How to structure EB-5 development projects effectively, with Daniel Lundy -

How to structure EB-5 development projects effectively, with Daniel Lundy

How do smart developers structure EB-5 projects for easier approval by immigration adjudicators and ongoing compliance? Join the conversation between Dan Lundy, who is heading up EB-5 development and regional center compliance for Klasko Immigration Law Partners, LLP and our host Ali Jahangiri, who are discussing some of the technical aspects of creating business plans and structuring developments on EB-5 deals effectively.

Dan Lundy: I’ve never lost the argument. Let’s put it that way. But it’s a part of my job to make things easy. I don’t want to have a developer do something that’s going to result in a long, drawn out fight with USCIS, even if we ultimately win. It’s better if we can simplify and avoid the headache. So a lot of what I do is actually exactly that – structuring around the optics and trying to reduce the potential headaches.

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.

Ali Jahangiri: Dan, welcome to The Voice of EB5. We’re excited to have you here today. I know you’re calling in from Philly. So Dan Lundy is an immigration lawyer. He started in 2006 at a New York law firm, and in 2011, he went to Klasko & Partners. He is a partner there. Typically, Dan works more on the developer side, putting the deals together, strategy, a lot of the forms. Dan, welcome to the voice of EB-5.

Dan Lundy: Thanks! Nice to be here.

Ali Jahangiri: Well, before we get started, Dan, did I leave anything out of your background and your history in immigration?

Dan Lundy: A little bit. So I manage our EB-5 developer and regional center practice along with Ron, also manage the litigation practice group. We do a lot of suing USCIS for either not making decisions or making stupid decisions. But yes, I’ve been practicing mostly EB-5 now since the beginning of 2012.

Ali Jahangiri: Is that called a mandamus, by the way, when you sue the government?

Dan Lundy: Mandamus is a delay action when you sue for the government hasn’t adjudicated your case and it’s been a while… We file what’s called a mandamus to force them to speed up.

Ali Jahangiri: Good to know. So back in the day when we started a long time ago – I know you’ve been in the space a long time – and I don’t know, when we met years back, they said, “Dan’s the lawyers’ lawyer.” And so you’re known as the lawyers’ lawyer. So tell me, how did that reputation come about? I know it wasn’t someone from your firm who said this, but did you solve some problems for lawyers or how did that happen?

Dan Lundy: Yeah, I’ve always handled the more esoteric, complicated pieces of immigration. So it’s not uncommon for other attorneys to come to me for solutions to novel problems or difficult problems.

Ali Jahangiri: Without talking about names, let’s hear a novel problem. I want to hear this.

Dan Lundy: Well, some people will tell you that there’s a project out there that’s quite controversial right now for it had an expedite for a long time where everybody, all the investors in the project were granted an expedite. Well, I helped get that expedite. I’ve helped to restructure deals where they’ve gone sideways with some success. We’ve changed deals from doing mostly one thing to just partially something and a little bit of something else to salvage the deal and get people approved. A lot of appeals I’ve been dealing lately with issues about money, about the way the loans are structured… We had one case where originally the EB-5 investors were going to put their money in and there was going to be a senior loan, but it ended up being changed so that the EB-5 investors’ money was being used to secure a line of credit, which was used to secure the senior loan and then would be deployed into the senior loan. And USCIS objected to that. But then they switched back to a normal senior loan. And I was able to argue that the money doesn’t have to be invested and at risk until they get their conditional green cards. So whatever happened between the time the 526 was filed and the 526 was approved didn’t really matter. I mean, I made a good argument that it qualified, but if you don’t like it, you don’t think it qualifies? Well, it doesn’t matter. And they actually bought that argument for a change. So, yeah. Go ahead.

Ali Jahangiri: I actually have a question for you then. I have more of a technical question for you that I’ve heard of. I want to throw that out to you. Project comes to you, and they’re six months in construction, or month ten in construction or month 15 in construction. And let’s just say they have three months to six months left to fulfilling all their construction before they get a certificate of occupancy. Say – call it six months. What’s the determining factor? I mean, what do you say to them if they wanted to do EB-5 and they’re six months out from being done or three months out from being done or maybe a year out from being done; what’s the rule there?

