How developers should measure a project's economic impact to secure EB-5 funding, with Michael Kester -

How developers should measure a project’s economic impact to secure EB-5 funding, with Michael Kester

EB-5 developers must prove positive economic impact both to secure funding and maintain compliance for investors. How should EB-5 developers prove positive economic impact, and what types of projects are (and are not) happening today with EB-5 funding? Michael Kester, lead EB-5 economist at Impact DataSource, joins host Ali Jahangiri to discuss these topics and many more.

Michael Kester: There are many counties that are part of MSAs that don’t have huge urban centers. They’re just connected to a big county with a big principal city, and they share in economic activity.

Ali Jahangiri: This is the Voice of EB5 by EB5 Investors magazine. Each week, we sit down with experts in the EB-5 investment space to get valuable insights and the latest EB-5 news. Welcome, everybody, to the Voice of EB5. We have a special guest here, Michael Kester. He’s been doing this at Impact DataSource LLC for over ten years. He’s been building it and he’s a partner in the firm. Michael is a friend of mine because we always talk about jobs, and jobs seem to be the forefront of the EB-5 industry. Also, I’m a big fan because we have a tool together. We use the checker, which we will go over in detail on this podcast. Michael, welcome to the Voice of EB5.

Michael Kester: Thank you very much, Ali. Happy to be here.

Ali Jahangiri: Michael, I probably butchered your background, as I usually do. Please give the public EB-5 world here a background of why you are such a famous and well known economist in the space. And one of the best, please.

Michael Kester: Sure thing. Yeah. So now you got it right. I’m a partner here with Impact DataSource. We’re a 20 year old economic research and consulting firm. We’ve been in the EB-5 space for ten years now. Worked on over 500 economic studies and helped out with thousands of certifications as well. And like you said, besides our client work, we’ve tried to keep the industry up to date with the latest information and data. I think we were the first one to have the map, which has now evolved to the app that you were mentioning Ali and EB5Investors are nice enough to co-sponsor with us. So we try to keep that tool as up to date as possible along with all of our, you know, the client work that we do.

Ali Jahangiri: Since you brought up the checker, Michael, I was just messing around with it the other day with Vicky and we noticed that there’s a difference in Checker and the other one out in the market. I don’t want to say ours is easier, but it was kind of easier for me to find what I needed, which is really your checker is not, it’s not ours really. Yours is that we co-brand, right? Why is it that the data pops out differently? And why is the user interface so different? Is it something you created? How did you create this thing?

Michael Kester: Our firm, we have a couple of full time web developers on staff that work on the non EB-5 side of our business and was able to convince my partners to pull them away from our other work to help me out with this. So once the new law came into place, that really changed the rules of the game and limited the high unemployment activity to only the directly adjacent census tracks. So, you know, under the old law, we could group together census tracks from far, far away from the project track as long as the state was okay with it. Previously, the states were were the final certifiers of TEAs. The new law has taken the states out of the equation and limited the census tracts to only directly adjacent census tracts. So so that really limits the possible calculation. So we tried to really simplify the user interface to make it really quick and instantaneous and do all of the possible calculations that might be done based on these new restrictions. So we tried to make it really nice, really clean, spit out an easy result and also have some nice interface where the user can kind of click back and forth on multiple methods really easily. And also the rural aspect of the program is now much, much bigger than it used to be due to the the rural benefits as well. And our app will also kind of just hit you right, right in the face with the big rural success message. If you happen to land in a in a rural spot as well, which is a key part of the new.

Ali Jahangiri: I was playing around with it. So where’s your data? When is a source from – is it a recent data? Is it a year old data? How old is your data on that checker?

Michael Kester: Yeah, with all the changes to the law and the program and everything and the uncertainty with USCIS, we try to update it as quickly as we can as possible as soon as it comes out, because for best practices, while USCIS hasn’t provided a ton of guidance on this, when you make your your filing, your 956 filing, which is kind of the new key date where the really comes into play, when you make that kind of exemplar filing, you want to make sure that your team is using the latest data. So we really try to update as quickly as possible. The most recent data update was in April and we got it out, try to get it out same day to the industry. So while the data itself on the census track side is a little lagged because the government doesn’t put out instantaneous census track data, our app is updated with the latest possible data that you can use and it has multiple methods to look at that we think will accept some different methodologies. So we kind of check every angle to see if it might work.

