On Sep 04 2013 by H. Ronald Klasko
Perspectives on the China Market
I am preparing for my next trip to China in October. During this trip, I will be meeting with a number of Chinese migration agents, investment bankers and others to discuss specific EB-5 projects and to get their perspectives on the EB-5 investor market.
The following are some of the issues that I expect to discuss and report on following my return:
- Direct vs. regional center EB-5. Traditionally, regional centers have been the focus of attention for most Chinese agents. More recently, for a number of reasons that I have reported on in previous blogs, direct EB-5 has increased in popularity. Some agents are more open to direct EB-5 than others. Those that are interested generally are interested only to the extent that the direct EB-5 is a pooled investment with significant investors or franchise opportunities involving multiple investors.
- Impact of pending immigration legislation. Despite the fact that the Senate immigration bill does not increase the minimum investment amount for EB-5 in the near future, concerns abound in China that any new immigration bill will include an increased investment amount.
- China quota retrogression. In the absence of immigration legislation, the per country quota for China will likely be reached in the next fiscal year. This result may be averted if there is immigration legislation.
- Political fallout regarding the Mayorkas nomination, the Grassley/Inspector General investigation and the Virginia gubernatorial race. I hope to assess the level of concern in the marketplace regarding these issues.
- Chicago Convention Center case. Now that all of the investors have received their investment funds back as a result of the SEC intervention, is there any lasting fallout from the negative publicity surrounding this project?
- EB-5 petition processing delays. The delays are unprecedented, and there does not appear to be much movement in I-526 processing. What is the impact on the market?
- Escrow. Because of processing delays, various forms of escrow that would not have been considered by the agent and investor community in previous years are now becoming more commonplace. These include holdback escrows and early release escrows. Which agents accept which types of escrow, and in what types of projects? Also, a related issue is developer guarantees in the event of escrow release before petition approval. What is the market acceptance of developer guarantees?
- Due diligence. Does the marketplace insist on some sort of independent immigration and/or financial due diligence? Is it sufficient if the EB-5 team of professionals is a trusted one?
- EB-5 as a percentage of the total capital stack. Has there been any change in what the market will accept?
- Job creation. What is the market acceptability of projects with tenant occupancy? Guest expenditure jobs? Direct construction jobs?
- Job cushion. Is the acceptable job cushion changing and does it vary by type of project?
- Type of projects. Hotel projects have always been among the most popular. Healthcare projects and residential projects have been increasing in popularity. What are the latest types of projects atop the popularity list?
- Locations. Certain locations have always topped the China market. These include New York, Washington, San Francisco and Los Angeles. What is the recent experience with cities such as Chicago, Boston, Philadelphia, San Diego, Atlanta, Phoenix, Seattle and projects in Florida and Texas?
- Agent compensation. Recently, there have been some changes in the market regarding agent compensation – when it is paid, how much per investor, points on the deal, etc.
- Position of investors. Do investors have to be in a first position? If not, on what types of projects can investors be in a second position?
These are some of the topics that I expect to discuss during my trip to China in October. It promises to be a busy and informative trip. I look forward to reporting upon my return.