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EB5 INVESTORS MAGAZINE

How To Pitch EB-5 To Middle Eastern Investors

By Abbas Hashmi

Ah, remember the good old days of immigrant investor marketing just a couple years ago? Back before the great Chinese retrogression, when clients lined up to hear your pitch and not the other way around. A regional center didn’t need to sell anyone on the merits of investing in the United States, but rather simply why they should invest with you. Nowadays, with the focus of entrepreneurial immigration pivoting to the Middle East and south Asia, things are a little more complicated. Fewer and fewer of these clients every year are motivated to invest in the United States solely by the desire to build a better life for their families.

Many of these prospects from the Middle East are already sending their adult children to American universities. They frequently visit the States to vacation, shop or meet with their own clients; many even own a home, condo or other real estate in the country. So why do they need a green card? Yes, marketing to this niche of HNWIs is a totally different beast. You now need to convince them that obtaining a green card and investing in America is a better option than living exclusively in their homeland before you can even get to your service’s value proposition.

Let’s face it, if these people have not already invested significant wealth in the United States, then that means they have a good reason to keep their capital overseas. You need to find that reason to convince them that permanent residency in the United States is actually a useful tool to achieve their goals. But it’s easier than it sounds. For Middle Eastern HNWIs, those reasons always seem to come back to hard dollars and cents. These individuals are laser-focused on the bottom line when evaluating an investment.

There are many important cultural dos and don’ts when making contact and following up with Middle Eastern investors. No matter how you approach the client, though, eventually you’ll have to slay the two giant elephants in the room to close the deal. The first is when they say, “Why should I invest $500,000 in American real estate projects when I have far more flexibility and better returns investing at home? How can a green card be worth that much?” The second is, “Why in the world would I take money out of my tax-free Middle Eastern investments and place them under America’s tax regime?”

They may word these concerns more tactfully, but you won’t convince them of the value of your service unless you can answer these two questions clearly and with specific examples. On the plus side, that’s not nearly as difficult as it sounds. You can focus to turn these challenges that scare off other wealth managers into opportunities to broaden your clientele base.

Challenge One: Low ROI on Initial Investment

Avoid the urge to gloss over the details or hype up the rare successful outliers. Instead, impress them with your knowledge of both the risks and big picture rewards. The cold, hard reality is that the average EB-5 visa applicant investing in regional centers will see little or no return, let alone one that exceeds inflation.

Your typical client’s initial investment isn’t going to go into a high-dividend REIT, property speculation in a hot market like San Francisco Bay Area, or major commercial projects in Manhattan. With the way the program is structured, their investment options are limited on purpose to the least desirable markets. Between the generally lower profits and increased risk from developing in rural or high-unemployment areas, requirements to create 10 full-time jobs and other fees, the majority of investors will be lucky to see a 1 percent yearly rate of return during those first six years.

So we must address this issue early in the meeting. With this major obstacle out of the way, you can focus the prospect’s attention on the long term and less easily quantifiable advantages of a green card. If you’ve done your homework on your prospect’s unique needs and family situation, you’ll have a good understanding of which points they are most interested in, but here’s the quick-reference summary.

Risk Management

Your prospective clients might be drenched in the mantra that diversification is the key pillar holding up all risk management strategies. But do they really appreciate the options that U.S. residency grants them, as well as the stability of the U.S. real estate market? According to the 2018 GCC Wealth Insight Report by the Emirates Investment Bank, 55 percent of the HNWIs surveyed across the Middle East said the increasing geopolitical tensions in the region have affected their investment decisions. [1] That number rises to 75 percent among respondents in the UAE wealth management market.

Investing in the U.S. is more than just a safe way to diversify their portfolio; that green card serves as a coveted insurance policy against all sorts of financial threats. Protecting capital from unpredictable geopolitical risks is a challenge for all international investors, but one that’s easier to guard against when you have permanent access to America’s financial markets, visa-free travel for you and your family, and a stronger legal standing in U.S. courts.

For example, in the event of sudden sanctions by the U.S. government or the implementation of capital controls in their country of origin, a U.S. resident would still have access to American banks and the international SWIFT system. They would have many more options compared to a non-resident investor to move their wealth safely between both countries, as well as an easier time suing for relief in the U.S. court system.

No Need to Physically Relocate and Cut Ties With Your Homeland

Permanent residency doesn’t mean an immigrant is obligated to live in the U.S. permanently. While moving to America on a long-term basis is the most common reason for obtaining a green card, many Middle Eastern investors have significant financial and family interests in their homeland. They have no desire to abandon them.

Stress to your clients that they don’t have to give anything up or “exile” one of their children overseas to manage their American interests in corpus. Immigrants can come and go as they please and maintain their residency status as long as they don’t stay outside the country for more than one year at a time. And even that requirement can be waived by applying for a two-year re-entry permit.[2] In short, they can have their cake and eat it too by maintaining their core business and lifestyle back home, then simply visiting the United States a few times a year to vacation and check up on their American business interests.

The Price Is Likely Going Up

Criticism of the EB-5 program has increased among some American politicians in recent years. It doesn’t seem that the program will be cancelled anytime soon but there is a chance of Congress raising the minimum investment amount in the near future. Afterall, the program’s financing thresholds haven’t changed since it was founded in 1990. The Department of Homeland Security in United States has formally recommended raising the required investment for TEAs to $1.35 million,[3] and that’s just to keep pace with inflation. Other critics have called for even higher rates.

In any case, time might be running out for the current investment levels. So if your client is skeptical of the current investment level, gently point out that it might be increasing a lot.

Challenge Two: What’s This About Taxes Now?

