On August 7, 2014, I was present when the City of Miami opened up City Hall in order to announce the creation of its new EB-5 Региональный Центр, which was designated by the U.S. Citizenship and Immigration Services (USCIS) in May 2014. Miami Mayor Tom Regalado announced that the new regional center would be administered by a new city agency named the Office of International Business Development. Mayor Regalado hopes that the regional center will lead to the promotion of economic growth and job creation in Miami. Through its new agency, its relationship with various sister cities, and the strict application process led by local, industry-specific city-appointed advisory councils, the City of Miami appears to have a viable alternative for commercial finance opportunities in South Florida.
After Mayor Regalado, the information session was led by the director of the regional center, Mikki Canton, a top attorney who has served Miami for many years. Ms. Canton celebrated the official launch of the regional center as a tremendous benefit to Miami and its ability to offer low cost loans or equity financing to businesses located in South Florida. She informed the public that the regional center was approved for a geographic territory involving the counties of Miami-Dade, Broward and Palm Beach. Hence, while businesses in the City of Miami may be most beneficial for the city, the regional center will not stop at the borders of Miami. Additionally, although the first project included in the regional center filing was a commercial real estate development, as referred to by Ms. Canton and the regional center’s counsel, USCIS policy allows for other industries to be funded under a regional center without amending its designation. In fact, the initial project included was only approved as a “hypothetical,” which means that the project was not pre-approved by USCIS. Pre-approval of a project is possible through the filing of an application seeking to amend a new regional center, but it is not mandatory or necessary by USCIS. Henceforth, the City of Miami’s regional center is allowed to sponsor or “rent to” qualified projects the legal right to fund their projects with foreign capital — in exchange for lawful permanent residence.
As noted by the Daily Business Review, which interviewed the officials of the new City of Miami regional center before the information session, the regional center will not simply be giving money away. Ms. Canton was quoted as saying, “People have called to say ‘Oh, when’s the city going to give us money? Listen, my brother knows the mayor and is friends with this and that person and they go way back.’ We’re educating people that’s not how it works.” Indeed, as anyone who has been involved in the EB-5 Regional Center Program knows, how it works is a potential project must have (1) a comprehensive business plan; (2) an economic impact study which evaluates the effects and inputs; (3) verifiable, sourced and transparent project documentation which supports the planned expenditures and revenues that the project plans to have; and (4) a marketing strategy for raising the EB-5 capital.
The City of Miami EB-5 Regional Center does not plan to market its projects directly to investors. It will market the regional center, its website, and its business plans. But, as noted by Ms. Canton, the regional center will require each project company to be responsible for raising its necessary capital. Each project which desires to fund their projects with EB-5 capital through investment partnerships which are affiliated with the City of Miami’s regional center will need to be separately vetted and approved by the regional center and an independent committee of local industry professionals. Ms. Canton states that each potential project will need to apply to the City of Miami, and that the application fee for each project will vary based on the experience and reputation of the business. In summary, Ms. Canton or her counsel noted the following:
Low Developer Fees. Each project owner will be charged a developer fee based on the total amount of EB-5 capital that will be raised through the City of Miami EB-5 Regional Center. Companies which have a successful, dependable, and strong reputation may be offered fees that amount to 0.5% of the EB-5 capital raised through the project.
Different Rates for Various Companies. Developer fees may be as much as 5% of the EB-5 capital raised through the project.
Investment Manager. The City of Miami EB-5 Regional Center will not serve as the General Partner or Manager of the Limited Partnership or Limited Liability Company that will serve as the special purpose entity created to fund EB-5 capital. However, the City of Miami will take a role, in conjunction with its independent counsel at the Greenberg Traurig law firm, in assuring that operations are conducted properly. Hence, the City of Miami does not take issue with properly structured corporate entities from serving as separate (though affiliated) general partner and project owner.
Escrow Not Necessarily Required (In All Projects). The City of Miami EB-5 Regional Center will decide on a case-by-case basis whether a project owner is required to use escrow pending approval of each individual EB-5 investor’s I-526 petition approval.
Separate Legal Counsel Required. Greenberg Traurig states that its law firm will not be required to represent project owners before the regional center. Each project owner will be required to have separate legal counsel to prepare their application filings.
Application Process. The City of Miami EB-5 Regional Center will require each potential project to present a comprehensive business plan to the city in order to be considered in the vetting process.
Marketing Capital Fundraising Plans. The City of Miami EB-5 Regional Center will allow each project to utilize either licensed broker-dealers (in accordance with the Regulation D rules of the Securities and Exchange Commission (SEC) and state blue-sky rules) or foreign migration agencies (in accordance with the SEC’s Regulation S). There was a strong exchange between the city and various realtors in the audience regarding their ability to collect finder’s or success fees from an EB-5 project. This is forbidden, Ms. Canton and Greenberg Traurig rightfully noted, unless the real estate agents are licensed under the proper SEC or FINRA rules, or are certain employees of a project owner. Real estate commissions, where applicable, may be permissible. The City of Miami EB-5 Regional Center will carefully vet the marketing strategies of each individual project owner.
All Industries Considered. Any permissible industry shall be considered for the regional center. While the regional center was designated for commercial real estate and construction, other business operations shall be considered. Ms. Canton and her legal team acknowledged the change in USCIS EB-5 policy last May 2013. Hence, all business areas, whether they are educational institutions, restaurants ventures, manufacturing industries, or furniture warehouses (such as El Dorado, whose founding owner was in the audience) shall be considered.
Investor Scrutiny. The City of Miami EB-5 Regional Center will closely vet any individual investor that wishes to invest in a specific project. Not clear yet as to how the city plans to implement this, if not for a separate review of each individual investor’s lawful source of funds evidence.
It will be interesting to see how the City of Miami EB-5 Regional Center performs in the coming years. My questions will be how long will it take for potential project applicants to be vetted? A process which takes too long may undercut the value in “renting” a regional center, as opposed to forming a new one. But the potential possibility in paying 0.5% to the city, in addition to potential costs to brokers and foreign investors (which may be around 1 to 3%), may be good enough to wait for. For other project owners, paying 5% to the city may be more than they desire–which may lead them to consider forming their own regional center. Despite what some may perceive, the City of Miami will not be the only regional center in the area (there are many in the region already), and a project owner has his or her choice. But the City of Miami can offer what many may not: a viable, cost efficient, and municipality-controlled EB-5 regional center.
For more information on whether your project may qualify under the EB-5 Immigrant Investor Program, or under any particular regional center including the City of Miami’s EB-5 Regional Center, please contact me for more information.