On Wednesday, Oct. 18th, NES Financial hosted a panel of experts for a webinar on redeployment. The panel covered the current issues and best practices in this area, as well as the new EB-5 Redeployment Program recently announced by Capital United, Greystone, and NES Financial. Led by Reid Thomas, Executive Vice President, NES Financial, the panel included:

  • Allison Berman, Head and General Counsel, Greystone EB-5
  • Brad Stedem, President and CEO, Capital United
  • Clem Turner, EB-5 Securities Law Specialist, Barst Mukamal & Kleiner LLP
  • Joseph Barnett, EB-5 Immigration Law Specialist, Wolfsdorf Rosenthal LLP
  • Rupy Cheema, Co-Founder and Senior EB-5 Business Analyst, EB5 Due Diligence
  • Sam Newbold, EB-5 Immigration Law Specialist, Barst Mukamal & Kleiner LLP

Reid Thomas summarized how the need for redeployment has come about. By law, EB-5 investors are required to keep their funds “at risk” through the conditional residency period. Because of retrogression and the resulting backlog, investors from mainland China are facing up to ten years before their I-829 petitions are adjudicated. The vast majority of EB-5 investments are structured as 5-year loans — and this gap creates the need for the redeployment of capital. The magnitude of this issue was highlighted by Thomas, who noted that within the NES Financial customer base alone, redeployment funds will total more than $1 billion over the next year.

Exploring the Issues

The June 2017 Policy Manual update from USCIS has clarified certain issues, but created additional questions — and with them, risks. Clem Turner noted that, previously, regional centers didn’t have the need to describe in their offering documents how funds would be reinvested. “New projects should build in the authority to reinvest capital. The more specific you are, the less liability you’ll face for decisions that could be construed as breach of fiduciary duty, ultra vires transactions, or acting as an unregistered investment advisor. And if you just reinvest in your own projects, you’ll be subject to scrutiny.”

Rupy Cheema added, “Broad language is not very reassuring to investors — it’s very hard to evaluate the risk of an EB-5 investment when you know the funds are going to be redeployed in a project that you know nothing about today.”

“We need redeployment solutions that are sufficiently liquid so that the NCEs (New Commercial Enterprises) can return money to investors according to their immigration timeline,” Joseph Barnett pointed out. “There are the Chinese investors who are subject to this backlog, and those that aren’t.”

“A lot of the concerns and risks of the NCEs are shared by investors,” observed Sam Newbold. “Having the job creation requirement satisfied before redeployment is less risky for both parties.”

The EB-5 Redeployment Program

Capital United, Greystone, and NES Financial have teamed up to create a solution that implements best practices: The EB-5 Redeployment Program. “Capital United is a Registered Investment Advisor (RIA) with the SEC and we have an innate understanding of the EB-5 industry and the redeployment issue,” said Brad Stedem. “We realized a year ago that there was a need for an RIA to come up with an end-to-end redeployment solution for the industry. Together with NES Financial and Greystone, that’s what we’ve done. We’ve consulted with industry experts in securities and immigration law and sponsored a white paper on best practices. Liquidity and transparency are key factors that we’ve built in.”

“Best practices include having an RIA so that the NCE isn’t making decisions on their own,” added Allison Berman, “and teaming up with NES Financial for the third-party fund administration so investors have transparency. Our part is providing a fund based on bridge lending which provides liquidity and is extremely secure. We have the expertise in underwriting good real estate loans, and since 2011, this platform has had zero losses. We want investors to feel comfortable, so Greystone will take the first-loss position up to 10%. Our program provides a 4% net return paid quarterly to the NCE, and the ability to pay back each individual investor when they become eligible.”