Dan Lundy: Yeah, if they can still use the money directly and they can raise it in time, great. No problem. As long as it goes in during the project and creates the jobs. Or if it’s, let’s say, it’s a hotel, which has an operating component. So not only can the money go to construction, but it could go to operating, go to hiring people. The other thing is, even once you get a call, there’s still six months or more of punchless items and you don’t pay the last invoice for quite a while. So realistically, there’s still some more time there.

Ali Jahangiri: Sorry to interrupt you. Does the money have to directly go to pay the EB-5 construction or can it go to pay down the construction loan which has been funding the construction?

Dan Lundy: Well, you can get bridge financing, which is short term, temporary and contemplated to be replaced by something else. And if the bridge financing is spent on job creating activity before you’ve raised the EB-5 money, you can replace the bridge financing. But it’s tricky because it has to be short term and temporary. And USCIS has never quite defined this. And USCIS actually on Monday is supposed to tell us what they think the sustainment period is, what they think, the period that you need to invest and keep your money invested and at risk is. Apparently they view it differently for people who invest now than people who invested before the change of the law. So we don’t know how long short term is going to be. If they come out with a policy that says you only have to invest for two years, well, two years isn’t going to be short term, right? If you have a bridge for two years and you’re only supposed to invest for two years, they might not take the position that that’s short term. So it’s a little bit flexible and it’s a little bit uncertain right now.

Ali Jahangiri: I don’t understand how that’s related because even if you do replace a construction loan or a bridge loan, call it a bridge, you can still keep the money deployed for a period of two years later. So the sustainability portion that you’re talking about can come after the payback of the construction loan. Is that not right?

Dan Lundy: Yes, that’s true. But it’s supposed to be replaced with more permanent financing. But if your more permanent financing is the same length as your bridge financing, then it doesn’t seem more permanent.

Ali Jahangiri: Yeah, yeah. No, let’s say your bridge financing, your construction loans are generally 2 to 3 years, right? 1 to 3 years. Okay, so let’s say your construction loan is 1 to 3 years. Let’s say your EB-5 loan’s, four years.

Dan Lundy: Yeah. Then I think you’re okay.

Ali Jahangiri: So in your situation, I think what you’re referring to is when your construction loan is longer than your EB-5 loan.

Dan Lundy: Correct. Because then it’s not really permanent financing.

Ali Jahangiri: How does that even happen though? If you’re in construction, how can your EB-5 loan only be for two years?

Dan Lundy: Well, at the moment it can’t. Because, look, even if USCIS comes out and says that you only have to invest for two years, that’s never going to happen because it’s not commercially reasonable. The deal cycle is longer than two years and so no quality, decent project is going to take your money for two years and give it back. It’s going to be a three year, five year, four year. There’s going to be some loan term that gives the project the ability to build the project, stabilize the project and refinance or sell the project. And that doesn’t happen in two years on a decent sized project. So regardless of even if it is only two years, I think commercially it’s not going to happen and the loan is going to be longer than two years. So, USCIS originally came out and said a bridge financing is one year or less. We fought that. They backed off. They haven’t given an upper limit on what the bridge is at this point. But if it’s two years or more, I’d be a little hesitant going forward. So, for instance, we tend to make a bridge loan a year and eligible for six month extensions.

Ali Jahangiri: But there’s projects on the market right now that have had longer construction loans than one year and even two years getting refinanced.

Dan Lundy: Everything is about risk, right? And how much risk you’re willing to take. But we’ve had to argue that a construction loan inherently is a temporary loan. When I advise my clients, I say, look, we want to bridge this. I say, okay, get a bridge loan that is separate from the construction loan and structure it as a shorter term loan. Yes, I know in the commercial world, a construction loan is inherently a short term loan because you’re going to refinance out of that at a lower interest rate at some time in the future. That’s reality. Reality and USCIS don’t always mix well.

Ali Jahangiri: So, a bridge loan and a construction loan, I think, are the same thing…

Dan Lundy: In the normal world. In the commercial world, yeah. A construction loan is a construction loan. A bridge loan isn’t necessarily a construction loan because a bridge implies that you need money in the short term where as opposed to construction is going to take me from start to finish, I’m going to build my building, I’m going to refinance it.

Ali Jahangiri: So maybe we should argue to the USCIS that all construction loans should be counted as bridge loans.

