The Controversy and Impact of the EB-5 Reform and Integrity Act, with Rohit Turkhud -

The Controversy and Impact of the EB-5 Reform and Integrity Act, with Rohit Turkhud

In March 2022, the USCIS passed the Reform and Integrity Act which established new rules for Regional Centers across the country. What exactly does this mean for investors and Regional Centers? What are the benefits and challenges this new law introduces? What choices do investors have available to them? Does this improve the status of Regional Centers and make them more trustworthy? Rohit Turkhud has over 30 years of experience in immigration law and nearly 10 years of experience with EB-5. In this episode, he chats with Ali Jahangiri to clear the air about everything the new Act implies.


Rohit: When you see the smile on their faces, at the end of the process, it’s so fulfilling. I’ve had people come up to me after many years after I may have done something for them saying, “Oh my god, you got me my green card” is just fantastically fulfilling. You become a bit of a guidance counselor when somebody says, “Look, this is my personal issue, and what’s your thought on it?” Which is not immigration-related, that’s even more fulfilling than saying, “What’s your thought on this immigration issue?”

Ali: Welcome to “The Voice of EB5” podcast by “EB-5 Investors Magazine.” We will have provoking discussions every week on the EB-5 program so please tune into our podcast.

Welcome back to the show everybody. This is your host, Ali Jahangiri. And today I’m sitting down with a very special guest immigration attorney Rohit Turkhud. And we’ll be discussing a lot of things actually starting off with our new favorite, the EB-5 law and its impact on the market, regional centers, and being back in business. And actually some of the fundamental nitty gritties about the EB-5 visa. But before, let me take a moment and introduce Rohit, who is a dear guest to us.

Rohit is a counselor at CSG Law based in New York, and has over 30 years of experience in immigration, including the investor visa. He is regularly engaged in business leaders throughout the industry. And I know him very well. Actually, I’ve known Rohit for a couple of years now, and we actually have him as one of our top 25 Immigration Attorneys in our top 25 “EB-5 Investors Magazine” issue. And he has a diverse set of experience and… Rohit, tell us how you doing today.

Rohit: Thank you so much for that wonderful introduction, better than I could have done it myself. So I’m doing great. Happy to be here. Happy to share whatever I can with your audience.

Ali: So happy to have you, Rohit. Let’s talk about our new favorite, the EB-5 new legislation. Even though the law was passed in March, about four months ago, there’s a lot to uncover and yet to be seen. What are your thoughts on this new EB-5 legislation? And can you share some of the reforms that you’re personally impressed by?

Rohit: Yeah, sure, I would love to. I mean, everybody is delighted that the regional centers are back, the law is back. It’s more prominent. EB-5 has been very dear to my heart since about the middle of 2014 when I started traveling to India and the Middle East for EB-5 work. And EB-5 became quite naturally to me, at that time, because India was just opening up for EB-5. Pretty comfortable actually in speaking Hindi, Gujarati, and Marathi so that gives me a bit of an advantage. And it also allows me to travel to India, or it certainly did pre-pandemic very, very frequently to the point of traveling almost every single month out there.

So the new law, I think, is fabulous, one because it brings the regional centers back into play. Two, most importantly, it has integrity measures, which are so much more helpful and probably invaluable from the point of view of investors. Because I think it should give them a much greater sense of comfort. While we certainly refrain or very strongly stay away from using the word “guarantee”, I think the new law’s integrity measures, does allow the investors to feel that there is somebody looking after them, and all their hard-earned money that they’re investing over here into EB-5 isn’t just blown away in a stack of smoke. So I think the integrity measures are very good, requires the regional centers to comply. Sure, it’s going to be expensive for them to do it but I think it gives them a greater degree of comfort as well.

The biggest change in my mind which, when I read it, I almost fell off the chair, was the new law allowing investors to concurrently file for the…what’s called a Statement of Status if they’re in the United States in a legal status. And as like I tell my clients, that is a mind-blowing windfall. I couldn’t be happier seeing that the work…obviously the work pressure has increased manifold because we need to offer that benefit to our investor clients. But I would say that that’s probably, for me and my investors, the biggest windfall.

Ali: Let’s talk about the new EB-5 legislation and the functions to protect investors. Could you illuminate our listeners who are trying to understand how the government is trying to protect them through the new legislation?

