Why EB-5 investors are doomed not to choose good projects?
742025/3/31
Why is it so difficult for EB-5 to choose projects?
Honestly, I personally find it difficult, because it is not a completely market-oriented product. This is not a problem for investors, it is a problem for the industry. Today, from the perspective of project and industry, why is it difficult for investors to choose a good project in Lao Guo?
First, the stage of industry development
The development of an industry is from the beginning-development-full competition-complete standardization-market recession. The most typical feature of the first stage of any industry is that the information in the market is completely opaque. It can be said that it is a paradise for scammers in the barbaric growth period, and EB-5 has only completed the first stage of commercial development. This is not the case. The US Immigration Service also discovered this problem, so Congress passed the EB-5 Integrity and Reform Act on March 15, 2022. Supervise the funds and audits of all regional centers, and put an end to the low-end fraud incidents under the eyes of the SEC and Immigration Bureau of the US Securities Regulatory Commission in the 21st century. However, EB-5 has not yet entered a more standardized market competition period, but it is indeed a big step forward for this industry with great difficulties in transnational management.
Second, the project itself
EB-5 fund-raising is a financing channel for developers, and what developers care most about is the cost of capital. If the project is of high quality, developers themselves can get full loans from banks. At present, the cost of senior loans generally ranges from 7-9% of floating interest rate (which is generally considered to be the highest interest rate at this time), while the income of an independent third-party regional center generally ranges from 6.5-10% (but this is a fixed interest rate, so EB is actually used in summary). In addition, unlike senior bank loans, except that banks have floating interest rates, most senior bank loans allow lenders to repay in advance at any time. However, as a fund manager, EB-5 regional center is mostly unwilling for developers to repay in advance, which leads to developers having to bear high interest rates until the EB-5 loan expires after 3-5 years.
Then imagine, if you are a developer and can raise 60-70% of the funds in the bank, will you go to the third-party EB-5 regional center to raise funds again? If so, there are two reasons:
1. The bank won't lend you 60-70% of the funds at all, or won't give you a loan at all. You need to find an EB-5 mezzanine loan to complete or simply put it bluntly. EB-5 is a senior loan (because there is no bank loan).
2. The bank has lent you 60-70% of the funds, and you want to play with empty gloves, and the remaining 30-40% of the funds will be paid by EB-5 investors.
Any of the above is not a good project for investors from the perspective of stable payment, because:
The first is because the risk of the project is too high, and the bank loans are uneven or not, which is too risky for creditors.
Second, because the developer has escaped all its own funds, EB-5 investors have actually become the last investor to be withdrawn from the project level, and they are the most risky funders, and developers are playing with empty gloves. Because the safety mat of EB-5 investors' funds, that is, the developer's own funds have already been taken away.
Unfortunately, only these two types of projects have the motivation to travel across the ocean and pay huge marketing fees, so as to recruit investors who can't understand the PPM of the project and just look at the marketing content without their own opinions in China, Indian and Vietnamese markets.
Therefore, in China, many of them belong to one of the above two categories, and our poor investors really have few choices.
Of course, there are also good projects, that is, the project party really does not lack funds, and the purpose of financing EB-5 is to reduce the use of senior loans.
For example, I saw a city project, and the project party has been granted a credit line of 39 million bank senior loans. The purpose of raising EB-5 funds is to reduce the actual use of senior loans. Because the regional center of this project party is its own team, it is enough to give 4% interest to the fund company. Finally, the project successfully raised 32 million EB-5 loans, and the final use of senior loans was less than 10 million. People still have nearly 30 million senior loans and credits, which are not needed at all. This is a good project, but it is a pity that it is impossible for such project parties to pay 7% interest to the regional center, because people have a large amount of construction loans and credits waiting for backup, so most investors can't touch such projects.
What's more, even if some investors happen to see the project, they will think that the bank loan has decreased and the developer has replaced too much EB-5 funds, which leads to an unsightly proportion of capital structure and thinks it is a junk project.
Third, the trend of interests
Finally, let's talk about the interest trend of each organization you meet. When you choose a project in China, you will meet the regional center team or the immigration intermediary team. Let's talk about their respective interests.
1. Immigration agencies
They help you to make fund copywriting, immigration plan and project recommendation. They should undoubtedly be experts in fund copywriting and immigration plan, but they may not know much about project screening, because they may not understand the core terms in PPM. What they say here is not the problem of English translation, but they really understand real estate. To understand the repayment mortgage security and capital structure here, they need to know real estate very well, just to help you. They don't necessarily have this ability.