Dan Lundy: Yes, that would be great and logical if they took that view.

Ali Jahangiri: Are we currently arguing that? Is someone arguing that to them right now?

Dan Lundy: Yeah, we’ve argued that.

Ali Jahangiri: Has that – did you win the argument or did you lose the argument?

Dan Lundy: I’ve never lost the argument, let’s put it that way. But a part of my job is to make things easy. I don’t want to make a developer do something, have a developer do something that’s going to result in a long, drawn out fight with USCIS. Even if we ultimately win, it’s better if we can simplify and avoid the headache. So a lot of what I do is actually exactly that – structuring around the optics and trying to reduce the potential headaches. Like, yeah, that’ll probably be approved, but if we can do something easier, why not?

Ali Jahangiri: Okay. Can you use EB-5 funds to pay one point on a loan? Let’s say the developer owes the regional center or the NCE one point acquisition fee or two points origination fee. Call it an origination fee.

Dan Lundy: Right, so the developer owes the regional center.

Ali Jahangiri: The NCE, the developer, the borrower, the JC owes the NCE.

Dan Lundy: No. You could use the EB-5 money if you owed a point on the senior loan. So you can’t have a guaranteed return on or of capital. So if you have an interest reserve on the EB-5 or you pay yourself a point. It’s kind of a guaranteed return. So it’s a legitimate cost. That’s a legitimate project cost if it’s a point due on the senior to the bank, but you can’t use EB-5 money to pay back the EB-5 to pay interest on the EB-5.

Ali Jahangiri: So how about costs associated with the legal documents, the upfront legal documents for EB-5? Can that be used?

Dan Lundy: It can come out of the administrative fee, but they can’t come out of the principal investment of the EB-5 investor. And by the way, including – so we run into this sometimes where there’s like a $25 wire fee, no good. You’ve got to the wire transfer another $25 and pay another $25 fee.

Ali Jahangiri: So because we’re kind of in a hot place and a hot topic, I think we’re going to probably end up publishing this sooner than later. I’m going to ask our team to publish this really quick online. One of the things I wanted to ask you about, I actually talked to Bob Sloposky today. And we were talking to him… We have a press release coming out in a few minutes. And today is obviously Monday, the day after everything went down or considering that today is the day that things happened to Signature Bank. What’s going on with the EB-5 funds? What do you think Dan?

Dan Lundy: I think the EB-5 funds are perfectly safe. I mean, I think the Fed has backed up all the depositors. I don’t think there’s any risk of deposits disappearing, the bonds… I don’t know what’s going to happen. I don’t know if they’re big in lending, I don’t know what’s going to happen to the loans that they were going to fund. But the deposits, as far as I know, the deposits will be safe. I think they’ve created something like Signature Bridge Bank or something. I don’t know how it’s going to work, but I suspect that there’ll be a reorganization or restructuring and somehow they’ll get back to business.

Ali Jahangiri: Yeah. I’ll repeat the exact the name of this here for you guys. The new company is called Signature Bridge Bank and the FDIC is running it, having oversight over it with a guy named Greg Carmichael. Did you hear about that, too, Dan? Greg Carmichael is running the – he’s a CEO coming from the FDIC side. And then they still have their CEO that’s currently there and that CEO stays there during this whole period while this is happening. But what would you advise your clients to do at this point? Are you advising them and saying, hey, switch banks? Are you saying, hey, stay with Signature? What’s your advice?

Dan Lundy: I don’t know enough to give that advice yet, so I don’t know exactly what’s going to happen. But I’ve heard that the money is going to be safe, so nobody should panic.

Ali Jahangiri: Bob told me not to panic and governments backstop. So if the government’s backstopping it and Signature changes ownership, does that even matter?

Dan Lundy: Shouldn’t, as long as they honor their commitments. So I have to say, because I find the irony here amazing. So I’m glad that Signature is in EB-5 because we hear it all the time from banks: “Oh my God, EB-5! EB-5 is too risky! We can’t be involved in EB-5.” Well, they’re involved in crypto. Crypto is inherently speculative, has no intrinsic value, it’s not based on anything, and it’s highly unregulated. But “EB-5 is too risky.” Go figure.

Ali Jahangiri: That’s crazy, huh? We get – we get a bad rap. Like crypto is the one that’s causing all the problems.