Rohit: Sure, great. I’m going to share my thoughts or offer my thoughts in no particular order of priority. One of the things that never existed, there was no requirement for having a fund administrator who was gonna track the flow of monies that were invested or the use of the monies. The law now mandates a fund administrator for every regional center, which I think should give a lot of comfort, and may not be to eliminate, but certainly to reduce the risk of misuse of monies. And I think everybody is aware of some of the fraud and the unpleasant situations that many investors were faced with in the recent years. That probably should get eliminated or at least reduced, for sure. That’s one issue.

And I think that’s a major concern, because people always worry about the fact, “Okay, I’ve got my green card, how am I getting my money back? I understand that the investment needs to be at risk. But it is hard-earned money, it’s not something that I wanna lose.” And when people even invest in a stock market, they are hoping to recover at least their capital, even if they’re not making a profit. But here when you have no guarantees at all, no assurances at all, you’re trying to make a somewhat reasoned and a calculated decision. So I think the fact that you’re required to have a fund administrator is very important.

Second, I think most investors have been, let’s say, in the dark about how much money is being paid to the brokers, the Finders, the…by whatever name, you wanna call them. The people who are introducing them to the regional centers, and who are clearly getting paid, although everybody says, “Oh, you’re not paying me, it’s just industry practice that we are paid by the issuer.” Most investors aren’t satisfied with that answer.

Now, the investors are actually going to know the dollars and cents and the pennies that are being paid. And obviously, I use pennies very facetiously, because it’s usually dollars, dollars, dollars, there are no pennies there are no cents out there. So I think it’s important that the investor may get a sense of comfort knowing how much the broker/finders are being paid. They always know what the attorneys are being paid because, you know, there’s usually an agreement between the attorney and the client. So that’s pretty transparent.

So this level of transparency, I think, is brand new. Not just the fact that these Finders are gonna be required to disclose the amounts, but these Finders are gonna be required to be registered. Now, of course, there’s a lot of questions about, where do they need to be registered? Where’s the form for registering them? How are they going to register? Are they registering with the SEC? Are they registering with the USCIS? I don’t know. Lots of gray, lots of questions, of course, but certainly, these requirements are there. And we all realize that the dust will settle at some point in time. Just like dust, it all doesn’t settle at one time, it usually happens in bits and pieces.

And I think we recognize that. But at least these are things that an investor can feel more comfortable about. Even in terms of this huge, somewhat nebulous issue of redeployment, I think investors get a better sense at this point that okay, the redeployment can be anywhere in the United States, it’s not limited to just that state. Those issues will persist or rather the uncertainties around that will persist but at least there’s some greater guidance.

I just feel that there are more financial controls that are being introduced under the new law, which should provide some level of comfort to the investors. Most importantly, let me not forget, the new law grandfathers everybody whose applications are filed before a certain date. So just as you’re aware where we had this huge lapse or this, if you wanna call it a deathly silence between July 1 and March 15, when nobody knew what was going on. Everybody was guessing, everybody was looking into that or gazing into that crystal ball, now your case will be grandfathered. And irrespective of what they may be arguing in court, I think all lawyers, at least I definitely can vouch for my situation, have been seeing progress on cases, which is great.

So I think there’s a lot to be thankful for. Sure, there’s a lot of things that are unclear, but which law is not? And if the law was that clear, would you really need judges and would you really need lawyers? So I think we all stay employed and we have podcasts and we have conversations, and life goes on.

Ali: Your answer is very transparent and honest. You’ve been in the EB-5 market for quite a while. So how’s it gonna impact the EB-5 market? Do you see a sudden increase in application numbers or no difference at all? What do you think, Rohit?

Rohit: Well, I’ve been doing immigration law for over 30 years but EB-5 for over the last almost now eight or nine years. But I think that’s given me enough of a flavor… And almost all my clients have been ones who have been born in India irrespective of whether they’re in India, the Middle East, Singapore, or Malaysia, it doesn’t matter. So I do have that perspective, which I can offer. Clearly, the interest is revived. Clearly, the interest is strong. I think it’s also accurate to say that the investor market at 800,000 plus is different from the market that was at $500,000-plus. A lot more people were available, willing, and ready to go the $500,000 route as opposed to the $800,000 route. That’s just but obvious, it’s but natural.