Ali Jahangiri: Is the checker run by a certain type of analysis or a back end data source?

Michael Kester: Yeah, put together the back end data and then give it to our developers who incorporate it into the app. The data we use is American community survey data and then also Bureau of Labor Statistics data and USCIS has said that they consider both of those sources to be reliable and verifiable. So we utilize that data in a couple different methodologies on the app to check every kind of because with the new limitations of only using directly adjacent tracks, we try to provide an analysis of any possible reasonable way to – so our users can take that result and have a discussion with their economists, attorneys and other stakeholders about it.

Ali Jahangiri: So would you say it’s like a soft yes versus a hard yes? Then you have to check it with the economists.

Michael Kester: I usually don’t have when my clients say, yeah, this looks good on the app. It’s good to have your economist check it as well. And just because there might be some other little nuances you want to say just because of the way the laws are written and the fact that is still not put out their regulations or the new law, not much guidance. But when the app says, yes, it’s a very, very good start for sure.

Ali Jahangiri: That’s good. So what’s the URL for the map in case someone’s listening in the car and they don’t know?

Michael Kester: Sure. So you can go to either or to to catch that. And it works great on mobile as well.

Ali Jahangiri: And we are now going out with a link now from all of our pages now to this so that people can access this. I’ve been told that you got to make it easier all these so the team is going to make it easier to access. So that’s the TEA map is a very useful tool. You put in your information and you figure out if it’s a or rural area. Now let’s jump to the more technical part of this as jobs. Michael, a lot of times people say, hey, there’s a buffer, there’s not a buffer. Can you explain what a buffer is, a job buffer and explain why it’s even needed?

Michael Kester: Sure thing. So to kind of back up a little bit with the new law, while we do have some different requirements that we need to consider for the economic studies, there’s new kind of direct job requirements that are in the new law. But then the new law also says that we’re able to use reasonable economic methodologies to satisfy these new direct job requirements. So we’re you know, we’re interpreting that to mean that the we can still utilize the model derived direct jobs from both the construction side and operations side to satisfy these new requirements. And that’s the biggest key overall assumption. So from a practical standpoint, there’s really not a huge difference in the economic studies from the old law jumping to the new. Now we do have to incorporate some of this new language. So when you bring up the idea of a jobs buffer, so say you have a report where I say that this product is going to create 100 jobs, theoretically, you could get ten investors, you have to have ten jobs per investor. But when you go out to market, your investors are going to want to see that. What if questions something like this? What if the product doesn’t quite go as planned and that 100 jobs could drop down to 95 and that that 10th investor would be in trouble and that’s what you want to avoid. So having that cushion and say with 100 jobs and you only go out and get 6 or 7 investors and you have a good 40% cushion, 30% cushion, etcetera, then it helps you mitigate any possible issues from a an unpredictable USCIS or things that might not go as planned with the project. And we’re seeing again, it’s a wide range. Some projects will go out and have 100% cushion. They’ll have twice as many jobs, while some projects will go out in 30%. So it’s a wide range and it kind of depends on the specifics, the job creation, how much EB-5 a project might need.

Ali Jahangiri: Has that ever happened where the USCIS comes back and says, hey, sorry, we don’t think that many jobs happened? Here’s the new number.

Michael Kester: Yeah, definitely. And especially so once, you know, USCIS approves the project early, it’s later down the road at the 829 stage where you have to prove up those jobs and show that they actually happen. So your initial projections are based on your projected construction expenditures for your typical EB-5 project and your projected operational revenues down the road. You need to show those expenditures happened, those revenues happened.

Ali Jahangiri: So you’re saying like maybe their revenue doesn’t hit that number and they don’t make enough jobs, right?

Michael Kester: Exactly. But a lot of projects will not even rely on operations jobs. They’ll just have those as cushion. So if the project gets built, then the jobs are there for all their investors. But some projects will need those operational jobs for how many investors they have, and that’s where that cushion or smaller cushion might come into play if things don’t quite go as planned.

Ali Jahangiri: So most likely what will happen is when there’s a rejection is that they don’t hit their operational budget numbers or do they not hit their construction budget.