Dan Lundy: Yeah, like our money. We put it in escrow like it’s not – there’s nothing terribly controversial about it, but for some reason, it’s deemed risky. So the rest of the banks out there wake up and start dealing with EB-5.

Ali Jahangiri: We’re creating jobs. What’s crypto doing?

Dan Lundy: Yeah, but I really do hope Bob and everybody else land on their feet and this just turns out to be, well, I don’t want to call it a simple restructuring, but…

Ali Jahangiri: I hope so too. And Bob is very confident. And rests assured, the EB-5 investors are going to have their deposit accounts insured by the government – unlimited. It’s an unlimited insurance right now. So that’s a great thing. But was your phone just going off the hook or what when you heard this news?

Dan Lundy: Yeah, things have been popping a little bit, but…

Ali Jahangiri: The weekend?

Dan Lundy: Yeah, today… Yeah, a little bit.

Ali Jahangiri: Is there options, Dan, out there, for other banks or what’s going to happen, you think, in this whole banking regime?

Dan Lundy: Well, I mean, EB-5 will find a way. I mean, there aren’t a whole lot of banks doing EB-5 right now, but there are some. A lot of it depends on developer relationships. And if I’m doing all my banking with you and borrowing money from you, you’ll take my escrow.

Ali Jahangiri: Dan, does there have to be an escrow or could it just…

Dan Lundy: No, as a matter of fact, there doesn’t have to be an escrow. And so again, this is a function of processing times. Like back in the day when EB-5, when it took six months to process a 526, everybody escrowed until approval of the 526. It was good for business. It was good for the investors. It gave USCIS a chance to look at a project before all the money went away, but with processing times in the years now, that’s just not commercially feasible. So unfortunately, escrow is usually just until you file a petition. Which isn’t all that much different than if you put the money directly into a segregated account with an agreement to get it back.

Ali Jahangiri: Dan, are you saying the escrow is being released before the 526 is approved? Correct?

Dan Lundy: 100%. So at first it was escrow till approval because processing time was six months and that was reasonable. It started getting longer than that. We started doing a hold back. Where we’d hold back historical denial rate was 10 or 20%. So we hold back 10 or 20% of the money and we started running into problems where the project would be finished before the money would come out of escrow because USCIS takes too long. So we couldn’t wait till everyone gets a petition approved, even for the last 10% because it might not go into the project. So now, thanks entirely to USCIS processing time, we only escrow until five.

Ali Jahangiri: Very interesting. So let’s bring this up here, Dan, because I think this is a pretty good hot topic. Why even use an escrow? I mean, now that Signature potentially may be acquired by a new company and I don’t know if they’re going to end up doing EB-5. Who knows? They’re going to eventually get acquired, right? Why even use an escrow bank? Why not just send the money to Wells Fargo or City National or whatever bank you use and have escrow instructions to the investors on the release between you and the investor, perhaps using an escrow agent or maybe using a separate escrow company. But why not accept the money into the bank and then upon release have some kind of functionality there? Is there a way around this?

Dan Lundy: I mean, if there’s a third party, there’s – so the bank account itself doesn’t matter. It’s the escrow agent. Like somebody takes the money and then when you give them proof that the release conditions are met, they release it, whether it’s into your bank account or into a third party. There’s maybe a little difference. I mean, I guess it’s harder to manipulate if it’s at a third party, but it’s not a huge difference, right? If somebody else is back-checking you to make sure, “Yes, the release conditions were met before that money gets used.”

Ali Jahangiri: Dan, what are the release conditions?

Dan Lundy: Typically, you file the 526. Sometimes we’ve raised at least one investor and the project is going forward. I mean, the problem is you can’t – again, this is a USCIS problem – the USCIS won’t let you include other conditions in that escrow where you get your money back if certain things don’t happen, like you can’t put your money in escrow pending the senior loan closing. If the senior loan doesn’t close, you get your money back. Well, that’s not at risk.

Ali Jahangiri: Does the RIA or the original EB-5 Act – does that mandate an escrow?

Dan Lundy: No.

Ali Jahangiri: Do you have to have a condition where you file the 526 at the same time you release the escrow?

Dan Lundy: No.

Ali Jahangiri: So why do we create this regulation for ourselves, for this industry?

