Project Related Questions

GENERAL QUESTIONS

LCR designed its flagship EB-5 investment offering (Surf Club Four Seasons Hotels & Residences | www.thesurfclub.com) to serve our clients’ three main objectives: (i) dependable job creation, (ii) principal protection and (ii) timely return of capital.

  1. JOB CREATION RISK: LCR financing will be used to replace existing bridge financing for the Project, which is already underway.  The project has already created 8,000 construction-related jobs.  The hotel opened in March 2017, so job credit for EB-5 investor will immediately be met upon I-526 submission.
    1.         Investors in typical EB-5 real-estate projects must wait for the successful completion of the project (or longer), which can often take years.
  2. PROJECT COMPLETION RISK: The Project’s Surf Club Four Seasons Hotel opened to the general public on March 27th, 2017.
    1.         Other EB-5 projects oftentimes are at various stages of construction / completion at the time of investment. In fact, many are projects that have not even commenced.
    2. In addition, the capital stack may not be finalized at the time of investment, which adds additional risk to the project if the developer fails to obtain financing.
  3. MARKETABILITY: The Project is one of the largest beachfront parcels on the Eastern Seaboard of the United States and was originally designated a historic building by Miami Dade County.
    1. Located on 9 acres of oceanfront property on the northern tip of Miami Beach, this will be the first new Four Seasons built on the U.S. Atlantic coastline in the last 30 years
    2. The Project is located within four blocks of the Bal Harbor Shops, ranked the most expensive shopping center in the world (as measured in annual sales per square foot)
    3. Nearly 80% of residences have already been sold making the $1.2 billion projected sellout–the largest single project sellout in Florida history

JOB CREATION QUESTIONS

  1. The General Partner has engaged Vermillion Consulting LLC (the “Economist”) to analyze the economic and job creation impacts of the Project. The analysis prepared by the Economist used the Regional Input-Output Modeling System, also known as “RIMS II,” for calculating job creation by the Project. According to the analysis, the Economist estimates that the likely job impacts from the Project will be 9,180 new jobs, including indirect and induced jobs, generated by the development and operation of the Project.
  2. Vermillion Consulting LLC analysis projected over 8,500 construction-related jobs. The hotel opened to the public in March 2017.  All of those jobs count towards job creation for the Projects EB-5 investors

LCR is using a rule of USCIS that permits jobs already created to be credited to EB-5 investors if EB-5 funding replaces existing debt.  There is ample precedent for this.   The USCIS allows a project to raise EB-5 capital to replace bridge financing and have the job creation count towards investors’ EB-5 requirements [USCIS May 30th, 2013 memo, Section IV, C]…   USCIS Memo on their site

SECURITY & REPAYMENT OF PRINCIPAL QUESTIONS

The Surf Club Four Seasons Hotel & Residences is a very well capitalized project.  In fact, going in, there will be no senior debt on the property as of the initial takedown of the EB-5 capital loan. This means that in the absence of senior debt, in the event of default, the fund will own the hotel and the unsold condominium inventory as well as any receivables from pre-sold condo’s.

  1. Hotel – The value of the hotel (base case) is around $77 million (~$1 million per key)
  2. Receivables from Condo deliveries – The amount of money coming in [receivables from pre-sold condos) is ~ $400 MM
  3. Unsold Condo Inventory – And there is about $200 million in unsold condo inventory

There are specific mechanisms in the loan agreement between LCR and Fort Partners:

  1. Default – If Fort Partners is unable to service the debt, then they would be placed in default and LCR would take possession of the equity in the hotel and the equity in the condominiums, which would include the underlying assets in those entities.
  2. Collateral Coverage Ratio – In addition, Fort Partners is contractually prohibited from falling below the 1.2x collateral coverage minimum, based on their outstanding loan amount threshold at all times (i.e. at funding, Fort must have hold a minimum of at least $240 million of collateral based on $200 million of EB-5 capital)
    1. If the amount of collateral were to ever go below 1.2x the outstanding loan balance, then there is a forced repayment mechanism that states that within 30 days, Fort Partners is obligated to repay the necessary portion of their outstanding loan balance to fall back within the 1.2 times collateral coverage obligation.
    2. If they fail to do so, this is a default condition and LCR would have the right to take possession of the collateral.
  3. Debt-To-Equity Ratio – Fort Partners must always maintain a minimum debt-to-equity ratio of 80:20.
  4. Other
    1. It should be noted that most EB-5 loans do not have this type of investor protection (collateral coverage ratio).
    2. The real implication of this clause is that there should always be enough collateral to cover the full amount of the EB-5 loan.
    3. There are provisions in the loan agreement that prohibits the borrower from taking any action that may lead to a default. This, for instance, will prohibit the borrower from taking on excessive debt or paying an extraordinarily large dividend that would imperil the loan. This structure is enforceable in US courts and it is general industry practice to include in any loan of this nature.

