Kurt: How long does it take from the time someone wants to start putting an EB-5 offering package together, to completing it and being ready to take the offering to market?
Lets say from the time they meet with an immigration attorney to the time they should expect to have completed putting together the offering package?
Martin, could you walk us through the process? My sense is that the immigration attorney typically acts as the quarterback on EB-5 package development. How do you see your firm's role?
Martin: As precisely that; we're the quarterback. We pull together a team which we think will be suitable for the project. That team might include a business plan writer, an economist and a securities lawyer. We also work with the client, their accountant and their business lawyer.
We usually have a kickoff call with everybody to assign tasks so everyone gets to know each other. Everybody will send out a questionnaire to the developer and we try to go through them so that there's not a lot of overlap. Then, we make sure that people are meeting their schedules to produce what they need.
In the ideal scenario, the business plan writer will complete her plan, she’ll give it to the economist who completes her plan, and then it goes to the securities lawyer, who does his work. It's like building a house. You start with a foundation; you finish that and move upward.
Frequently the client wants to get moving as fast as possible because they think they have investors chomping at the bit to invest in their project. They want to get the securities documents out and so try to get everybody to complete their work as quickly as possible.
The economist may give a preliminary report about jobs, which goes into everybody's documents, and when it's finally tweaked and verified, the jobs count may go up or down, thus all the placeholder numbers will have to be changed.
The process usually takes 3 or 4 months. A little longer than one would think to have everybody's work completed and proofread and crosschecked.
Kurt: I think that, almost universally, developers hear 3 to 4 months, and then they start thinking, “well, it's going to take the business plan writer 2 to 3 weeks and the securities attorney 3 or 4 weeks and the economist 2 to 3 weeks. If we can run them concurrently to some degree, we could speed this process up.”
Do any of you (panelists) see situations where the push from the developer or the business owner ends up causing problems? Say documents that have to be changed later which effectively and significantly slows down the process?
Phil: I would say so. When we're being pushed to produce things quickly, I always warn the client that we can start writing around certain missing pieces, but if some of those missing pieces or some of the previously written parts of the plan start changing, which often happens, then we have to go back through the business plan which actually takes a lot longer than just having written the business plan in a single go.
Some economists can work concurrently or will work concurrently with the business plan writer as long as they're certain the information in the inputs are finalized, which is usually only the case where you've got a very experienced developer.
One who really knows their stuff because they've been working on this sort of project for years. They'll have their information and they’ll know exactly what they're doing. Those situations can move more quickly, generally.
Marge: More often than not, projects start too early when things aren't finalized, and the changing numbers will create issues. It's quite easy to miss one small change in a 60-page document and by missing that one item that needed to have been updated elsewhere creates an inconsistency in the EB-5 application.
It's probably best to pick a day in time and say, as of this date, these are the numbers we're using and leave it at that.
The reality is no project comes in exactly on budget. I once asked a developer when we'd have the final cost numbers and he said, "The day I get my certificate of occupancy.”
I think you're better off making provisions for reasonable changes happening and picking a day in time and just going with the numbers as of that point unless there’s a substantial change that would impact the securities documents or something that might change an investor's mind had they been aware of this fact.
Martin: Sometimes I tell developers and the team working on it, "Look, we have to cut this off now." One of my developer clients once said to me, "Building projects is like managing chaos. Everything changes all the time."
We try to be as accurate as possible, but at some point you’ve just got to end it and file your application. If there is really something important that comes up later on, you can add a supplement, an updated report or an addendum. It will then need to be run by the securities attorney to see if they need to provide disclosure or get consent from the investors.
I'm very careful with the words “material change” because the USCIS’ view of material change is something that would be catastrophic to pending I-526s and which would require them to be refiled if the person has not immigrated. We have to be very careful with how we use that particular term.
Kurt: From a securities point of view, a material change means that this change might impact an investor's decision of whether to invest or not.
EB5 Diligence conducts their due diligence once the offering documents have been finalized. I would say, invariably, when we review the offering documents, we do find inconsistencies.
I think it's partly because the business plan writer and the lawyers are going over these documents again and again and it's very difficult to ensure that all the changes and all the iterations make it through to all the documents. It’s also very easy for a person who has reviewed the documents numerous times to become blind to the changes at some point.
One of the benefits to getting a due diligence report for an EB5 project is that you have someone from the outside coming in and seeing the documents with fresh eyes, offering a fresh perspective. By ensuring that all the documents are consistent, an issuer will reduce their chances of getting RFEs.
Martin: That's an important point.
Project documents require control systems so that people are aware that, for example, we’re now talking about draft #2 of the business plan. When that change is made, then it becomes draft #3. And you want to date each new draft so that when that does go back to the business plan writer or the economist or the attorney, they’re aware that this is a new draft.
It’s also important when making changes to a draft document to redline as you edit, so that the changes are highlighted. Those types of document control systems are important when you're dealing with large documents. "