by EB5 Investors Magazine Staff
Linda Lau is an immigration attorney whose practice has a strong focus on EB-5 matters. A member of the EB5 Investors Magazine Editorial Board of Advisors, Ms. Lau graciously conducted a Q&A that gives unique insight into the EB-5 visa program.
Ms. Lau is the President of Global Law Group, which is headquartered in South Pasadena, Calif. and has a representative office in Shanghai, China. Originally from Hong Kong, Ms. Lau has served as the American Immigration Lawyer Association’s Vice Chair of the EB-5 Committee and has been recognized by the American Registry as one of the Best California Attorneys.
EB5 Investors Magazine: What do you think are the biggest lessons of 2012 for the EB-5 Visa Program?
Linda Lau: I think the biggest lesson is the ability to navigate the adjudication process. For example, some Regional Centers, when they first got approved, planned to gain EB-5 credit from jobs derived from tenants. All of a sudden, in 2012, we were told by USCIS that tenant occupancy is an issue. It is challenging trying to figure out this process.
EB5 Investors Magazine: Do you think we are moving towards fixing these challenges?
Linda Lau: I think everyone is trying hard to get clarity and guidance, including USCIS. I think internally they really want to fix this issue. It is hard for adjudicators, I am sure, to be able to figure out what rules they should apply and when they can apply them. I feel it is a work in progress, just like in the mid-90s when we had issues with cases involving promissory notes. There was total chaos…but the stake is a lot higher now because we have over 200 Regional Centers and hundreds of projects and millions of dollars at risk.
The fact that all these projects are ongoing really forces everybody to come up with some kind of policy that everyone can work with. In addition, as you know, some of the Regional Centers have filed law suits and are trying to force the issue. Hopefully we will have some kind of resolution.
EB5 Investors Magazine: What worries you about EB-5 going forward?
Linda Lau: I would like to see our community be able to support one another. What worries me is that if we see each other as competitors and as trying to fight for certain market share, then it is really not conducive to growth in our own community. I would like to see more collaboration and support from within.
EB5 Investors Magazine: Do you notice a difference in EB-5 offerings between different regions, such as what West Coast and East Coast deals look like?
Linda Lau: For the West Coast, it is pretty standard. Most of the deals are in real estate development, retail, office buildings or hotels.
East Coast deals are quite different. It really depends on what is available. Sometimes we see historical buildings, oil well projects or really interesting industries. I do not know whether it is just because developers [on the West Coast] are in the same group or community, so they tend to do the same projects. Over there [on the East Coast] it is pretty unique and different. That is what I have noticed.
EB5 Investors Magazine: What about for investor markets? Do you get a sense of what investors in different regions care about?
Linda Lau: The biggest market, as you know, is China, and for the last three years, Chinese investors have progressed tremendously in terms of their knowledge. They are very sophisticated and ask a lot of tough questions, such as, “What is the difference between allocation of interest and the return and the exit plan?” and “Why is this a certain percentage and how did you decide that?”
In other parts of the world, it depends on the background of the investor. Korean investors are usually professionals such as doctors. Many are used to the idea of being involved in small businesses due to the E-2 visa option. The questions they ask are different because some may have limited real estate project exposure. On the China side, you have these developers involved in big and small projects.
EB5 Investors Magazine: How can one avoid pitfalls in EB-5 marketing?
Linda Lau: First, the Regional Center has to decide if they want to market the project themselves (staying in compliance with securities rules). The second consideration is what type of professional they are going to use. They may decide to use immigration consultants overseas or use a master agent to field the immigration consultants.
Every structure has its problem. For example, if the Regional Center decides to use a master agent, the master agent will take a finder’s fee and find 10 other subagents. In that relationship, there is an inherent conflict because the more the subagent is getting, the less the master agent is getting.
On the other hand, many RCs love to use master agents, because the master agent will be able to control, monitor and liaise with the subagents, sparing the RC in dealing with the subagents. Not because they do not want to, but because they do not have the cultural understanding in dealing with them. Dealing with ten different agents can be overwhelming.
EB5 Investors Magazine: Do you have advice on how to create lasting relationships between brokers and immigration consultants?
Linda Lau: Many brokers and immigration consultants are very loyal to the Regional Centers. However, you do need to have good projects for them [and] what is good here is different than what is [perceived as] good over there.
For example, when we do a loan project in America, not EB-5, we do not want to be in the second position deed of trust with the bank in the first position. If the bank forecloses on the project, then we have nothing left, but in China many brokers I have met have said it is okay to be in second position. The bigger the first position lienholder is, the more confidence they have. Somehow, they get sidetracked about the big name of the first lienholder. Here, we do not want any first lienholder, no matter how big you are. The bigger you are, the scarier it is, because you will foreclose and leave us no money. It is different over there than over here.
In terms of allocation of interest, if you have a project with limited partners or investors holding 90% of the interest, even though the general partner (the U.S. partner) probably put in 40% of the capital, just because of the allocation, they would like to give more to the investor because they are relying on incoming funds from the EB-5 investors.
On the U.S. side, the general partner is acting in good faith at the advice of a competent corporate lawyer. They say, “Why do not we just let them have more so there is more incentive for you to be able to refinance at the end after five years so you [have the option] to let them leave the project?”
But, once it goes to China, it is totally different. Even if you put in 40% of the capital, if you do not take at least 30%, they are afraid you will disappear one day because you hold so little interest in the project.
Culturally, it is totally different, and that is why I think the Regional Centers and attorneys can talk to these immigration brokers. They understand the market, and there is no point in packaging something that the market system cannot handle. It is a matter of communication with the immigration brokers and consultants. I think full disclosure and transparency are important.
EB5 Investors Magazine: Is there anything else you would like to add?
Linda Lau: We are blessed with having great colleagues in the community. It is important for the community to be able to talk and communicate with each other. I really appreciate that EB5Investors.com was able to give us a forum to come together and share our insights with the public. I really feel that we as a team can do a whole lot.