How States Are Creating Economic Vitality with EB-5 -

How States Are Creating Economic Vitality with EB-5

Pine State Regional Center’s CEO, Sebastian Stubbe, joins host Ali Jahangiri to talk about the opportunities EB-5 investments are providing with job-creating projects across multiple industries and sectors, particularly construction, manufacturing, and infrastructure in Arkansas.

Sebastian Stubbe: Now that the United States has become more focused on developing manufacturing or I should say, redeveloping manufacturing prowess, we actually can be a lead in high grade manufacturing again. And the rural areas are ideal for this. You’ve got their very central great transportation networks, great highway systems, rail systems, cheap and abundant energy and great workforces. So when we work with an EB5 investor, we spend a lot of effort trying to get them to really think differently about the world. Rural It’s not agricultural, but rather we want them to picture a high tech Tesla plant or a Panasonic battery plant or a micron chips plant or an electric vehicle plant of some sort, or, as most recently, a state of the art world leading high grade steel plant.

Ali Jahangiri: This is the voice of EB5 by EB five Investors magazine. Each week we sit down with experts in the EB five investment space to get valuable insights and the latest EB five news. Welcome to the Voice of E! Five with Ali Jahangiri. You’re your host. I’m excited to have Sebastian Stubbe, CEO of Pine State Regional Center with us. Hi, Sebastian.

Sebastian Stubbe: How are you doing, Ali?

Ali Jahangiri: I’m doing great. So a little background about Sebastian. Sebastian spent 25 years in alternative investments. He’s currently the CEO of Pine State Regional Center. You guys may have heard of. And prior to Pine State, he was in the institutional world. I had learned about this from Sebastian recently, actually, when I was hanging out with him, I believe it was in What city was it, Sebastian? We just saw each other.

Sebastian Stubbe: I think the last was Miami.

Ali Jahangiri: Miami? Yes, Miami. You were just telling me about how you’re managing a portfolio. So Sebastian manages $700 Million Alternative Investment portfolio in New York with Landmark. He was providing value oriented funds of funds and managed many office accounts for family offices and endowments. Previously, Sebastian was a part of Salomon Smith Barney, and he has a background of having institutional knowledge. I know it’s kind of fun fact here with Sebastian received MBA from Columbia Business School, which is pretty awesome. And for fun. I know he’s a big foodie and loves to hang out in Shanghai restaurants where I usually hang out with him. Sebastian, welcome for the Voice of EB5.

Sebastian Stubbe: Thank you for having me.

Ali Jahangiri: Ali Absolutely. We’ve known each other for a while now and glad we’re doing a formal podcast or perhaps informal, but I do want to do you have a few questions that our team has put together to ask you? Sure. And it really involves Pine State and kind of what you’ve been doing these last last few years, focusing on your projects. So tell us a little bit about Pine State and the Other Cities is a part of an economic development corporation that you call trustee led nonprofit organization. What is that exactly?

Sebastian Stubbe: Yeah, we’re a little bit different than most regional centers. We are part, as you said, part of something called an economic development corporation and quite a bit older than really any other regional center out there. We were founded in the 1950s by Winthrop Rockefeller and other business leaders in the southern part of the United States, and an economic development corporation, in essence, operates as a nonprofit. So we were set up to focus on economic activity and quality job growth, in particular in what we call the southern heartland. And as you can imagine, that’s largely rural and has been very disenfranchised area for the past half a century, ever since kind of the agrarian economies went elsewhere. And so this economic development corporation has been working really closely with state and municipal governments in all these southern states that we are active in economic departments as well as federal agencies. So any time there’s a government program that is focused on driving economic growth will be a sponsor. So we don’t just do EB five, we do things like new market tax credits, small business lending, venture capital, but of course also EB five, really any program that is focused on quality job growth.

Ali Jahangiri: So I’m hearing this nonprofit does I mean, your regional center is nonprofit.

Sebastian Stubbe: It is. We obviously make a lot of profit that gets recycled right into the next project or the next program, right? So as an organization, we do operate, as you mentioned earlier, we are trustee LED, so we’re not a shareholder organization with board of directors. Really. We have a board of trustees. These are made up of some of the top business leaders in the south where headquartered in Little Rock, Arkansas. But we’re also active in places like Tennessee and Missouri and other southern heartland states. That’s our footprint really is that rural heartland.

