Comment: China is 3rd India is 1st

EB5 Market Update - October 2018
Table of Contents
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(1) China is in 3rd place! - a new 4-tier global EB5 market
(2) Smaller raises + Higher marketing costs >>> LoRiskLoReward changes to MedRiskMedReward
(3) B2B vs B2C
(4) India - a tale of 2 markets

(1) China is in 3rd place! - a new 4-tier global EB5 market
As of September 2018, China is in 3rd place in terms of actual wires received by EB5 issuers during that month. India is the new numero uno EB5 country, followed by Vietnam. Here is the outlook for the next 12 months, in terms of annual wires the EB5 world is now stratified into four tiers:
TIER ONE: 1000 to 2000 wires :: India, all by itself
TIER TWO: 300 to 600 wires each :: Vietnam, China, Korea, Brazil
TIER THREE: 100 to 200 wires each :: Taiwan, South Africa, Mexico, Russia, Turkey
TIER FOUR: most are less than 50 wires :: all other countries

(2) Smaller raises + Higher marketing costs >>> LoRiskLoReward changes to MedRiskMedReward
Today's EB5 capital market is less than half the size of the market of 2015/2016, and is also splintered over many countries. Consequently, planned raises today are much smaller (much less than 100 investors), and marketing costs much higher than 2015/2016, and even more so, when a higher marketing cost is spread over a smaller raise. This additional cost is not sustainable in the USA's efficient real estate financing markets, and move the EB5 market away from traditional EB5 players toward new players - in effect, the market is moving from developers with low mezzanine finance costs toward developers with high mezzanine finance costs. Those with high mezzanine finance costs find the additional EB5 marketing costs still result in EB5 capital which is very competitive, whereas those developers with low mezzanine finance costs cannot justify the high marketing costs needed in today's EB5 world. Furthermore, Indian investors are favoring issuers with higher returns, such as 2% per annum and higher (in effect, the points that used to go to Chinese agents now go to Indian investors). What all this does is to move the market away from a low risk, low reward model toward a medium risk, medium reward model. Many EB5 market players of 2015/2016 will not make the transition to the new EB5 world, and are either trying to complete their last EB5 raise now, or worse, are curtailing their final EB5 raise.

(3) B2B vs B2C
The China model, which is also followed in Taiwan, Vietnam and Korea, is an agent-intermediated one, in effect a B2B market where EB5 issuers do not have to deal with investors directly, and the risk of capital agglomeration is absorbed by a player other than the EB5 issuer. The India model, which is also followed in Brazil, South Africa, Mexico, Russia and Turkey, does not feature "agents", these in effect are B2C markets where EB5 issuers frequently engage investors face-to-face, and the risk of capital agglomeration is largely on the shoulders of the EB5 issuer. Apart from this cost also making for a move away from traditional EB5 players to new players, there is also the real issue of corporate culture - the corporate skill set for B2B is different from B2C, and this factor is also among the causes of many traditional EB5 market players wrapping up their final EB5 raise, or even abandoning ongoing raises. Of course, most traditional EB5 players will remain committed to EB5 capital in the form of re-deployed funds, but as far as new injections of EB5 capital, for many, their last hurrah was in early 2018.

(4) India - a tale of 2 markets
India is the new gorilla in town, but is actually two gorillas, in that the Indian market is actually two markets, each quite different from one another - the first being Indian EB5 investors in India, and the second being Indian EB5 investors in USA (there are also Indian investors in 3rd countries, but these are much fewer in number than is commonly believed). Apart from a different securities compliance regime, there are also other important differences in approaching these two markets. The EB5 market is currently in the process of major expansion, in terms of new EB5 capital inflows, after the nadir of April 2018 through September 2018. [For reasons we will go into in a later update, Indian EB5 capital flows will not be affected by retrogression for the foreseeable future. Further, any increases in investment amount will not change the 4-tier market described above, nor will increased investment amounts prevent the exit of traditional EB5 players in favor of newer, smaller, riskier, developers.] The EB5 market today is poised for explosive growth, but with many new players, stay tuned!

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Focus: H1B to EB5

    Exhibition/speaking opportunities for November H-1B events are available. Please see below for our current H1B to EB5 Expo schedule:
    • Philadelphia, PA - Monday, October 22 ( SOLD OUT )
    • Dallas, TX - Wednesday, October 24 ( SOLD OUT )
    • San Francisco, CA - Friday, October 26 ( SOLD OUT )
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    Format:
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    Special Note for Attorneys: This event will feature two immigration attorney panels solely on immigration law matters. The only way an immigration attorney can participate and speak at this event is if they are nominated by an issuer who is exhibiting at the event (there is no fee charged to immigration attorneys).

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    For more info please call (212)545-0818 or email webmaster@ilw.com or click here.

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