I think the interest has been very, very strong. I went to India about a month ago after two and a half years, and I was very impressed. And, of course, it was after two and a half years because of the pandemic, it wasn’t because of the EB-5 one. So going back to Bombay, after such a long time, was wonderful. And on a lighter note, of course, my timing was perfect, I went during the mango season so I had a smile on my face after every breakfast, but that’s a different issue.

But I think the interest is very strong. I don’t think there’s any question that people are interested. Even as people wait for sort of, say, the dust to settle, I am working on many cases where they want me to start doing the source of funds because, obviously, that takes a while to get done. And to work along with them to figure out the source of funds, so that when the regional centers or when the investors are comfortable making the investment decision, because that’s what I always tell my clients, we should be ready to proceed fairly quickly. So I would say, yes, it’s clearly been a good sign. And I’m sure that would be confirmed by other attorneys, by regional centers, and the people who are the stakeholders in the EB-5 world right now.

Ali: Rohit, we’re gonna talk about being back in business with regional centers in a second. But let’s talk about the difference between direct investment and regional centers. Our listeners are here, potentially the EB-5 investors that listen to this podcast, they wanna understand what route to choose. I know that’s a question that a lot of people ask us. Do you wanna give guidance in terms of how regional centers work and some of the differences, which do you prefer?

Rohit: Sure. So I wanna preface my comments by actually making a disclaimer here. I think, as everybody knows, to give financial advice, you do need to have a license, either from the SEC or from FINRA in the United States. It’s a fairly well-monitored industry. Most immigration lawyers will not have that license. I certainly don’t. The extremely well-reputed law firm CSG where I’m employed does not so I’m not going to offer a financial solution or financial advice. I’d rather just draw the differences between the two, and let the investors decide what is more palatable for them and what serves their purpose better.

The end goal, whether you’re going to a direct investment, or a regional center, is to make sure that you create the jobs. Because I always like to clarify that this is not a visa where you say, “I’m writing you a check, mail me my green card.” No, no, no. It’s a visa where you’re investing monies into some opportunity or some industry that’s gonna create jobs for U.S. workers, meaning for green card holders and citizens, typically. And once you create at least 10 jobs for each investor or each investment, that’s how you get your green card. That being the underlying basis for getting a green card, that is also the biggest difference between the direct investment and the regional center. Let me just clarify that a little more.

In a direct EB-5 investment, the investor needs to be able to employ or create 10 full-time jobs, which are loosely called jobs, much more accurately, 10 full-time positions, which means they need to be W-2 employees as we know them in the United States. They cannot be independent contractors, they’re not typically consultants, they need to be W-2s, not 1099s. That’s one of the most important thing for a direct EB-5.

As opposed to that, in a regional center, one is not worrying about direct jobs or W-2 jobs because you’re using an economic model, which is actually prepared by an economist. And it factors in and allows you to consider three different kinds of job creation. One would be the direct, which would be the W-2 employees. Two would be the indirect, which is usually the result of, let’s say, some activity requiring additional material. Let’s say a builder or a developer needs cement, needs wood, orders that cement or wood from a third party, and that third party is creating jobs because of their demand.

Then you’ve also got the induced jobs, which are a function of all the wage earners going out there into the market and spending it on, let’s say, consumer items as an example and creating a demand for that. You calculate that and then you’re using a Labor Department multiplier to come up with the number of jobs that are EB-5 eligible. So when you look at that, the job creation is usually easier to achieve, document, and establish in a regional center context versus the direct EB-5. That’s one of the main differences.

Of course, typically, the second difference also will be that your exit strategy is likely to be different in a direct versus a regional center. Because in a direct investment, especially after March 15th, you can have only one EB-5 investor that seems to be the general consensus in the industry. That person is going to be able to exit that business, meaning get his monies back at some point in time, when the business has the ability to do it. In a regional center, more likely than not, the more common structure for that, allows it to be debt related, which means there’s a loan involved. Which is usually for a period of five to seven years, which may be extendable under certain circumstances, or which may have to be extended under certain circumstances. But it’s…you have a finite timeline for an exit and that exit is usually through either refinance or a sale of the business.

You’ve also got another difference, that in a direct investment you are usually not likely to have a bank as the senior lender, or the lender of last resort, which also, translates possibly into the fact that due diligence is done to a limited extent. Whereas, in the regional center, you will have a bank that’s the senior lender, which means they’re certainly looking to protect their money, which means they’re doing and have done more due diligence on the project than any individual can do on their own. So these are some of the salient differences.

