Panel: EB-5's direct investment component underutilized

Oct 25, 2013

Panel: EB-5's direct investment component underutilized
By KATHERINE CONNOR, The San Diego Daily Transcript
Thursday, October 24, 2013

The EB-5 visa program has gotten a bad rap, with one component of the system missing from the conversation entirely, according to immigration law and business experts.

The experts said the direct investor option is faster, more predictable, and marginally less complicated than its more highly publicized regional center counterpart at a World Trade Center San Diego presentation Thursday.

“This is a unique opportunity to craft a win-win solution,” said Toni Castel, business immigration attorney at Kumar Prabhu Patel & Banerjee, LLC at the panel discussion at San Diego State University. “And I know that there’s a lot of skepticism about it. I understand that. There’s been a lot of bad press, there have been some bad projects through EB-5, but working with EB-5 correctly, specifically the direct model, this will really be a win-win situation.”

The essence of both the direct investment and regional center models is that a foreign individual makes a $1 million investment in a U.S.-based company that then generates the equivalent of 10 full-time jobs, in exchange for Green Cards for themselves, their spouse and any unmarried children under 21 years of age.

In certain designated blight areas the investment amount can be reduced to $500,000, but the job creation component remains the same.

“As I said, the majority of press has been devoted to the EB-5 regional centers,” she said. “That’s what’s on the New York Timesand NPR, and that’s why we are having this seminar today- because we identified a gap in the discussion about EB-5, which is direct projects. Nobody’s really talking about this.”

Castel said there are many small-scale differences between the direct investment and regional center models, but the crux of it comes down to this job creation requirement.

For investors working with an established regional center, the jobs created can be indirect, meaning through vendors or contractors. However, Castel estimated the cost to create a regional center for EB-5 purposes at $150,000, with moderator Bob Watkins, CEO of R.J. Watkins & Company, citing a higher $250,000 startup pricetag.

Direct investors, on the other hand, must add 10 full-time W-2 employees.

The standard for one full-time employee is 35 work hours a week, so this can be reached through more than 10 part-time workers as well -- though, again, all must be directly employed by the company receiving the shot in the arm from the foreign investor.

Within the direct investment section of EB-5, which Castel estimated would cost between $30,000 to $40,000, there are two paths: either investors set up their own business in the United States, or they invest in an existing business.

If the latter option is used, the company must undergo significant restructuring and growth to the tune of a 40 percent increase in employees or net worth.

Castel said having the investor start their own business in the United States gives them more control, and other visa options including the E-2 and L-1A make this feasible.

The E-2 is a non-immigration visa that allows investors from certain countries with treaties with the United States to work on their business after investing a “substantial amount.”

Castel said this amount isn’t defined, but is usually an average reasonable cost to set up a business in the market the investor will be operating.

Once the money is invested and the consulate issues the visa, the person can come to the country to work on the business, and if they invest the remaining funds to reach the EB-5 level, can then apply for the EB-5 while in the country.

If successful, the EB-5 allows the investor to apply for citizenship after several years.
The L-1A works in the same way as the E-2, to bring the investor here to work on the company and then apply for EB-5, with the caveat being the company must have a foreign base and transfer its personnel to the United States.

All three speakers highlighted the difficulty of attaining and using the EB-5, with Soyini Coke, founder of Annona Enterprises, discussing the importance of presenting a sound business plan that would instill credibility in even the shrewdest venture capitalist in Silicon Valley.

They all also seemed to agree that marketing of the program has been seriously lacking, and needs to be improved.

“The program has never been marketed in a way that you would expect,” Watkins said. “From when it was put in place and until this last year, there were 10,000 visa opportunities made available and less than 3,000 to 4,000 used. The program really has been under-marketed by the federal government, and it wasn’t until the financial crisis that this became kind of an incentive.”

He said since its start in 1992, the estimated number of jobs created stands around 31,000, with $1.5 billion invested. Compare that to the two million jobs and $40 billion investment projections from the government, and one can see that the program hasn’t been fully taken advantage of.

While the focus of the presentation was the direct investing option, Coke acknowledged an often-discussed critique of the program as a whole, but said she disagrees with its premise.

“Cynics may say, ‘Yeah, the EB-5 visa program is just a way for somebody to buy a green card for themselves,” she said. “But what I would argue is that the EB-5 program is no different than any of the other specialized visa program that the country has, like the refugee program. And it’s a lot of work.”
October 25, 2013