The importance of the timeline in an EB-5 business plan
Kurt: Sales and marketing, management profiles, expense and revenue projections. These are obviously important aspects to an EB-5 business plan.
It also seems that a timeline can be especially helpful to understand the timing of the jobs created as well as what happens as timelines adjust and how this impacts other parts of the plan.
Marge: Project timing is very important because it affects the timing of job creation. The project economist makes adjustments to revenue, essentially deflating revenue from project year dollars to the equivalent of those dollars in the year from which the multipliers they use for their analysis were published (in this example, 2010). If the timeline for the project shows that the business will open in November 2017, the economist deflates revenue by seven years to 2010 dollars before applying the multipliers.
Let’s say, with an opening date of Nov’ 2017, the project gets pushed out three or six months into the future because of delays; it pushes revenue into the next calendar year. The economist will take revenue information from 2018 and deflate that information back to the 2010 equivalent so that job creation figure is calculated based on dollars in the same year as the multipliers they're using.
If you push an EB-5 project into the next year, then the economist would need to adjust, or deflate the revenue dollars by one more year and do the same mathematical calculation; revenue times the multiplier.
That can affect job creation, perhaps not in a great amount, but enough so that it could create a discrepancy within the documents if it's not addressed.
The timing is very important because it actually goes to job creation as well as the project feasibility. Can it be built in this period of time? The actual job creation, if the timing on the project is not accurate and not consistent with the rest of the documents, can actually affect the job creation, not just the business plan.
Another issue is the 2-year mark on direct construction jobs. If a project started off scheduled for 27 months and they’ve managed to make it more efficient and drop it down to 23 months on the construction side, virtually half of the jobs on the construction component are no longer there for leveraging into part of the capital stack. The timeline is very important, particularly when you get into things shifting and changing, as many projects do.
Kurt: So I guess the general contractor, or the foreman on the job site, sometimes asks people to work a little slower?
Marge: Well, that's part of the justifying. You have to support why it's going to take you longer than 24 months. In some markets, that's reasonable. Take New York City, for example, where streets have to be closed because there's nowhere to stage your construction. A longer timeline may be appropriate there. If you're building something where there are no restrictions, you may have a harder time justifying why you need 27 months instead of 18 or 20. You have to explain why.
Kurt: Have any of you come across developers or managers who want to do EB-5 who have said, "Well, I can drag this out for 24 months. That's not a problem."
Phil: Every day, almost. That's often the first response that I get when I talk about the 24 month development timeline in order to be able to claim direct construction jobs. The response there is that it doesn't quite work like that. You can't just stretch it out just because. It has to be reasonable by industry standards, and it should ideally be validated by a third party.
Martin: If somebody would've raised that proposition with me, I would explain to them that that's fraud, and that's illegal.
Kurt: Any thoughts about source material?
Marge: My rule of thumb is this: Provide a hyperlink or a hard copy of the source document to the immigration attorney. But bear in mind that websites update their information. I had a case where I cited something and I footnoted it. A year later, when an RFE was issued, one of the things they asked about was that particular source. The website had updated its information. Now, I print these things and send them to the attorney, because you have to be able to show where the information came from if you're asked.
Phil: If there had been a market study, and the market study has been summarized or referenced in the business plan, it's a good idea to include all of these things separately as part of the package. It doesn’t matter whether it’s an appendix to the plan itself or as a separate part of the overall submission by the attorney.
Martin: Certainly, thats going to make it easier for the adjudicator to look these things up, as well.