Having said that, I’m going to also go out on a limb over here and say that working with people from India, there are certain communities, there are certain areas, where the people would much rather lose the money or lose their money themselves than give it to a regional center. Because clearly, your return on the monies, meaning the interest, is de minimis through a regional center. And you may have a much greater ability to make much more money on your investment if it’s a direct investment.

Example, a community that I feel very close to, and that I have very, very dear friends in, the Gujarati community, business is in their DNA. They would much rather put that money into a direct investment and look for a better return and a much higher profit, than the possibly greater safety and security of a regional center and say, “Okay, you know what, I’m gonna put the money in a regional center. I know job creation is gonna be easier, but I might get only applying to 5% interest. Whereas, if I go into direct, I might get 3% or 4% or even more, and I might actually be a part owner, in which case, I benefit from the profits at the end of the day.” So there’s so much of the mental play over here and what each one wants to do with their monies. I hope I gave you somewhat of a cohesive answer to a pretty simple question that you asked.

Ali: Very detailed. Thank you. It certainly made a lot of sense. And why do you think some of the benefits come with regional centers? And why decided to go that route almost 90%, 95%, right?

Rohit: Yeah, I’m gonna say more than 95%. Well, that’s probably it. But also, when you think about it, most of the people until today, right, have been outside the U.S., they are awaiting a visa. So it’s also hard to invest in an opportunity where you have no ability to participate legally, or to travel and to check it out and see what’s happening. So the regional centers allow for that. Another factor that one cannot just run away from is that the bulk of the investors have been Chinese, which means there is the language barrier and the visa barrier.

So I would argue that it’s so much more sensible to put your money into a place where you’re more sure of getting the green card because it’s based on job creation. You’re not an active participant, you’re not involved in the day-to-day business. Just seems to make more sense. So from that perspective, I think when you just look at a couple of these factors, it’s fairly obvious why regional centers are much more popular.

Ali: So talking about regional centers, Rohit, we’re back in business, give some background to our audience for the Reform and Integrity Act was passed by Congress. March 2022, USCIS and its interpretation and response to the law went ahead and announced the authorization of more than 600 designated regional centers. USCIS said that now in order for the regional centers to resume, they would have to apply for re-designation and receive approval. Clearly, a lot of the regional centers were not happy. And obviously, we know about that. And the Behring regional centers filed a lawsuit challenging the USCIS decision. Two weeks ago, we got some happy news, the U.S. District Court of California granted a preliminary injunction, essentially stopping USCIS from canceling the previously designated EB-5 regional centers. This was a pretty big win for the market. What are your thoughts about it? And what do you think this impact of the lawsuit is on the market?

Rohit: I think you summarized it very well with your opening line, which basically said, “We’re back in business.” Everybody is in a very celebratory mood because of that decision. Not unexpected. I mean, clearly, the industry had some very strong presentations, through extremely well-known and well-established attorneys in the EB-5 space. There’s clearly still a lot of questions that remain unanswered. But at least judge Chhabria has sent the immigration back saying, “Guys, you need to think about how you’re behaving and what you’re doing. You cannot just deauthorize 600 regional centers, just based on a whim and on your very, very limited narrow reading.”

And I think, in his opinion, actually, if I was to just quote, actually just read what he says…you know, he uses language on his first page where he says, “That was almost certainly a legal error because it’s unclear whether the Integrity Act deauthorized existing regional centers or allowed them to continue operating under Congress’s new regime. The agency was therefore required to weigh competing interests before deciding whether the existing regional centers should be deauthorized. And the agency’s treatment of the previously authorized regional centers is harming them irreparably in a manner that is contrary to the public interest. Therefore, the agency is enjoined from treating the existing regional centers as deauthorized while this litigation is pending.”

That’s just taking, obviously, an excerpt out of what he said and what he intended. And I think it’s very clear that the immigration needs to go back and say, “What did we do? Why did we do this?” Somebody acted in haste, according to me, without really thinking and without following process and protocol. On the other hand, I must say that while these lawsuits have been ongoing, I’m sure like other attorneys, I have seen immigration activity on cases pending with the old regional centers, including approvals, including the State Department National Visa Center, moving ahead with the additional processing that’s required.