They can only convince you with historical records, but you should know that many old government projects have not yet reached the repayment period, and the trading team or project side has a very glamorous historical record before any big project explodes.
As far as I am concerned, I only look at the contract documents and profitability of this project, and rank outside the 5 th place in the historical records of the project party. Because I know that contract protection for investors (including the implementation of the repayment guarantee contract) and the profitability of the project are the core keys, and I also think this is the basic logic of investment in the United States. I'm sorry, I seldom look at tall projects when I invest in the United States. On the contrary, I stay away from tall projects subjectively.
Their main income is the management fee and the interest distribution of the later annual interest. I heard that the management fee that some large projects can pay to intermediaries has exceeded 80,000 (which far exceeds the amount you actually paid), and of course there is some annual interest income. What does this mean? I can't say that this project must be bad, but I am sure that the interest-driven nature of this intermediary agency's recommendation of this project is very strong.
2. Regional centres
What does the regional center depend on to survive? It depends on collecting some management fees and spreads, that is, the difference between the interest paid by the developer to the fund company and the interest paid to EB-5 investors. The interest of the regional center is generally paid by the developer quarterly. For example, the loan period is 6 years, and the spread is more than 6% every year, that is, 48,000 per investor every year, and 100 investors are 4.8 million.
There are also some regional centers that have the skill of technical reinvestment. For example, the loan period is 7 years, and they get the money from the developer in the fourth year. However, if they make technical reinvestment and come to Huohuo for another 3 years, they will not refund your money. There are many reasons, including but not limited to:
The repayment is not due yet.
(2) according to the provisions of the contract.
③ Meet the employment opportunities of all investors.
④ Meet the risk period requirements of all people.
These are all excuses, not required by the Immigration Bureau. They laid mines for you at the beginning of the contract. When you finally find them, they will reply to you. You are making trouble without reason. Please act according to the contract!
Having said that, you will find that you are very lonely on EB-5 road!
Who is the biggest opponent of EB-5 investors? It's not the Immigration Bureau, it's not the SEC, it's the marketing team that has done a particularly dazzling PPT, and it's also the follow-up investors who don't look at the contract or blindly publicize!
Honestly, I personally find it difficult, because it is not a completely market-oriented product. This is not a problem for investors, it is a problem for the industry. Today, from the perspective of project and industry, why is it difficult for investors to choose a good project in Lao Guo?
First, the stage of industry development
The development of an industry is from the beginning-development-full competition-complete standardization-market recession. The most typical feature of the first stage of any industry is that the information in the market is completely opaque. It can be said that it is a paradise for scammers in the barbaric growth period, and EB-5 has only completed the first stage of commercial development. This is not the case. The US Immigration Service also discovered this problem, so Congress passed the EB-5 Integrity and Reform Act on March 15, 2022. Supervise the funds and audits of all regional centers, and put an end to the low-end fraud incidents under the eyes of the SEC and Immigration Bureau of the US Securities Regulatory Commission in the 21st century. However, EB-5 has not yet entered a more standardized market competition period, but it is indeed a big step forward for this industry with great difficulties in transnational management.
Second, the project itself
EB-5 fund-raising is a financing channel for developers, and what developers care most about is the cost of capital. If the project is of high quality, developers themselves can get full loans from banks. At present, the cost of senior loans generally ranges from 7-9% of floating interest rate (which is generally considered to be the highest interest rate at this time), while the income of an independent third-party regional center generally ranges from 6.5-10% (but this is a fixed interest rate, so EB is actually used in summary). In addition, unlike senior bank loans, except that banks have floating interest rates, most senior bank loans allow lenders to repay in advance at any time. However, as a fund manager, EB-5 regional center is mostly unwilling for developers to repay in advance, which leads to developers having to bear high interest rates until the EB-5 loan expires after 3-5 years.
Then imagine, if you are a developer and can raise 60-70% of the funds in the bank, will you go to the third-party EB-5 regional center to raise funds again? If so, there are two reasons:
1. The bank won't lend you 60-70% of the funds at all, or won't give you a loan at all. You need to find an EB-5 mezzanine loan to complete or simply put it bluntly. EB-5 is a senior loan (because there is no bank loan).
2. The bank has lent you 60-70% of the funds, and you want to play with empty gloves, and the remaining 30-40% of the funds will be paid by EB-5 investors.