Dan Lundy: Well, originally it provided a good amount of safety to the investor. Right? The investor – if your money is in escrow to approval, the investor gets to see that the project is approvable before they release their money. Unfortunately, we can’t do that anymore. But it still gives a modicum of protection in case like, let’s say they decide they’re going to invest and then their attorney tells them, “Look, your source of funds isn’t approvable. Take it back and we’ll do something else.” There’s somebody there to give it back. From the developer’s standpoint, the regional center, NCE standpoint, it does provide an extra layer between the NCE account and the money. So the escrow agent is going to do OFAC and going to do your politically exposed persons and KYC, AML on the money before the money comes in. So if they don’t pass those checks, the money gets bounced back. It never gets to the NCE.

Ali Jahangiri: Oh, wow. So the KYC, anti-money laundering and all that is done at the escrow.

Dan Lundy: It’s done every time you move money from bank to bank. So it’s done when they deposit the escrow, it’s done when the money comes out of escrow into the NCE account – the NCE bank is going to do it. Every bank has to do it every time you move money.

Ali Jahangiri: So, does it have to do with an escrow? Does it have to do with just the bank’s requirements?

Dan Lundy: Well, Treasury requirements.

Ali Jahangiri: So, Treasury requirements. So not necessarily do you need an escrow because the bank’s going to do that anyway?

Dan Lundy: Right. But it’s not the NCE account, so there’s never any tainted money. You have an extra layer of protection on the NCE account because once you put the money into the account, I mean, technically money is fungible. I mean, USCIS thankfully hasn’t gone that far, but it’s better – it’s just one more layer of insulation to make sure that’s clean money.

Ali Jahangiri: So I’ve heard of other companies not using escrow. I’ve heard of regional centers not using escrow many times. Do you see that regularly or do you see that very infrequently?

Dan Lundy: I think we’re going to see it more because, as you said, escrow used to serve a pretty good function and now it’s really just a tiny bit of protection.

Ali Jahangiri: I don’t know if you’ve heard. I’ve heard there’s a trust company that is used to hold EB-5 funds. I’ve heard of an escrow company that’s used to hold EB-5 funds.

Dan Lundy: Yeah, I mean, I’ve even heard of attorneys using their IOLTA account. I wouldn’t get into that business myself, but any escrow will do.

Ali Jahangiri: Well, if you think about it right now, though, Dan, I mean, they’re making on a regular money market account. You’re making a lot of money. So whoever does hold the money does potentially have a benefit if it’s a duration of six months or a year and a half. Right?

Dan Lundy: Yeah, I’m getting 3.5% of my savings. I mean, yeah, right now is a good time to have money down.

Ali Jahangiri: Technically, if an EB-5 investor has their 800 grand locked up for a year and you’re making 3%, that’s 24 grand in a year, right?

Dan Lundy: Yeah. It’s nothing to sneeze at. Imagine now it’s ten investors or 100 investors. Yeah.

Ali Jahangiri: So let’s talk about some of the problems you solve. I kind of like this aspect of arguing to the USCIS and you being one of the guys that explains things in layman terms. I mean, I know this construction thing is a big issue. We talked about it, the bridge that hopefully will get resolved and hopefully the USCIS will understand the construction loan is the bridge loan. That’s our goal. But what is another hot issue that you see for projects trying to get started up and they come to you and say, “Dan, can you help us?” What’s another one like that?

Dan Lundy: So we’ve resolved most of the structural issues at this point. Like, back in the beginning, I had to come up with structures that they would approve, like USCIS didn’t know what a mezzanine loan was, so they didn’t understand preferred equity and how preferred equity is not a guaranteed return. But we’ve managed to get rid of most of those issues.

Ali Jahangiri: Ok, so let’s hypothetically talk about tenant occupancy. And I know that’s an old issue. Is that resolved?

Dan Lundy: It’s a new issue, too. It is an old issue and USCIS did away with it, but Congress brought it back. So it may come up again.

Ali Jahangiri: So let’s say if you own a percent, if you build a building and you rent it out and you rent it out to a hotel… Let’s say you rent it out to a hotel chain and they rent out – you build the hotel, they rent it out. But let’s say you take a percent of ownership in that hotel. Does that satisfy the requirement that you’re part of the operating jobs?

