agent offices by developers, RCs, state officials, bankers continues all day long, every day of the week.
- Agents don’t know what to do. They have neither time nor inclination to hire experienced financial analysts, hey, that costs money.
- Tenant-occupancy nightmares are over, right? Or will they keep rearing their ugly (and economically absurd) head in future 526 RFEs (consult USCIS crystal ball).
- To backstop wobbling EB5 projects and spread risks in face of mounting RFEs, agents are diversifying into the EU where governments in need of cash are liberalizing immigration policies of cash in exchange for green cards (Italy, Greece, Albania and Bulgaria (yes, true), to name a few. We hear preferred spread of projects is 70% EU work, 30% EB5. How will new projects fare with this reduction in EB5 work?
- 50+ new projects in the market and growing, there is competition at every level of the agent market.
- Instead of anticipated quick and easy raises, developers are being forced out of the race as limited capital pushes against the reality of a saturated market.
- You want attention? Be prepared to pay for it.
- Job creation – well who needs to prove that out, a well-paid economist will turn the trick for you.
- The agent contract sworn in solemn brotherhood over Mao-tai and Gambei’s are pushed to the back drawer as newer projects with more agent compensation come into the market
What is the right and wrong of this? My view is this – nothing. It is as natural as the sun, moon and stars. The EB5 program is cycling though a painfully blunt maturing process. This is American capitalism as it’s’ most aggressive and best creative cycle. Blossoming and dying in months in an unregulated marketplace the dream goes on. But money talks. Those with deep resources and a canny sense of profit distribution buy the market. Those without deep pockets or a creative plan struggle and hope for the best. Or mostly go home empty-handed.
The EB5 market comes to life again in late March as happy holidayers return to work, pay their bills, take a look at their new real estate kingdoms and worry about the future (taxes). Why invest 550,000 in a very dicey investment scheme? Maybe immigration is better delayed for next year, or next year, or....
They – like you, need to choose partners very carefully, do the homework and understand the drift in values we are seeing every few months. There is no reset or second chance. You need to get it right the first time.