Michael Kester: It can depend on the project what their initial projections said. We’re going to spend 50 million in hard construction. The report was based on that. But with Covid, some projects have hit snags and say they only they were only able to build. Maybe it was a two buildings and they were only able to get one done. You know, when they said they were going to get two, then they could potentially be in trouble on that front.

Ali Jahangiri: From my perspective, it usually goes the other way. So usually they say it’s 50 million, it costs them 70 million. Now they’re in trouble, but go under.

Michael Kester: Exactly. So typically, if the project does go to plan, there’s usually cost overruns as opposed to coming in under. From a job creation standpoint, that’s a good thing. Might not be the best thing for the overall health of the project, but from the job creation it helps.

Ali Jahangiri: So okay, so you want a healthy buffer is anywhere between 20% and 50% or 30% or what’s the number?

Michael Kester: Yeah, and again, it’s up to individual projects and investors risk appetites. I typically see not less than 30%. And again, we see as high as double or even more kind of depending on the certain situation. Again, we’re still dealing with some uncertainties with the new law waiting for us to get around issue regulations. We haven’t really started seeing RVs from the new law. And that’s when really lately that’s how they talk to us, is through RVs. That’s how we know what they’re thinking is through the RVs. And I’ve heard of a few RVs on actual projects come back. I haven’t seen any as of yet. So we’re still kind of waiting for that. So as with always, whatever you can do to maintain, be conservative and still achieve your goals is kind of the way to go.

Ali Jahangiri: So going on to the next topic, you and I occasionally chat about jobs and I want to call it LTC loan to cost and how that plays out with projects. Are you seeing that the proceeds with the job creation? So let’s just say the job creation has a 2,030% buffer and the developer is doing a deal and the proceeds for the EB-5 portion, if you call it loan to cost, it comes up to around 50 to 60% of the cost of the project usually. Is there an easier way to do this is my question than to send an email to you. I know hotels create more jobs than construction budgets, but assuming it’s a hotel, let’s assume it’s a hotel. Is there an easier way to do this than to wait a couple days for a jobs analysis? Is there a formula?

Michael Kester: There’s so many moving pieces to it that we can always provide rough guidelines, but the jobs multipliers we use are regional. So a hotel in Los Angeles is going to create a different amount of jobs than a hotel in New York, et cetera.

Ali Jahangiri: Talk about this. So what if it’s a hotel in the middle of nowhere versus New York? What creates more jobs? Right.

Michael Kester: And that again, we don’t know. It depends on the location. So was kind of going to get into how these rural projects, the multipliers, there can be much more unpredictable than some of the urban area projects where we’ve done an analysis for them for years. We kind of know where the multipliers are going to go. So like you’ve asked me to do some back of the napkin calculations for some rural projects where didn’t already have these types of multipliers in my database. And I’ll kind of tell you, Hey, here’s my here’s my kind of rough, educated guess, but until we order the multipliers, we won’t know for sure. So let me know if you want to go ahead and order them and we can refine it a little bit.

Ali Jahangiri: So variance. What’s the variance of the multipliers you mean?

Michael Kester: They can be big a plus or -50% or more depending on. So we can try our best educated guesses, but in the end it’s usually best to kind of go ahead and order the multipliers to see. And again, yes, I mean, each project has its own kind of needs for the capital stack. Each project has its own risk tolerance for how much cushion they want to see, etcetera. So yeah, I mean, we’re seeing EB-5 typically end up somewhere between 30 and 50% of the overall stack. In the end, some are going a little bit more aggressive and going higher, some are going even lower. I’ve seen some projects still kind of just hit that 20, 25% EB-5 as the overall capital stack. And again, so, you know, a lot of different limiting factors. The job creation is the limiting factor kind of what their investors are wanting to see as well. Investors aren’t going to want to see that EB-5 is making up 90% of the overall capital stack. Right. So just some things like that to consider.

Ali Jahangiri: Yeah. So the multipliers, you’re just – you kind of briefly mentioned them. So let’s consider a hotel in Utah. In a rural area of Utah compared to a hotel in Los Angeles. So, Los Angeles versus Utah. So give me an example of what you think a difference in multiplier would be a jobs multiplier if you do a deal there versus a deal in LA.