So it almost seems as if they’re saying one thing and doing another. I like what they’re doing more than what they’re saying, obviously. But I think clearly, again, as the dust settles, as we resolve other issues as to what needs to get filed, what needs to be revised, what needs to be revived, at least, the old regional centers are not deauthorized or deactivated, they are continuing. Maybe they will need to fill more documents and comply with the new laws a little better, but clearly, regional centers are ready to, I suppose as one could say, rock and roll with new business and the old business ventures as well.

Ali: Okay, we know that the regional centers are back in business but where do you think they stand with the new RIA, Reform and Integrity Act? Do they continue to operate in the same manner as before? Or do you think the new law imposed additional regulations, reporting requirements for them to continue operating?

Rohit: Yeah, I think it’s clear from the fact that it’s called Reform and Integrity Act, that there are certainly going to be new provisions they need to comply with, which is what the industry has been more than willing to do, wanting to do, as they would say, separate the wheat from the chaff and keep the good regional centers in business. I think many regional centers may stop being in the space because compliance is going to be expensive. While you want something good, clearly that’s gonna cost money. At the present time, I don’t think there are any regional centers that have 100% clarity. Attorneys are trying to do their best in terms of what guidance they can give them, and how they can function with some kind of safety net and safety guidelines. But clearly, all of this is gonna take time.

And as I think, we would all agree, when you’ve got competing interests, not everybody’s going to do things all together in the same way. There will be differences, there will be nuances. And again, that’s all gonna take time. And that brings me to my thought that the investors should always invest when they are ready to make the decision, not when they have a gun to their head from some regional center. And, of course, I use that very loosely, gun to the head saying, “Oh, this is the last spot in the project and if you like my project you must invest today.” I’m not one of the proponents of that, I’m much more inclined to push back and tell the investors, “No, no, no, this program has been around since 1990, it’s still gonna be around. So you decide when you wanna invest your monies, it should not be driven by a project or a regional center telling you this is the last spot of the day, and therefore if you want it, you got to take it.” So my approach, it’s a little different from what many other people may propose or encourage.

Ali: Rohit, you have been in the EB-5 space for a long time. And apart from attorney’s fees, of course, what are the most important considerations investors have in mind when selecting an immigration lawyer?

Rohit: Okay. So one criteria that I have used from, I think, the first day that I started practice, which obviously is a long, long time ago, and many years ago, I think I’d even written an article on that. At the end of the day, it’s always the investor who decides who should be his or her attorney, especially in EB-5. When they’re looking to engage an attorney, their consideration should be, this is not a transaction. This is going to be a relationship for the next five to seven years. If you look upon it as a transaction, you may end up making a mistake. I think if you look upon this as a relationship, that’s going to spread over many years.

And from that perspective, that allows, I believe, the investor to make a better decision, a reasoned decision, and something that gives them comfort. Because I can tell you, from dealing with my number of hundreds of clients from India, you eventually become, not just their EB-5 attorney, but their go-to for many, many things. Which may partly be personal, which may partly have things to do with other visas where you may not be involved with that individual. But one way, shape, or form, you are touching the individual’s lives in different ways. And therefore, I think the long-term view should be the single most important thing the investor should look at.

Obviously, every investor is also looking at what the attorney’s fees are. I can tell you by and large in the market, they’re pretty similar across the board. And I can also say this, that the attorneys are the lowest paid on the totem pole, whether you compare them to the regional centers, compare them to the brokers and Finders, the attorneys are the lowest paid. I can also tell you, rangely enough, the attorneys are the ones with whom the investors will negotiate the most. It’s kind of a bit of a sad story over there but that’s the reality. And that’s just the way it goes. But at the end of the day, the attorney is the most important person, does the most amount of work on your case, is the person who’s most involved with your case. And the longevity of the involvement is similar whether to the regional center or the broker or the Finder.

So I’m gonna say focus on the quality of the person you’re meeting with. Look at your own gut and say, “Do I like this person? Do I not like this person? Do I feel comfortable knowing this person is gonna be by my side and has my back for the next five to seven years?” No relationship is ever going to be perfect, right? You’re always gonna have some ups and downs, you’re always gonna have some reason why or at some point why you may feel you needed a different level of service, a different quality of service. But look upon the larger picture, that’s what I would say.