Dan Lundy: Okay. We’re talking about regional centers, I assume.

Ali Jahangiri: I’m talking about the JCE getting credit for the jobs, not only for the construction, but on the operational side.

Dan Lundy: Yeah. So if the JCE owns a piece of the operating company, then you have no problem.

Ali Jahangiri: What does that mean? Is a percent fine?

Dan Lundy: There is no particular rule on that. But for the EB-5 money, the jobs wouldn’t be created. And if they own a piece of it, it’s not tenant occupancy. If they own a piece of it, it’s not a tenant business, it’s your business, or at least indirectly, your business. USCIS might complain about 1%, but I could argue that 1% is allowable. But again, here’s something where I would say to the developer, “Well, why don’t you buy 5% or 10%? Not 1%? Why push the limit?”

Ali Jahangiri: Okay, I got another question for you, Dan. I like to fire these technical ones off. I’m thinking they’re technical. Maybe for you they’re easy. Let’s say you buy a project that has done all the horizontal work and you buy it and you’re trying to get credit for the horizontal work done, which is the infrastructure, the roads, all the stuff that comes before you start building vertical. And you buy it. How do you structure it to get that credit for the horizontal jobs that you just bought from the developer?

Dan Lundy: I would tell you that you should probably see if you can do it without those jobs, because if you, the developer, didn’t put any money toward infrastructure or whatever, it’s going to be hard to claim that as a project cost. It’s a land cost, right? You’re buying the land and it has improvements. I could come up with an argument, but…

Ali Jahangiri: Isn’t there a but-for test?

Dan Lundy: Yeah, that might be stretching it a little bit.

Ali Jahangiri: So you can’t use the but-for test there. Okay.

Dan Lundy: I mean, again, if I had to come up with an argument, I could come up with an argument, but I would try to advise somebody, take a few less investors or figure out another source for the job creation.

Ali Jahangiri: So I guess that’s another question that we get to is taking less investors. I talked to a lot of economists and you seem to be the right guy to ask about this stuff. What’s a normal buffer? And if you’re doing construction only, why even have a buffer if you know you’re going to use your construction budget? Why is that concept even out there? I’ve heard economists say use 40% buffer, use 35. Why use a buffer if you’re going to spend $100 million on construction and you’re going to make $100 million worth of jobs, and why even have a buffer if there’s no operating jobs, is my question. There’s just construction jobs.

Dan Lundy: What happens if you get halfway through the construction and run out of money? If I have a 30% buffer and I get 70% through construction, well, I might just have enough jobs for everybody, even if I never finish.

Ali Jahangiri: What if you have bridge financing and you’re three months away from finishing the job? You’ve had temporary loan, you’ve contemplated EB-5 because you have bridge financing, and you’re now raising EB-5 to pay your bridge financing and you’ve already spent $50 million. Do you need a buffer?

Dan Lundy: Well, no. At that point, you’re good, right? You should be okay on the job creation.

Ali Jahangiri: Yeah. So let’s say the construction budget is 50 million and you’ve deployed 47 million. You probably don’t need a buffer for the 47, do you?

Dan Lundy: Right. No, you don’t. I know they allow bridge financing. We’ve argued, we’ve won. They have this policy that allows us to use bridge financing and get credit for the jobs. I always advise people that, hey, I know we can use 100% of the money to repay the bridge, but I’d prefer not to. Because the optics of it, if at least some of the EB-5 money is going directly to job creating cause, it just looks better.

Ali Jahangiri: Can you use it for operating costs?

Dan Lundy: Yeah. Or you can use it for construction costs. But some of that money is tied directly to the job creation. It’s just more palatable for USCIS, right? It’s an easier pill to swallow. So, yeah, you don’t have to. Policy 100% allows you to replace the bridge and nothing else. But I’d prefer if you did.

Ali Jahangiri: Okay, so let’s just say 75%. How’s that? 85% to pay back the bridge? 15% to pay construction?

Dan Lundy: Yeah, I think that’s great. It just gives you a bigger hook to the job creation.