Michael Kester: Right. And again, there’d be a lot of potential factors. We, for a rural project in Utah, we would probably kind of lump in Salt Lake City into our overall kind of impact area because a rural project in Utah is probably going to rely on labor from Salt Lake, materials from Salt Lake, that area and the surrounding area. So by being able to bring in that on the rural side, I would anticipate that that project might have a similar overall multiplier as LA. Again, we wouldn’t know for sure until we got the multiplier.

Ali Jahangiri: So yeah. So does this mean the multiplier is higher when it’s closer to a metropolitan area or is it?

Michael Kester: Well, it can be. It also cannot be like the multiplier is in New York overall. Say for construction are much lower than the Dallas metro area because the Dallas metro area has more overall suppliers, materials, economic activity related to construction as opposed to the New York metropolitan area.

Ali Jahangiri: So you’d rather have a deal in Dallas because you get a higher jobs count than New York?

Michael Kester: Well, it depends. Again, it depends on how many investors you’re looking for and how much cushion you want. So a lot of moving factors there, but on a strictly multiplier basis for that industry. Yes. And then also there’s projects, EB-5, that we see a lot of different projects in manufacturing, not just the kind of the real estate construction based projects. And that’s when you can really get into some really interesting job counts and the multipliers, because then you the manufacturing from an operations standpoint, those can be very kind of all over the place from region to region.

Ali Jahangiri: Okay, so manufacturing is different. And have you ever done a jobs count for like a marketing business or something totally unrelated to real estate and manufacturing?

Michael Kester: Yeah, we’ve done a lot of non-standard reports and that’s when you kind of get into. Yeah. And that’s when it’s, when if you told me you brought me a very non-standard project, I’d tell you, look, we need to order these regional multipliers so I can do a deeper analysis. I wouldn’t trust my back of the envelope. Random rough guess if I didn’t have the actual multipliers for that non-standard project in front of me.

Ali Jahangiri: But in general, the cheaper the labor source, the more jobs it creates versus like a firm that hires lawyers or someone that’s more expensive.

Michael Kester: It can be. The thing with the models is that while the EB-5 program is geared around full time jobs, the rims to model and other economic models don’t distinguish between full time and part time. And USCIS has been okay with that on the regional center side. So that’s why you’ll see very high multiplier jobs multipliers operationally for a restaurant, even though it’s relatively not the highest paying of jobs, but there’s a lot of part time jobs kind of built into that multiplier. So the model simplifies it things down to a one multiplier per industry for what we’re looking at. But a lot of behind the scenes calculations going into that.

Ali Jahangiri: Very cool. So let’s just do a play hypothetical. What kind of thing have you seen create the most jobs? So you’re you must have played that game where you’re working with the software and you’re like, Hey, let me try. Let me try a restaurant in blah, blah, blah, or what type of business and what location would create the most jobs.

Michael Kester: You know, talking about an operational perspective, biggest job creating projects I’ve seen are the manufacturing projects, not necessarily because the operational multipliers are super high, but because their overall revenue projections are very high. So when we model operationally, typically on the regional center side, we – instead of looking at boots on the ground, direct job estimates – we look at, we use revenue as the input into the model. So there’s the multiplier and then there’s the revenue estimate that are combining together to get us this final job creation total.

Ali Jahangiri: And it’s so they’re both indirect jobs. The construction jobs have an indirect component and then the revenue jobs have an indirect component as well.

Michael Kester: Right, Right. Yeah. Operation. So we’re able to pick up through the regional center model, the total package for both construction related jobs and operational direct, indirect and induced for both. Now, in the eyes of USCIS, they’re all indirect. But from the economic model side, there we break them out into the direct, the economically direct and indirect and induced.

Ali Jahangiri: What impact did the RIA have on direct induced and indirect?

