Subscribe to LexTalk to stay on top of today’s legal issue and trends.
Catapult Your Career |
Industry Insights & Trends |
Product Training & Tips
EB-5 Investment Voice - Mona Shah & Associates Global Podcast Series
Reported by Hermione Krumm, Esq.
EB-5 Investment Voice is the only Podcast series that focuses on the United States immigrant investor visa, EB-5 and foreign direct investment. Mona Shah, Esq. welcomes guests from the industry, including: Developers, Regional Center Operatives, Attorneys, Legislators and Politicians.
As the EB-5 investor pool continues to shrink, the number of direct pooled EB-5 projects on the market is rising dramatically, partially due to investors’ fear of joining larger ventures. For the savvy investor, this is a positive development. In this episode, Mona dives deep into the appeal and obstacles of smaller, entrepreneurial projects with Kelly Freis, Founder and CEO of the global business consulting firm International Growth Capital, and discusses the potential transition from E-2 to EB-5 through smaller, entrepreneurial projects.
Kelly Freis and her husband Jon run the EB-5 Hollywood Regional Center, where they connect business owners with new sources of capital and guide investors through the EB-5 process. Kelly has 20 years of experience in international business consulting, 13 of which involve working with direct EB-5 projects. She has an impressive track record of zero visa denials for candidates under her guidance and has played a major role in the immigration of over 100 families.
The Unique Appeal and Potential Drawbacks of Direct Pooled Projects
Unlike most EB-5 projects where the focus is usually on real estate, direct pooled EB-5 projects tend to have wider interests and are involved in industries such as manufacturing and other non-real estate fields, often making the transition from E-2 to EB-5 feasible.
The size, structure and practicality of a direct pooled project particularly favors investors due to its transparency. The new commercial enterprise and the job-creating entity are the same, and investors have a direct line of sight to the financials.
In manufacturing projects, however, investors usually fear that they cannot see their return in the same and arguably simpler way as they can in a real estate project through construction, refinancing and the subsequent sale. To tackle this, investors are advised to apply basic real estate principles to a manufacturing facility, where the milestones can be seen to be achieved. A direct pooled project can be set up with a similar exit just like that in a real estate project and investors can refer to inventory for tangible results, as it becomes assets. Workers are motivated because having a realistic goal number for inventory creates a better timeline and plan. In addition, direct pooled projects are not restrained by an economist report, thus allowing for flexibility in terms of job creation.
The potential downside of manufacturing projects, which might turn away some investors, is the rather slow return rate – which, in reality, occurs in all big real estate projects as well. It is unrealistic to see any return within the first year and it may take between 2 to 4 years to see any change in the balance sheet. There is also the risk of inflation of budget for construction in manufacturing projects, which occurs when numbers are overinflated and there are simply no jobs.
Nevertheless, manufacturing projects enjoy many benefits that even real estate projects are limited to and investors should not overlook this when deciding whether to take on their own project or join a direct pool. The flexibility factor does not only exist in job creation but also in project location. Any real estate project is tied to its particular location and consumers must physically travel to the specific spot to enjoy the project. This creates a type of consumers the project favors, but in low economic cycles, it can be a weakness. Manufacturing projects, on the other hand, are less attached to their locations as inventory is created and can be physically transported nationwide to the consumer. The accessibility creates a larger and more diverse consumer pool to purchase the product.
The Coast OEM Case Study
In this podcast with Mona Shah, Kelly shares one of her favorite success stories: Coast OEM, a manufacturing company that produces sanitary porcelain for toilet bowls, showers, and tile. The company emphasizes the use of water saving devices, and it owns its real estate instead of leasing it to other tenants. Due to the ownership of the land and the manufactured goods, any improvements by the company to the facility adds increased value to its production. The company also uses advanced computer technology, thus creating jobs in the technological and marketing sector.
It is interesting to note that people with prior interests in manufacturing, widget-making, or the product itself are more likely to be attracted to invest in this kind of projects. And the same goes with all entrepreneurial types of investment. Investors weigh their interests or expertise in the field, and ultimately decide based on their experience and whether the project itself can convince them that it will be viable project.
The Viability of the Transition from E-2 to EB-5
Other types of small entrepreneurial projects, if structured correctly, can encompass E-2 projects. Most E-2 projects are mainly known for being franchises but really can be anything. Some examples of International Growth Capital’s E-2 projects include a medical clinic, a restaurant, and a pet care license franchise. A distinct difference in E-2 projects is that investors must hold the share of 50% or more of the franchisee. The E-2 also has a more concrete point of entry than EB-5, with restrictions on some countries. It provides more flexibility in terms of onboarding perspective, and can act as a test for foreign investors to examine if they want to permanently invest and reside in the U.S. As the investors are meeting with the American businesses, the E-2 route allows them to develop relationships and have time to acquire proper documentation, in the case they decide to move on to an EB-5 project. As Mona and Kelly discuss, a turnkey approach, for example, can be adopted to allow for such transition.
Please see the link below for access to the podcast episode: http://mshahlaw.com/diving-eb-5-direct-pool-kelly-fries-international-growth-capital/.
About the Author:
Hermione Krumm, Esq. is an associate attorney with Mona Shah and Associates Global. Hermione works with EB-5, corporate, merger and acquisition (M&A), intellectual property and foreign direct investment (FDI) matters involving China, the UK and the US. Hermione writes and comments frequently on current business and immigration issues. Her articles have been published by LexisNexis, ILW, EB-5info, EB-5 Supermarket, etc. Hermione received her LL.B. (Hons) from the University of Manchester School of Law (UK), and obtained her LL.M. from Cornell Law School. Hermione speaks fluent English, Mandarin and Cantonese.