Ali: Rohit, you talked about touching people’s lives earlier. When I speak to the immigration lawyers, in general, who are also…some of them who I’ve worked with in the past, you discussed their motivations and passions they have gotten in the practice in the first place. They mentioned how immigration has changed their personal lives for the better and now it’s time to give back to society. It’s really personal to them and for me, personally, my passion in immigration, the joy of understanding how the work can alter someone’s life for better is just an exceptional feeling, right? How long have you been in this practice? Have you been in love with the EB-5 space rather than immigration practice? Give us some background on this, Rohit.

Rohit: Well, while I would absolutely echo everything you said, I think immigration chose me as opposed to my choosing immigration. Maybe I’m slightly different, from that perspective. But the first few years of my practice I was involved with representing clients who had a lot of court-related matters, a lot of asylum work from Afghanistan, some from Sri Lanka. Those were in the early days, then I moved into the business space. I think I absolutely enjoy working with clients, interacting with people. And I think when you see the smile on their faces, at the end of the process, it’s so fulfilling. I’ve had people come up to me many years after I may have done something for them and saying, “Oh my, God, you’re the Rohit Turkhud I dealt with. I never met you but I’ve interacted with you but you got me my H-1 and you got me my green card.”

And to know that somebody has followed me, to some extent, is just fantastically fulfilling. It’s just a great feeling. And I think maybe you become a bit of a guidance counselor when somebody says, “Look, this is my personal issue, and what’s your thought on it?” And they’re relying on you to give them…or they’re sharing their concern, and asking for your opinion, which is not immigration related. To be quite honest, for me, that’s even more fulfilling than saying, “What’s your thought on this immigration issue?” I’m not sure that my wife and kids ask me that as often as my clients do.

So, you know, I think we all have a different role to play in life. And I do enjoy that part of it. And knowing that I’ve given somebody my honest thought allows me to sleep well at night that I didn’t give them a direction, which may turn out to be wrong, but it wasn’t intentional. It was just sharing my thoughts and my belief and my concern, and hopefully, it helps them in coming to the right decision. That, I think, is what’s much more important. You can’t always be perfect. I’m sure there are clients who will see me as being far from perfect, and I’m not sure that there’s much that I can do about that. But at least as long as the conscience is clear, as long as the heart is clear, I think that’s a good way to proceed.

Ali: I liked your answer. So my last question for you is, do you think EB-5 will also start building up backlogs and similar quota lines with like India and China the EB-2 and EB-3 categories? Will there be a waiting period because of the competitive demand for EB-5? What are your thoughts on this?

Rohit: I guess my disclaimer is that if the people who matter and the people who make the decisions at the State Department are always guessing, and issuing a visa bulletin on a monthly basis, it should be far from me to make a guess on this. Having said all that, and telling the listeners not to rely on my predictions, it seems as if India may stay open as being current on the visa bulletin for the next several months. However, having said that, again, I’m not so sure that it’s the present demand, at $800,000-plus, that’s gonna cause a backlog. I think it’s the actual adjudication of the pending applications and their approvals on green cards, which is more likely to create a backlog.

I don’t think it’s gonna be huge when it does happen because at the end of the day, it’s a process and all of these things take time. But I do think that there is a real risk that it will back up at some point in time, possibly I would suspect into the first quarter of next year. Again, depending on how quickly the IPO office adjudicates applications, how many of those applications are being processed in the U.S. as Adjustment of Status, how many applications are being processed outside as consular processing.

All those factors come into play where the people drop out. I’ve had clients who dropped out of the race because it was really taking way too long. There was a certain level of frustration of saying, “I put in the money, I’m waiting for the last five and a half years and all that I’m getting stonewalled.” And they said, “Well, you know, I’m very happy in India, I’m doing very well in India, I don’t want the U.S. anymore.” So I have had that happen. Sometimes people pass away and just automatically drop out. On the other end, the numbers may increase if there are kids born abroad, if there are marriages that take place.

So there are so many of these factors that it’s impossible to predict, with any level of predictability, as to what’s gonna happen when. And that’s the reason why we have the monthly visa bulletins. And each one of us as an attorney, and as investors, I can tell you that I’m constantly monitoring that. So I suspect it will… Again, I’m one of those who’s very supportive of the investors making the decisions when they’re comfortable doing it.