Any of the above is not a good project for investors from the perspective of stable payment, because:
The first is because the risk of the project is too high, and the bank loans are uneven or not, which is too risky for creditors.
Second, because the developer has escaped all its own funds, EB-5 investors have actually become the last investor to be withdrawn from the project level, and they are the most risky funders, and developers are playing with empty gloves. Because the safety mat of EB-5 investors' funds, that is, the developer's own funds have already been taken away.
Unfortunately, only these two types of projects have the motivation to travel across the ocean and pay huge marketing fees, so as to recruit investors who can't understand the PPM of the project and just look at the marketing content without their own opinions in China, Indian and Vietnamese markets.
Therefore, in China, many of them belong to one of the above two categories, and our poor investors really have few choices.
Of course, there are also good projects, that is, the project party really does not lack funds, and the purpose of financing EB-5 is to reduce the use of senior loans.
For example, I saw a city project, and the project party has been granted a credit line of 39 million bank senior loans. The purpose of raising EB-5 funds is to reduce the actual use of senior loans. Because the regional center of this project party is its own team, it is enough to give 4% interest to the fund company. Finally, the project successfully raised 32 million EB-5 loans, and the final use of senior loans was less than 10 million. People still have nearly 30 million senior loans and credits, which are not needed at all. This is a good project, but it is a pity that it is impossible for such project parties to pay 7% interest to the regional center, because people have a large amount of construction loans and credits waiting for backup, so most investors can't touch such projects.
What's more, even if some investors happen to see the project, they will think that the bank loan has decreased and the developer has replaced too much EB-5 funds, which leads to an unsightly proportion of capital structure and thinks it is a junk project.
Third, the trend of interests
Finally, let's talk about the interest trend of each organization you meet. When you choose a project in China, you will meet the regional center team or the immigration intermediary team. Let's talk about their respective interests.
1. Immigration agencies
They help you to make fund copywriting, immigration plan and project recommendation. They should undoubtedly be experts in fund copywriting and immigration plan, but they may not know much about project screening, because they may not understand the core terms in PPM. What they say here is not the problem of English translation, but they really understand real estate. To understand the repayment mortgage security and capital structure here, they need to know real estate very well, just to help you. They don't necessarily have this ability.
They can only convince you with historical records, but you should know that many old government projects have not yet reached the repayment period, and the trading team or project side has a very glamorous historical record before any big project explodes.
As far as I am concerned, I only look at the contract documents and profitability of this project, and rank outside the 5 th place in the historical records of the project party. Because I know that contract protection for investors (including the implementation of the repayment guarantee contract) and the profitability of the project are the core keys, and I also think this is the basic logic of investment in the United States. I'm sorry, I seldom look at tall projects when I invest in the United States. On the contrary, I stay away from tall projects subjectively.
Their main income is the management fee and the interest distribution of the later annual interest. I heard that the management fee that some large projects can pay to intermediaries has exceeded 80,000 (which far exceeds the amount you actually paid), and of course there is some annual interest income. What does this mean? I can't say that this project must be bad, but I am sure that the interest-driven nature of this intermediary agency's recommendation of this project is very strong.
2. Regional centres
What does the regional center depend on to survive? It depends on collecting some management fees and spreads, that is, the difference between the interest paid by the developer to the fund company and the interest paid to EB-5 investors. The interest of the regional center is generally paid by the developer quarterly. For example, the loan period is 6 years, and the spread is more than 6% every year, that is, 48,000 per investor every year, and 100 investors are 4.8 million.
There are also some regional centers that have the skill of technical reinvestment. For example, the loan period is 7 years, and they get the money from the developer in the fourth year. However, if they make technical reinvestment and come to Huohuo for another 3 years, they will not refund your money. There are many reasons, including but not limited to:
The repayment is not due yet.
(2) according to the provisions of the contract.
③ Meet the employment opportunities of all investors.
④ Meet the risk period requirements of all people.
These are all excuses, not required by the Immigration Bureau. They laid mines for you at the beginning of the contract. When you finally find them, they will reply to you. You are making trouble without reason. Please act according to the contract!
Having said that, you will find that you are very lonely on EB-5 road!
Who is the biggest opponent of EB-5 investors? It's not the Immigration Bureau, it's not the SEC, it's the marketing team that has done a particularly dazzling PPT, and it's also the follow-up investors who don't look at the contract or blindly publicize!