Ali Jahangiri: Dan, remind me to – send me a text so I can send you a client. These are good answers. I like your answers. So let’s just hypothetically say you’re using a buffer of, I don’t know, 10%, 15%. Would you feel comfortable filing that case if it’s, call it $47 million spent and you maybe have a 10%, 15% buffer? Or would you tell the client, “no, let’s go 35%, let’s go 40% buffer?” And you’re actually just doing the 47 million that’s been deployed. How would you take that? I know the economist is going to come back and say “take your buffer of 30 or 40%.” But what would Dan say?

Dan Lundy: It’s a marketing issue, right? The other reason you have a buffer is so you can go to the market and say, “look, we’ve got three times the jobs we need! Our project is safe. You’re going to get your green card,” right? For USCIS, you technically need zero buffer as long as everything goes right. But it’s mostly a marketing issue. And for us lawyers who have seen things go sideways, like I’d rather see you have a buffer because if you don’t… I had one client once came in under budget, like on schedule and a little bit under budget. Once, in a lot of deals. It doesn’t happen that often, but what if you get a pleasant surprise?

Ali Jahangiri: Yeah, that makes sense. And the other thing is like this two year rule – is that’s still a rule? Like, you need to do construction for two years for it to count…

Dan Lundy: So if it’s two years or more, you can count 90% of indirect jobs, which the direct jobs are model jobs. So it’s not really an issue. It starts to get more complicated when it’s less than two years because then I think you – honestly I have to check, I forget – I think it’s 75% direct jobs. But then you also can only – the percentage of jobs that matches the percent of two years. So if it’s a one year project, you can only use 50% of 75% direct jobs.

Ali Jahangiri: Oh, interesting. Two years is for the construction jobs that are direct. You get 90% credit for the direct?

Dan Lundy: For indirect.

Ali Jahangiri: For indirect.

Dan Lundy: For the 90%. Indirect.

Ali Jahangiri: What does two years mean? Does it mean the moment that I purchase the land and I hired the lawyer?

Dan Lundy: Boots on the ground.

Ali Jahangiri: Is that a boot doing the horizontal?

Dan Lundy: Yeah. Demolition site work, excavation.

Ali Jahangiri: Okay, so let’s just say…The demo is the boot?

Dan Lundy: It’s probably not your surveyor going there months before the project or your architect going to take a look. It’s the first guy swinging a hammer or a shovel.

Ali Jahangiri: Okay. And when is the project done? Is it when you do the FF&E? Because sometimes there’s tenant improvements and there’s…

Dan Lundy: When the last invoice is paid.

Ali Jahangiri: That can be… After the tenants moved in, they still have to do tenant improvements, right?

Dan Lundy: And if you’re building an empty shell, you’re delivering a core and shell or whatever. Yeah, your tenant improvements could be really significant. I mean, they could be a big part of the budget. So yeah, I mean, but that’s construction. The problem you run into sometimes is like you’ll finish, you’ll do your punch list, everything will be done. And then it’ll be a year before you get your tenant. We start running into interesting questions there.

Ali Jahangiri: But what if your get tenant right away and the tenant pays for the TIs?

Dan Lundy: You have the tenant pay you and you do the TI? There are ways to deal with this.

Ali Jahangiri: Right. So the tenant pays you, you do the TIs, the construction can go on for a longer period.

Dan Lundy: Yeah, I mean, most of the time there’s a TI allowance, right? So in that case, the developer is actually paying for some of the tenant improvement. There are ways to structure this.

Ali Jahangiri: That’s really interesting, actually. Sorry to nerd out on this kind of stuff, but I find it kind of interesting to expand the two years. I mean, people always ask about that. They’re always the developers that call us. We have a call center and they call us and they ask us. We send them to different clients. They’re like, “What do we do with the jobs and how do you make sure you’re getting jobs for this?” So I think it’s a pretty relevant question and a lot of people ask that actually. How do you get the full credit for the jobs?

Dan Lundy: If it’s a big enough project, it’s going to be two years.

Ali Jahangiri: Right.

Dan Lundy: And unless you’re looking for a handful of investors, it’s going to be two years.

Ali Jahangiri: Right. So when people come to you and say, “Hey, how much can I raise?” And they only have construction jobs to work with, do you have like a certain LTC percentage in your head, where you’re like, for every $100 spent, you can get $50 EB-5? Is there a certain number?

Dan Lundy: Yeah, ballpark, if your construction is over two years, you get somewhere between 12 and 15 jobs per million dollars spent in construction.