I had a conversation with a client just earlier today where I was asking them for one good reason why their child, who’s in the United States, should not file an Adjustment of Status with a pending EB-5. And they gave me a reason that was just beyond reproach. And I said, “I take back everything I said, you absolutely should not file the AOS.” So there’s a lot that goes into making these decisions. It’s not a simple rule of right or wrong. So there could be backlogs but it may not be as well. I’m not expecting too many Indians to be investing at $800,000-plus.

Ali: Definitely. Let’s shift gears to understand the different models of capital contribution for EB-5 purposes. Rohit, tell us what kind of investment structure qualifies an EB-5 investment. Does it have to be an equity arrangement or can it be debt or take the form of both equity and loan? Tell us about the EB-5 rules on equity versus loan.

Rohit: To put it simply, whether you’re doing a direct or whether you’re doing a regional center, essentially, you always go in as equity first. In a direct model, again, usually, you’re going to invest equity into what’s called a New Commercial Entity. And that’s also going to be the same as the Job Creating Entity usually for direct investments. For the regional center, you’re going to go in as equity, usually, again, into the simplest corporate structure, which would be called, let’s say, again, the new commercial entity. But that is like an SPV which, what I’m saying is a special purpose vehicle, which would be funded only through EB-5 money with the EB-5 investors. That NCE is then going out and making a loan to a Job Creating Entity, a JCE, which is then lending the money to the developer.

So in a direct investment, it is equity through and through. In a regional center context, it will usually be an equity then which is loaned to the developer. Because that’s the loan that the developer is looking for, at a very, very low rate of return or a low rate of interest compared to what they would need to pay the bank for the same amount of money. And that also obviously accounts for how the money is gonna come back to you. Because you’re returning the money in a direct investment, the business that you invested in has to have the ability to give you your money back. In a regional center context, it’s usually the developer who’s going to return the money to the NCE, through the JCE. But again, that’s based on their loan terms with the bank, with other investors, and the capital stack, typically, in a direct investment would be the investment opportunity and the EB-5 investor.

In a regional center, you’re typically going to have a bank, not always, but usually, a bank, which is the lender of last resort, the senior lender. You’ll then have the EB-5 investors, and you’ll then have the developer who has the equity, and who gets all the profits and/or deals with the losses. But EB-5 investors will get paid back before the actual equity into it. In a direct, the EB-5 may be playing out or getting out at the same time as the equity. So you’ve got potentially greater rewards or returns in a direct, but clearly dealing with greater risks as well, from a pure investment play point of view.

Ali: So a follow-up question would be, what if the sources of funds obtained here, from the loan itself by the EB-5 investor, are they gonna be…can they be used for debt for an equity arrangement?

Rohit: Are they getting a loan against their interest in the development, in the project? Because that’s a no, no, for sure. You can take a loan from outside but you cannot take a loan saying, “You’re giving me this loan against my interest in your project.” So let’s say that they were building an apartment, the investor can never get a loan against the apartment that is investing in the building of. I don’t know if that answered your question.

Ali: Yeah. My question is, can I get a loan from an outside person and then invest it? Is that allowed? Can I get a loan from someone and put it into the EB-5 deal?

Rohit: Sure, you can. You can have a loan that is a secured loan against properties that you own, that you have a right over, as of December 2018, under a decision that was called Matter of ZHANG. You’re also allowed to take an unsecured loan, which you can use as an investment in the EB-5. What you always need to remember, whether it’s an unsecured loan from one person or from 10 people, each one of those people who’s lending you the money always needs to be able to show their source of funds. So whether it’s secured or unsecured, the source of funds is still required to be proven and established. So loans are certainly allowed.

Ali: Okay, good. Rohit, that clarifies things. Thank you so much for sharing the industry insights and your personal experience, Rohit, on the EB-5 show today. We’re at the end of the show. Maybe part two and part three of the show we can talk more, as the EB-5 industry develops over the next couple of years since we’ve taken a little bit of a break. Anyway, thank you, Rohit, for being here, and look forward to seeing you at the next event.

Rohit: Thank you so much. Much appreciate the opportunity to chat with you. And great to make your acquaintance as well. Thank you, again.

Man: You have been listening to “The Voice of Eb-5” podcast by “EB-5 Investors Magazine.” To learn more about this episode, please visit Join again soon for more conversations, and please stay tuned.