Michael Kester: Sure. So that’s kind of as I was speaking to you earlier, from an overall practical standpoint, it seems not much because they did say that we are limited for. So they’ve we’ve always had this kind of two month construction period cut off where under the old law, a construction project that was over two years could pick up the model derived direct piece. But if it was under two years, you couldn’t put you could pick up zero of the model derived direct piece. Really one of the biggest changes to the new law, which has been really a gift to the industry I think for under two year projects, is that they the new law says now we can ratio. Out for an under two year project, that direct job component. So if you had a 12, a smaller 12 month project for like a small hotel or a small multifamily, under the old law, you could get zero direct jobs on the construction side, you could only pick up the indirect and induced. But the new law says, oh, we can take 12 divided by 24, take 50% of that direct piece from the model and which can be a really big amount for these smaller projects. So that’s really been from a practical standpoint, that’s really been the biggest overall change. I think from the old law to the new law.

Ali Jahangiri: That’s huge. I didn’t know that. How about folding back the envelope a little deeper here? If you end up finishing construction, does that mean because there’s a lot of – sometimes your tenant improvements take an extra three, four months, five months, and then does that mean the time you get the occupancy certificate when you finish construction or does it mean when you are done because you can really stretch this direct thing out a little bit?

Michael Kester: Sure. That’s a good question. And I personally have not seen any good guidance from USCIS on this issue, but I also haven’t really seen them digging too much on the topic. But then this kind of harkens back to our cushion discussion where I feel like on a project that had very small cushion but was right around this two year cutoff or needed this extra timeline to get those jobs might dig in a little more. But for most projects, in the end, it probably doesn’t have a huge impact because of the cushion that they’re moving forward with. But in the end, I haven’t seen USCIS provide really good guidance. What I’ve kind of gone by and what I’ve kind of thought it was a general rule of thumb was groundbreaking. Two certificate of occupancy is kind of the general timeline. But you know, especially there’s always delays with Covid. There was major stoppages. So I’ve told my clients that that are really need to make sure that if we’re the timeline could really come into play, that, hey, these are potential things you could dig into if they wanted to. We don’t know that they will. But yeah, kind of this certificate of occupancy or sorry, groundbreaking to the CEO is kind of a general rule of thumb. But the new law has made it not quite as important, especially for the smaller projects, because previously for like a project that said, Hey, we’re going to be right at 24 months, if they ended up at 20 months, then they would have been had zero direct jobs, but now they would pick up 80% of that direct job under the new law because they could still pick up the 20 divided by 24. So the new law has really helped out that that aspect of it.

Ali Jahangiri: So you say there’s 20 months, but so the 829 stage, are they looking at the payroll and they say, wait, your payroll for construction is started here because construction may not be payroll, you might be just paying a GC. So when you’re a GC on another entity, are they looking at that GCS payroll to see when the job started or are they just looking to you paying the GC? What’s the evidence proving the jobs are two years?

Michael Kester: That’s a good question. There’s no good guidance and that the 20 stage you know, I think the immigration attorneys have a lot of different ways to try to show things. And so they’ll show whatever evidence they can about overall construction. But the adjudicators, they’ll Google find news reports on, oh, there was a groundbreaking ceremony for this project here. And then see, oh, hey, this project was severely delayed. And that’s really a lot of the fees we see now are look, we see this is hey, we see this project is delayed. And so we don’t consider the business plan to be compliant and the economic studies using the business plan. So we don’t consider the economic study to be compliant. So provide us an update on the project. And these are the types of things that will come into play at the 829 stage as well.

Ali Jahangiri: So do you see yourself pretty active in the 829 stage or do you see yourself more active in the beginning?

Michael Kester: Definitely more on the on the beginning side. It’s just the 829. We’re yeah, we’re always being brought in for 829 and it’s like, oh don’t, we did this. We worked on this project eight years ago and you have to dig back into the economic studies, but we’re certainly active with 829 reports. But the majority of our work is the new projects and the new files.

Ali Jahangiri: Someone hires you for an 829 support. Is it an hourly fee? Is it like, hey, I’ve never even heard of – we’ve never talked about this. So how is your 829 work? How does that work?