Your traditional pitch probably includes a long list of tax advantages investors can enjoy when putting capital in real estate versus other investment options. Lower capital gains rates, writing off depreciation, no FICA taxes, 1031 exchanges and other things but none of this is going to impress a property developer from the UAE who is used to zero income and corporate taxes.

So yes, such investors will only be swayed if they buy into your previous arguments of diversification and risk management. However, the potential market is incredibly diverse. The Middle East is home to a vast number of HNWI prospects who aren’t native to the region and have different goals than the typical Saudi or Emirati millionaire. This is especially true in the UAE, where just under half of the HNWI and UHNWI residents are foreign born.[4] They’re already immigrants to the country, so you’ll find a host of reasons they might be interested in a backup U.S. green card.

For example, there’s a good chance your Emirati prospect is actually an Indian CEO who will never have the chance to obtain an Emirati passport but isn’t interested in going back to his country anytime soon. Or she’s a Lebanese property developer looking to expand her operations globally. Perhaps he’s a Pakistani businessman who made his fortune in the Gulf and has no intention to leave the area, but would love to acquire U.S. green cards for his teenage children. The opportunities are endless in this multi-cultural melting pot.

Safeguarding Capital

Even if you’re dealing with a proud native Emirati who has no interest in moving to the United States or sending his children overseas, you can still appeal to his bottom line. Several surveys have shown a steadily shrinking risk appetite among the wealthy in the Middle East. For example, in 2014, 90 percent of HNWIs in the UAE considered growing their wealth a greater priority than preserving wealth. In 2018, that dropped to only 62 percent focused on growing rather than protecting their wealth.[5] Yet in the same time period, interest in American investments has plummeted. Asia, the non-Gulf Cooperation Counil Middle East region and Europe, in that order, are the preferred regions to invest in today. Only 17 percent of those polled considered North America their first choice for new investments.[6]

That might make for grim reading at first glance, but in practical terms, this gives you two hidden opportunities to better show off the value of your proposition. The first is wealth conservation. While returns in the United States, and especially in these regional investment centers, won’t match their favorite investments in emerging markets across Asia and the Middle East, that’s because the U.S. real estate market is far safer. When evaluating macroeconomic risk, the U.S. market is supported by a much more diverse economy that can absorb financial shocks without crashing real estate prices. For example, a change in government, currency fluctuation or sudden drop/rise in oil prices won’t suddenly put their project in the United States at risk the same way it would in a developing nation’s economy. This is not to mention the stronger regulatory oversight in America that greatly reduces the risk posed from corruption or less-than-transparent accounting practices.

Second is control and new opportunities. When investing in any foreign land, you will have to rely on third-party agents. But having permanent residency in the United States gives you greater control and oversight of your investments, the opportunity to sidestep foreign ownership restrictions, and grants several ancillary bonuses for you and your family. The distinction between a foreign investor and immigrant investor is no minor point. Some of the most lucrative investment options in the United States are subject to a variety of restrictions and red tape on foreign ownership, which generally don’t apply to permanent residents. That green card also allows you to open up U.S. financial accounts, instead of relying on intermediaries. In the event of legal trouble, as a resident you have more and easier options to sue the other party in your local jurisdiction instead of being forced to rely on contractual arbitration clauses.

A rainfall of opportunities

Hopefully, this advice have sparked your creativity and relieved some of the stress caused by recent changes in the industry. The times are a changing, but the sky is far from falling. In fact, it’s raining opportunities to rope in a new breed of well-heeled clients. No matter how frustrating it is to pivot and adapt our pitches for a new and more skeptical audience, don’t forget that the incredible value of a green card for Middle Eastern investors hasn’t changed. Which means that any company that can work around the obstacles and better communicate that value to investors will not only survive, but thrive as they stand head and shoulders above the competition in this more challenging environment.

Notes:

[1] Emirates Investment Bank. (2018) GCC Wealth Insight Report 2018. P. 25. Retrieved on 12 December 2018 at: https://www.eibank.com/assets/pdf/GCC_Wealth_Insight_Report_2018.pdf

[2] US Customs and Border Protection. (2017, June 28). Can a U.S. lawful permanent resident leave multiple times and return? Retrieved on 12 December 2018 from: https://help.cbp.gov/app/answers/detail/a_id/820/~/can-a-u.s.-lawful-permanent-resident-leave-multiple-times-and-return

[3] Sheng, E. (2017, January 26). New proposal seeks to raise minimum investment for EB-5 visa. Forbes Online. Retrieved on 12 December 2018 from: https://www.forbes.com/sites/ellensheng/2017/01/26/new-proposal-seeks-to-raise-minimum-investment-for-eb-5-visa/#4ca2decd2ee1

[4] Maceda, C. (2018, November 26). Why 38,000 multi-millionaires move to the UAE. Gulf News Business. Retrieved on 12 December 2018 from: https://gulfnews.com/business/personal-finance/why-38000-multi-millionaires-move-to-the-uae-1.1543228628312

[5] Emirates Investment Bank. (2018) GCC Wealth Insight Report 2018. P. 31. Retrieved on 12 December 2018 from: https://www.eibank.com/assets/pdf/GCC_Wealth_Insight_Report_2018.pdf

[6] Emirates Investment Bank. (2018) GCC Wealth Insight Report 2018. P. 34. Retrieved on 12 December 2018 from: https://www.eibank.com/assets/pdf/GCC_Wealth_Insight_Report_2018.pdf 

Abbas Hashmi

Abbas Hashmi

Abbas Hashmi is the CEO and Founder of Green Card Capital LLC, an EB-5 consulting firm, which serves High Net-Worth Investors from offices around the globe. He is a licensed registered representative with a U.S.-based FINRA member broker dealer.

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