Ali Jahangiri: So your regional centers, nonprofit. But how about your NC? Is that nonprofit as well?

Sebastian Stubbe: Yes. So the NCC obviously generates a profit, a cash flow profit. But as an organization, we then rather than distribute that profit, we then use that to make new investments. So it’s kind of a never ending cycle to hopefully create more and more economic activity, more quality jobs in all those areas where we are active.

Ali Jahangiri: Okay. So on to the next question. Pine State has been in rural from day one. How did that happen? Is that just by accident?

Sebastian Stubbe: Little Rock is obviously a city, but surrounded by rural regions and rural areas. Our footprint is really the formerly agrarian areas that now that the United States has become more focused on, on shoring and developing manufacturing, or I should say, redeveloping manufacturing prowess, high grade manufacturing, not kind of we’re never going to compete with low end manufacturing. That’s happening in other parts of the world. But it has turned out, as the US has discovered over the last decade, that we actually can be a lead in high grade manufacturing again. And the rural areas are ideal for this. You’ve got their very central great transportation networks, great highway systems, rail systems. We do a lot along the Mississippi River, which is obviously a fantastic transportation artery, cheap and abundant energy and perhaps most important, great workforces that are available. So when we work again, let’s say with an EB five investor, we spend a lot of effort trying to get them to really think differently about the word rural. It’s not agricultural, but rather we want them to picture a high tech Tesla plant or Panasonic battery plant or a micron chips plant or an electric vehicle plant of some sort, or as most recently, a state of the art world leading high grade steel plant. All those types of things are really perfect for the rural areas where we’re active.

Ali Jahangiri: So back to the rule questioning now that there’s new set asides, what are the set asides do? Sebastian, If you’re educating the public or a lot of people that listening to this podcast, I actually it’s funny, I get a lot of emails about the podcast. People listen to it, so I think they’re learning, which makes me happy. But so tell us a little about what that rule means.

Sebastian Stubbe: Yeah, I mean, backing up even before getting into rural for purposes of your audience, last year, the regional center program was overhauled by Congress, right? So they introduced this RIA, the Reform and Integrity Act, and there were a number of things in there, some of which you might want to touch on separately that related specifically to reform and integrity of the program and really weeding out less professional players, etc.. But there was also a very significant aspect of encouraging capital to flow to the most disadvantaged areas of the United States, rural, generally speaking, and it’s defined very specifically as to how far from a city you are or how far from a metropolitan statistical area, etc.. Rural investors are given extra incentives in this new law, and there are really two very specific ones. One, as you mentioned, are these set aside visas and as I’m sure many of your listeners know and perhaps even have experienced themselves, there are backlogged countries. Right. And some of these countries are deeply backlogged and some of them are kind of flirting with retrogression where they kind of go in and out. But either way, a backlog basically means there is not a green card available in that given year. And then you have to kind of wait for the next batch of green cards and hope that your country then gets a new allotment that hopefully your current so that you actually could get one of those. But if it’s not the case, there is this set aside category. So 20% of all the visas every year have to be set aside for rural investors.

Sebastian Stubbe: But until now, much fewer than 20% of investors have actually chosen rural projects. And so it’s almost like a new lane on a congested highway where everyone’s kind of tired of sitting in the three congested back bumper to bumper lanes. And then suddenly there’s a brand new lane that opens up where you can pop. Certain people are allowed to pop over into that lane. It may come to the point where that lane too will get congested, but because of the rollover feature, any unused set aside visas rollover to the next year and none were used last year. So in fact, right now the industry is sitting on a very large amount of set aside visas, and that simply means that you don’t have to wait once you get approved. There’s a visa there right away and there’s no wait time. The second aspect is this prioritized processing, which simply means, just like it sounds, the USCIS is obligated by statute to prioritize the 5 to 6 e filings from any investor who chose a rural project. And so for those investors who are in a rush either to, let’s say they have an age out issue within their family, one of their kids or some other family specific time pressure processing can really be a big thing. And even for non retrogressive countries, even for non backlogged countries, processing has been incredibly slow. So the idea that there’s prioritization there will certainly be attractive to investors.

Ali Jahangiri: Thanks for that explanation. You got into pretty deep area here. So tell me a little bit about the high tech manufacturing EB five projects in the rural areas. Is that what Pine State is doing, high tech manufacturing?