Ali Jahangiri: Could we talk in like more layman terms for the people? Like every hundred dollars you spend in construction, how much EB-5 loan can you get?

Dan Lundy: This is more a marketing question than anything else. You can structure whatever you want, but if you can’t sell it to investors, but, so, no. So let’s see, at 1,000,050, I mean, you could almost – you could do close to 100%, right? Because for $1 million, you’re getting more than ten jobs if it’s over two years. You’re only getting about six jobs if it’s not.

Ali Jahangiri: Well, let’s say you deploy $100 million in construction without looking at the operating jobs. How much EB-5 would you say you can raise for deploying $100 million of construction? Soft and hard.

Dan Lundy: I assume it’s over two years at $100 million?

Ali Jahangiri: Yeah, over two years. Yep.

Dan Lundy: Close to 100%, 90%.

Ali Jahangiri: Without operating jobs?

Dan Lundy: Oh, yeah. I mean, it depends. So the multiplier depends on what region you’re in. Most of the multipliers for $1 million of construction expenditures are somewhere between 12 and 15 jobs. So if you have 100 million, you have 112 hundred jobs or whatever.

Ali Jahangiri: Do you use an economist to come up with this for yourself or do you end up doing it yourself with the job?

Dan Lundy: No, 100%. I know from doing so many of these that that’s the ballpark. It’s not a hard and fast rule. It’s a ballpark. The economist is going to be the one to actually give me the real numbers.

Ali Jahangiri: So do you have a choice? Do you use one economist? Do you use all of them? What do you do with economists? I’m guessing you’re the one that reaches out to them.

Dan Lundy: Well, sometimes people already come with them. Yeah, I mean we have a handful of them.

Ali Jahangiri: Okay. I’ve heard very varying policies as to buffers and all this stuff. Do you get that, too? Do you get it all over the spectrum?

Dan Lundy: I mean, it’s not actually the economist’s job. No offense, guys. Don’t yell at me. Don’t send me hate mail. I have this conversation with one or more of the economists frequently like leave the arguments up to me. You do the economic work, you do the modeling. Let me decide and make the legal arguments and how it fits. Like I just need you to tell me how many jobs there are. They’re being good professionals and telling you and giving you good advice when they say you need a job offer. But it’s up to them to crunch the numbers and not necessarily give you legal or marketing advice, but it’s good advice. It could be a buffer. I also have had conversations with people in the past like I know economics is an economic field and it’s a science and an art and like I have certain standards. We know what’s been approved by USCIS. We’re not looking for a Nobel Prize. We’re looking for an economic study that works for USCIS, right? That it’s going to get approved based on methodologies we’ve used before. And in that framework, we can be selective. And we’re not making anything up. We’re not fabricating anything, we’re not gaming the system, but we’re going to use favorable numbers. We’re going to use the model that’s going to work for us. Some people push back on that. Listen, again, our standard here is what is approvable, not what is Nobel Prize material.

Ali Jahangiri: That’s good. So, it’s obviously been a pleasure talking to you, Dan. I’ve learned a lot on this conversation. I want to ask you a bigger picture question, though. What drives you in the morning in this space? It’s not really immigration. I guess it’s more development, and… what drives you? What’s the driving force here for you in this space? Is there a certain thing that pushes you to help your clients or the developers on these?

Dan Lundy: So, it’s a lot more fun and interesting than a lot of other immigration stuff. I’ve been in several billion dollar deals at this point and I can now talk credibly amongst the $1,500 an hour real estate attorneys and contract attorneys. It’s certainly more interesting and more challenging. And there are always new wrinkles, there are always new problems to solve. And I have to admit, I sue the government a lot. Sticking it to the man once in a while is fun. And we win. Not always, but we have a pretty good track record of winning. But I like making good arguments. I like solving complex problems.

Ali Jahangiri: So are you a litigator, Dan? I thought you were doing the corporate stuff. You actually go to court?

Dan Lundy: Well, most of it is on paper, but yeah, occasionally. When you’re challenging an immigration decision, there’s not really a trial. It’s usually just on the record, on the existing record. So it’s mostly done on paper. But every once in a while we get to argue something.

Ali Jahangiri: It’s good to know, a good resource to know. Anyway, thanks for being on this podcast with us.

Dan Lundy: Thank you.

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