Comment: EB5 Requires Structured Finance

To evaluate an EB-5 investment one needs to be proficient in the field of Structured Finance. Simply looking at a record or reputation of a developer, or the nature or location of the project is entirely inadequate to evaluate an EB-5 investment. A developer with an illustrious record with a great location and a successful project can still have a lousy EB-5 investment depending on the overall financial structure for the project. For example, consider the following three aspects of Structured Finance.

1) Inter-creditor Agreement(s), especially Subordination Clauses:
An EB-5 investment has multiple sources of capital: typically banks in a senior position, EB-5 sharing the mezzanine position with other mezzanine investments, such as preferred equity, bridge loans etc. Subordination clauses govern the relative place and priorities of various investments. These clauses can be very simple or very complicated or something in between - and are usually part of an "Inter-creditor Agreement" which could run into hundreds of pages. Attorneys can develop expertise in Inter-creditor agreements to evaluate these, but absent such experience, it is folly to even think that an attorney has a grasp over whether a specific EB5 investment is good for an investor. The maxim "past performance is no guarantee of future outcome" is not a cliche, but the simple truth, and attorneys ignore it to their peril.

2) Underlying Asset in the deal terms/structure:
EB-5 investments have a complex structure. One needs to determine the value of the NCE's agreement with the JCE, especially as regards to what assets are pledged toward the NCE's loan. Sometimes the loan is secured by a hard asset such as land/buildings, sometimes the equity of the JCE, which may or may not have any value in liquidation proceedings and sometimes debt possessed by the JCE, which could also be of questionable value. Fine judgments involving corporate law and complex financial instruments may well be necessary to offer advice about deal terms and structure, absent experience with which it is hazardous to posit a statement to an investor.

3) Various entities affecting the investor
We have seen large projects in New York/Los Angeles/etc, whose structures involve as many as twenty interacting entities, intimately affecting the NCE and JCE, --and deal structures which require a combination of a mining engineer, cartographer and a mini-Einstein to grasp. Attorneys with experience in the field of Structured Finance can navigate these land-mines, but attorneys without such experience take the risk of getting blown up.

Structured Finance is a distinct area of law that takes many years to master. Expertise in that field is needed to understand EB-5 investments qua investments--and that should be left to those who have the expertise to untangle the agreements, the clauses, the terms, the structures and the assets and their relationship to an EB-5 investor to be able to recommend an EB-5 security to an investor. Immigration Attorneys should not attempt to dabble in EB-5 investment recommendations by providing a list of Regional Centers for investors to consider because the risks of doing so are grave indeed, and not covered by malpractice insurance policies which the typical EB5 immigration attorney carries. It is not worth risking your law license, and certainly not worth risking your house.

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Focus: India EB5 Expo

May 16-24, 2019 — 5 cities

  • India is the #1 EB-5 Country, larger than the rest of the world combined, including China
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Please bring brochures, PowerPoint presentation, table displays and business cards

Mumbai — May 16,2019
Delhi — May 18,2019
Chennai — May 20,2019
Bengaluru — May 22,2019
Hyderabad — May 24,2019

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*Special Note for Attorneys: The only way an immigration attorney can participate and speak at this event is if they are nominated by an issuer exhibiting. Not only is there no fee charged to immigration attorneys, ILW will pay the attorney nominated by each issuer $999/$1,999 toward their travel expenses.

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