Sebastian Stubbe: We’re actually in the process of launching a manufacturing project right now that will be the world’s most advanced high grade rebar plant, making the exoskeleton for any weight bearing construction. And as of last year, the Congress passed three very significant laws. One was the infrastructure bill, one was the chip bill, which encourages the on shoring of semiconductor manufacturing. And the third thing was the Inflation Reduction Act. But really, that’s the Climate Change Act. All three of these are going to lead to tens of thousands of construction projects across the country, all of them demand by statute made in America input. So any resources or product that’s used in these projects will need to come from the United States. And so this rebar plan is extremely well positioned. But the point of it is actually that it’s going to be the most advanced plant of its kind in the world. So rebar is something that’s made everywhere, but no one has really made it with a with this extremely advanced technology. It’s going to be the only LEED certified, environmentally sustainable rebar plant. And we this comes on the heels of, as I know you’re familiar with, and it’s become quite known in the market, the big river steel plant, which various members of Congress have kind of pointed to as the poster child of what EB five was meant to be. This is a project that created the most advanced high grade steel plant in the world. In Arkansas. It was a two and one half billion dollar plant that is today by far the most profitable EB five project ever there, churning out over $100 million of EBITDA cash flow per month.

Sebastian Stubbe: And so it’s a real juggernaut. But more importantly from the EB five perspective, created seven times the number of jobs needed. And of course from the state and federal side, everyone was of course thrilled because it’s created 16,000 jobs and we as an EB five investors don’t need to care about the quote unquote quality of the job, whether it’s a minimum wage job or a high paying job. It’s the USCIS views it as a job, as a job, but we care and obviously the government cares. And to use a very basic example of Big River, this is in a census tract where the median income was $23,000. The lowest paid person last year at Big River Steel got paid 105,000. So that’s more than four x. The median income in this entire census tract. So massive ripple effect across the region. Really positive stuff. And I think back to your point, rural has often been perhaps unfairly associated with difficulty to make money. And really what we’re seeing is the opposite. All these types of manufacturing facilities that I mentioned earlier, whether it’s a battery plant or a car plant or a steel plant or a semiconductor chip plant, these are have the potential to be massively profitable and create way more jobs per EB five investor than you’ll typically see. So there really are very well suited for for EB five.

Ali Jahangiri: So I understand the the high tech approach you’re taking. What did the RIAA effectively do to your operations? Dre Act due in the recent years?

Sebastian Stubbe: The short answer is not very much. Obviously, as I just mentioned, rural features. The set asides in the priority processing are huge. But in terms of the reform and integrity aspect of the bill, it didn’t really do much to us as an organization. We were already as an economic development corp. We’re already heavily regulated. So for a lot of regional centers, this was kind of their first experience with some heavy regulation. The RIAA requires a whole bunch of new processes and procedures and require certain compliance aspects and audits and so forth that were not previously required. We’ve been audited by the state and federal agencies for the past three decades and in some cases even longer. So we’re very used to one of our conference rooms being inhabited by some agency that’s coming and going through our books. We’re very used to being open kimono and heavily scrutinized, so it didn’t really impact us. We already had a compliance department where it had a robust loan administration department. I do think and I’m pretty sure you agree with this and I’m sure you’ve seen this also since you work with really regional centers across the industry that you’ve already seen. I think part of what the RA was intended to do, which is a weeding out less professional groups, that groups are perhaps just dipping into this industry to quickly raise some money and put together a see if they can put together a project. But really the remaining players I tell investors this every day these days that whether they choose to work with us or not, this is probably the safest time in the history of the industry to be an investor in EB five. Right? You really have the remaining players are all much more professional and structured and kind of staffed in a way that will provide investors with protection and comfort.

Ali Jahangiri: I see. So, so Sebastian, now besides Pine State and all these other things, what exactly is your long term goal in EB five? I mean, where do you see yourself in the next few years? You guys going to keep coming down with these manufacturing projects or.

Sebastian Stubbe: Yeah, given our charter is our mission is really focused on high quality jobs in these rural areas. With that in mind, I think for us we really.

Ali Jahangiri: See.