Michael Kester: Sure, we charge a flat fee and we don’t charge the full fee like we would for a new econ study because the econ study for the project is theoretically already been done and approved. And so really, instead of the using the projections into the model, we’re basing it on actual activity. What was your actual construction expenditures? What was your actual revenues? Now, again, projects have different things pop up. Not nothing doesn’t always go to plan. And so the 829 stage, there can be certainly some tweaks and things that need to be made. Some projects might need to reevaluate the economic study a little bit and try to maybe take it a little bit more aggressive if they need to try to pick up some extra jobs for those final investors if things didn’t go into plan. And USCIS has you know, what I’ve seen, they they they’ve been somewhat flexible. And you say, hey, the original economic study didn’t pick up this type of expenditure here, but they have accepted it in the past. So we’re going to try to pick up a few more line items here that are reasonably job creating to try to get investors where they need to be if possible. So there’s a lot of different ways to try to get more jobs reasonably if possible. It’s not not an ideal situation, but there are some usually some extra things we can try to do to help out if possible.

Ali Jahangiri: Okay. So let’s switch topics a little bit. I’m going over – I think these are hot topics. I’m trying to hit all the hot ones. Sure. Let’s go over regional center expansion. That’s kind of a hot topic because people are like, hey, you know, it’s faster, it’s quicker to get an expansion than a brand new one. So using that as an assumption, how long are you seeing it takes for expansions?

Michael Kester: Sure.I’ve been seeing both new regional centers and expansions get a response in kind of that 7 to 10 month range. From what I’ve seen personally, I haven’t seen. I guess I’d have to kind of go back to the data points I haven’t seen a huge difference on personally on the expansions versus the new regional centers. Again, not a huge sample size because the law is so new, but that seven to kind of ten month range is what is what I’ve been seeing on that.

Ali Jahangiri: So you don’t see a variance between expansion and you haven’t personally? No. Okay. I’ve heard that the expansion is quicker than a new. So. Okay. In terms of the cost. So let’s just throw this out there. So we’re thinking 7 to 10 months on timeframe. Let’s talk about general cost. It doesn’t have to be your cost could be the total picture because you need an immigration lawyer to file the 946. And I believe you need another document. You need a business plan and you need the Econ report. Right, for an expansion.

Michael Kester: Yeah. And then the filing fee, which is that almost 18 grand right now and potentially going up as well. So, no, that’s kind of on everyone’s mind.

Ali Jahangiri: Let’s call it 18 grand as of today. What are you looking at for ballpark? And this is not to pitch your services. It’s more for like people to know what that’s going to cost for expansion all in including the filing fee.

Michael Kester: With everything all in, you’re going to want to look around that kind of 65 to 75,000 expansion. Yeah. Or for a new regional center as well.

Ali Jahangiri: For an expansion?

Michael Kester: Well, a lot of it depends on how big are you looking to expand.

Ali Jahangiri: Yeah. Mike, let me because I take these calls all day long. Let’s give you an example. So a client of mine, let’s say, owns a Wahoo at a Hawaiian island, and they want to combine all the Hawaiian islands as a part of a bigger picture. Give me an example for that. For example, how much would it cost to take the island of Oahu and expand it to the multiple islands of Hawaii?

Michael Kester: In my opinion, that would really only take one project to put forth because Hawaii is kind of out there on its own. It’s kind of an isolated area with a lot of economic activity kind of being recycled among the islands. So think would fall in the more simpler range of an expansion requiring only one project to do and would fall kind of all in total, maybe 65 to $75,000 range, including the filing fee with everything.

Ali Jahangiri: Okay. So filing fee plus econ and all that around 65.

Michael Kester: Business plan, the immigration attorney work and everything like that.

Ali Jahangiri: Let’s make another example then. So make it a little bit more difficult for you. Regional Center in Orange County. Let’s use Orange County. One county, one trick pony here wants to expand to the state of California. Sure. What are you looking at there?

Michael Kester: Yeah, that’s when you’re going to need to analyze more projects. California has a lot of different metro areas from and rural areas from south to north. So that one would it’s going to require more business plan and economic study work. So there you’re probably looking at a little bit higher total of around the all in maybe the 82 to 90 perhaps on that requiring the extra.

Ali Jahangiri: Work with the 18 grand filing fee.

Michael Kester: Including the filing fee. Yeah.

Ali Jahangiri: So in your world that doesn’t really cost that much more to create a new one than expansion.

Michael Kester: No, it all depends for what we’re doing on the economic study side to justify the area. It’s really about how much are you trying to grab at that time, whether you’re expanding to a whole state or you’re trying to start a new state. It’s the same idea. You’re trying to get USCIS to approve new territory.