Sebastian Stubbe: These high tech, large, high tech. And when I say tech, it’s really high sophistication. They’re not necessarily tech companies, but they are high grade manufacturing facilities. They’re really the perfect answer, right? So I think we will see more of those. We’re obviously being contacted by some of these large players. Our types of projects also tend to have very sophisticated equity groups. So Big River, for example, was owned by Texas Pacific Group and Koch Industries. That’s the world’s largest private industrial company run by Charles Koch. These are extremely conservative and sophisticated players and they will be attracted to $2 Billion, $3 Billion high grade manufacturing plants, which in turn I think, make the investors a lot safer. So I think you’ll see us doing more of this in the coming years, and I think it’ll be great for the industry as a whole and. I do believe that while we may be the main premium rural player today, I don’t think that’s going to last forever. And I frankly welcome other entrants. I think it’s great for the industry as a whole. It makes members of Congress more happy about the program. The more different states benefit from this program, the more support the program gets in Congress. And I think that will be good for the whole industry.

Ali Jahangiri: So you guys are at five of 1c3, Is that what that is?

Sebastian Stubbe: What parts of the organization are operated that way? And again, we’re also we’re a SBA lender, so we fall under different categories depending on what it is that we’re doing. But yes, I mean, from an EB five investors perspective, they should see us as an independent regional center. We never have any economic tie ups with the developers of the project. Our fiduciary obligation is to the B five investor only and we don’t make more money if the developer makes more money. And so from that perspective, I think we are perhaps viewed as a more neutral party and are really just there to protect the investor.

Ali Jahangiri: So outside of this, I know that you’re recently so outside of this, I know that you’re recently married. Is that right?

Sebastian Stubbe: Sebastian You know, interesting. And I think you know this you may not remember, but I’m a green card holder myself, and so is she. And she actually just lapped me and got the US citizenship. So at least one of us has that. I actually got my green card several decades ago when I was still under 21, and I was lucky enough my father got it. And then as many of our investors and many of the people that you know intimately, I was fortunate enough to be sent here for school. I went to Georgetown and while I was at Georgetown, he got the green card and then I slipped in just before I turned 21. And I’ve had this phenomenal tool tool with which not only, as you mentioned earlier, could I get a job in investment banking and so forth. But eventually when I left that and started my own firm, I didn’t feel the pressure, I didn’t feel the rush. I knew that with the green card, I can kind of stay as long as I needed. I had the flexibility to travel in and out and and all of that. So I love this job now, partly because I know exactly why this is so exciting for people or why it should be exciting for people. Some people don’t even necessarily recognize all the benefits until it finally happens for them.

Ali Jahangiri: What country did your dad come from?

Sebastian Stubbe: Sebastian I was born in Sweden, but my father is Austrian, so my citizenship is actually in Austria. My mother is Swedish, but by my brother and I are both Austrian citizens and I still have the Austrian citizenship and I have the US green card works great.

Ali Jahangiri: So what, you plan on coming to Vietnam with us? Any message to the Vietnamese community out there before you come?

Sebastian Stubbe: Oh, yeah. I mean, I think we actually we have a very significant amount of Vietnamese investors in our previous projects, and I happen to love being there. It’s actually one of the countries I love to go to, not just for business, but also, as you said earlier, I’m sure you and I will have some fantastic food while we’re over there and get a chance to step outside a bit. But look, I think the Vietnamese market is again becoming very interested in EB five. There was a period where there was some pretty heavy backlog that’s been cleared up now largely. And also, of course, with these set aside visas, the backlog threat is much less significant. So Vietnam is being a real growth market again. And as you and I both know, there is a very large community of Vietnamese already in the United States and there’s a real connection there. And so we do see a lot of interest from young professional families in Vietnam who want to start businesses here or get their kids go to school here. So love going there and look forward to working with some of the people that are going to attend your event.

Ali Jahangiri: Perfect selection. Let me know what we can do to, as usual, to be a host for you and appreciate everything you’ve done in the industry.

Sebastian Stubbe: Yeah, likewise. You guys have really managed to professionalize this whole industry and communication and education and making everybody feel like this is a safe way to play and there’s lots of ways to get smart. And so thank you, guys.

Ali Jahangiri: Thank you. Thanks for joining Voice TV5 and I look forward to seeing you in Vietnam. I’ll ping you as soon as I get down there.

Sebastian Stubbe: That sounds fantastic.

Ali Jahangiri: This has been the voice of EB5 by EB five Investors Magazine. To learn more about this episode, please visit EB five investors dot com slash podcast to stay up to date with the latest EB five 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.