Ali Jahangiri: Okay, perfect. We’re knocking out these hot topics by Michael Kester. So I don’t know if I’m hitting all the hot topics, but is there another hot topic? You know, people are asking a lot these days.

Michael Kester: Yeah, for me. And I think maybe we’ve kind of touched on just on the idea of data. Timing is really one of the biggest issues for a project moving forward because under the old law. The states. Depending on how flexible the state was, we would be able to move around and grab census tracks from wherever to make it work. So an area that previously worked stopped working. We could usually add a census track here, drop one here and still get the state to sign off on it. Now, since we’re limited to only these direct the directly adjacent tracks, we don’t have a lot of options if one area works and then all of a sudden it doesn’t, then we don’t really have a way that to save it because we’re limited to just those tracks around it. So it’s very important for one of the nice things to counteract that with the new law is that the new law says that which the old law did not, that A is good for two years and for regional center projects, it’s good for two years from the time the 956 is properly filed, according to the policy manual that USCIS put out. So that’s good. So even if you’re analyzing a TEA and thinking it might fall out six months from now, but you’re able to put together a good nine, five, six, try to get it filed before that data might change, then you should be locked in for two years. You’re able to leverage that two year lock in period. So and with the different high unemployment methodologies, data kind of comes out in December and also comes out in April. So there’s two main times of the year where that data can potentially change depending on what methodology you’re using. On the rural side, it’s much more stable. But the rural county listing the government will update that from time to time. And I’m actually expecting an update here sometime soon. And so which will be big for the grandfather.

Ali Jahangiri: But you grandfathered in when you file the 956.

Michael Kester: Then you’re good for that two year period so right. Yeah. Two years according to the law.

Ali Jahangiri: So tell everybody – tell everyone what the rule again is. Is it 20,000 non MSA. Let’s go over this rule so that people understand what it is.

Michael Kester: Sure. So on the rural side, the new law didn’t change anything related to rural TEAs. It’s been the same for however long I’ve been in the industry and before that much, much longer before that as well. So it’s two criteria. You know, a lot of my clients will ask me, Oh, this isn’t a really small town, is it rural? I’m like, Well, no, because it’s attached to a metropolitan statistical area. So the very first key is you have to be outside of the metropolitan statistical area, the MSA. And so some MSAs are very small. Some some MSAs, like the New York City MSA are are huge, are 25, 30 counties. And so while for all practical purposes, those areas do have what you would consider a rural area, if you were looking at it, it won’t be rural for USCIS purposes, for EB-5 purposes, because it’s part of the MSA. So if you’re outside of an MSA, that’s a good first step. That’s usually the main first step to to clear. The second step is you need to also be outside of a town with 20,000 population based on the most recent decennial census. The good news is 2020 census just came out, so we don’t need to worry about any population changes for another eight, nine years down the road. So that’s good. So you can kind of rest easy for a while.

Ali Jahangiri: Let’s look at the MSA. I can understand it’s either an MSA or it is not. And let’s look at the town thing. So let’s say you’re looking at a town. Let’s use a town, a small town, but a town over 20. Give me an example of a town. Over 20,000. Sure.

Michael Kester: So for I’m trying to think of a good a good county that is rural. You know, I’m in Texas, so it’s probably not that well known to to everyone out there. But Kerr County, Texas, which is west of Austin, west of the Austin MSA, Kerr County is outside of an MSA, but Kerrville is a town. They’ve got a big folk festival, music folk festival for anyone who’s interested is over 20,000 population. So Kerr County itself is rural except for anywhere within the city limits of of Kerrville. So that’s kind of that’s kind of how it plays out. So if you see these counties will kind of have these little outside of an MSA, typically most of the counties, if they do have an over 20,000 population city, they only have one of them. So there’s just this one kind of defined area that is not rural while the rest of the county is outside of that of the city limits of that city or town.

Ali Jahangiri: So could it be that this town has like 100,000 people and it’s still rural outside of the boundaries of the city?

Michael Kester: No, because based on the MSA guidelines, the way they develop MSAs are if you have an urban center over 50,000, you’re automatically going to be put in MSA.

Ali Jahangiri: So the federal MSA is a federal thing like a National put out by the Office of Management and Budget.

Michael Kester: And like I said, the last time they updated the list was three years ago. So I’m kind of very interested to see when they finally release this updated list, there’s going to be some certainly interest throughout the EB-5 community on some counties are going to be nice and become rural because they might get dropped from an MSA, but some that some that are going to get added to MSAs. And so it’s going to be it’ll be interesting to see how they how they how they end up changing. And again, there might typically from year to year, once they make the the initial list after the census. So think. Creating some decent changes to this first list that comes out here, I think maybe in the next couple of months. And but after that, the yearly tweaks up until the next census shouldn’t be too, too bad. Don’t think think it’ll just be a county here or there.

Ali Jahangiri: So let let me just kind of do a summary for everyone listening. So first you ask, is it outside of MSA? Yeah. And if it is, then you look at that county and if it’s outside of a city that has a population of 20,000 or less or could be 50,000 or less because it’s not an MSA, right? So 40,000 could be a city of 40,000 or whatever, as long as it’s outside of the city, in the city limits in that county, it could still qualify as rural, correct?

Michael Kester: Correct. Yep. As long as it’s outside of an MSA and outside of that, that bigger 20,000 population, city or town, then, yeah, then it should be okay. Okay.

Ali Jahangiri: Is there a third rule other than that or that’s just the two rules?

Michael Kester: As far as now. I mean there is these carve outs for for infrastructure projects as well. I’m not sure if anyone knows exactly what that means. Don’t know if USCIS has come out and said exactly what an infrastructure project. Obviously there are some projects that are so clearly infrastructure that there shouldn’t be any any question. But those are the main the main ideas are still the high unemployment and the rural side.

Ali Jahangiri: So the MSA essentially takes all the cities over 50,000 and draws a circle around them basically is what it does.

Michael Kester: And more or less but like I said, they distinguish it based on commuting patterns as well. So you’ll have a county that has a lot of economic interactivity with the main MSA county or the what they call the central county of the MSA, but it’ll also be added to the MSA because it has such, like I said, economic interconnectedness through commuting patterns, etcetera. So wish I had more time to do like if I had more time to do some analysis, I was going to try to guess and see, follow the OMB guidelines and see can I guess who’s going to get added and who’s going to get dropped. I unfortunately don’t have time for that these days, but we’ll just have to wait and see until they till they bring it up. But just because there are many counties that are part of MSAs that don’t have huge urban centers, they’re just connected to a big county with a big principal city and they share in economic activity.

Ali Jahangiri: So that’s a great resource, Mike. So this is the time where you hear the music say, you know, listen to the or what? What’s your site called?

Michael Kester: Yeah, same except just to Impact

Ali Jahangiri: Impact So this is going to be a big push for us pushing this map that I think Michael has nailed down in many ways better than any map out there. Michael, one last question I got to ask you, and this is more of a semi pitch to your business. Are you just doing the econ reports? Are you doing business plans as well and other things?

Michael Kester: Sure. So right now we’re pretty busy with just the Econ studies and the TEA work and new regional center applications and things like that. So right now I’m not doing too many business plans. We have done them in the past, we’ve done many over the years. But right now we’re sticking to the econ studies.

Ali Jahangiri: You’re a one stop shop, Michael. Everyone always says just talk to Michael.

Michael Kester: Well, that’s the thing. We’ve got plenty of colleagues in the industry that can that can help you out. So if you need to come to me and we’ll get it done for you and you’re able to quarterback those, right?

Ali Jahangiri: You could get the business plans quarterbacked.

Michael Kester: Yeah, correct. So people can work through me and we’ll all work with either one of my kind of old contractors or with another colleague in the industry to get it done. And you can just roll it all through me.

Ali Jahangiri: Yeah. So you are a quarterback in that way. And I hear the commercial going and Tommy waving. I’m glad I did your interview myself, Michael, and I hope to see you soon at one of our events or abroad.

Michael Kester: Yeah. Thanks again. This was fun.

Ali Jahangiri: This has been The Voice of EB5 by EB5 Investors magazine. To learn more about this episode, please visit To stay up to date with the latest EB-5 discussions, be sure to subscribe to the show wherever you listen to the podcast and if you like the show, please consider leaving us a five star review. It helps us out a lot. See you next week.