The term of the EB-5 loan is 5 years and therefore we expect the repayment of the investment to occur in year 5. The debt repayment profile is of a 5-year note with two optional 1-year extensions. The debt matures in 2022. 

The repayment of each EB-5 investor’s capital is linked to (i) have sufficient jobs been created and sustained for each investor and (ii) repayment of the 5-year loan by the borrower.

  1. From a repayment standpoint, the loan is structured such that Non-Chinese investors can be repaid once their 829’s are approved.
  2. Please see Project PPM Section II Distributions (b)
    1. “Second, to the Limited Partners who have had their I-829 Petition adjudicated by the USCIS, pro rata, in proportion to the Percentage Interests held by the Limited Partners, until each such Limited Partner has received an amount equal to the fair market value of his or her Interest (which is anticipated to be equal to the sum of his or her unreturned Capital Contribution Commitment plus such Limited Partner’s unpaid Preferred Return), at which time each such Limited Partner’s Interest will be cancelled and will no longer be deemed a Limited Partner of the Fund; and Return of capital is not tagged to the timeline of Chinese investors.”
  1. Within 30 days.
    1. There is also a Holdback Escrow Amount in place that the Developer needs to maintain a $2 million at all times.
    2. Please review the Project PPM [PPM Section II Denial of I-526 Petition]:
      1. “If the USCIS denies a Limited Partner’s I-526 Petition (an “I-526 Denial”), and the Limited Partner has not been previously expelled from the Fund pursuant to an Event of Expulsion, the Limited Partner has the right, within fifteen (15) days following the date of issuance of the I-526 Denial, to request that the Fund cancel that Limited Partner’s entire Interest. Upon receipt of the Limited Partner’s request, and subject to receiving waiver and release documents requested by the General Partner, the Fund shall use commercially reasonable efforts to replace the denied Limited Partner within thirty (30) days by finding a substitute EB-5 Investor to purchase an Interest in the Fund (to the extent permitted by applicable law).”
      2. “To the extent the Fund is unable to replace the denied Limited Partner, the Fund shall, within thirty (30) days, or as soon as practicable thereafter: (i) cause an amount equal to such Limited Partner’s Capital Contribution Commitment to be released from the Holdback Escrow Account and refunded to the Limited Partner; (ii) remove the Limited Partner from the Fund; and (iii) cause Fort Partners to replenish the Holdback Escrow Account such that the balance thereof shall be no less than the Holdback Minimum Amount.”

 

  1. The funds will be held in escrow until the $25 million raise and then released to the developer.
  2. Projects that hold their investors capital in escrow until each I-526 is approved are doing so unnecessary and as a marketing gimmick.
    1. According to NES Financial, the leading 3rd party fund administrator in the EB-5 industry, less than 20% of EB-5 projects currently utilize this provision.
    2. It is most likely that the Regional Center and/or Developer were forced to insert this provision because of structural and fundamental weaknesses in their project.
  • It should be noted that the current I-526 approval rate in FY 2016 was 90%+.

The Blackstone loan is refinanced with deliveries of the presold condominiums. The Blackstone repayment is also a precondition of the EB-5 money being taken down by Fort Partners.  The project is currently on schedule to deliver the necessary condos for repayment in Q3 of this year.   These deliveries are the fulfillment of the condo purchase contracts that have a 50% down payment.

  1. $5 million as working capital for the hotel.
  2. $35 million for ongoing construction (there is a market, restaurant and parking facility to be built).
  3. Up to $160 million to pay back an Installment loan that was taken out in 2013 to purchase the land.

Yes, the $190 million installment loan (as mentioned above).

There are no other claims on the collateral at the time of funding. The developer has the ability to raise additional secured debt on the property, but there are strict covenants in place to limit that amount of debt to 1.2x collateral and 80% debt to 20% equity.  If there is a future mortgage or other senior financing, then these protective provisions would still be in place.

  1. The Construction Loan is senior to everything on the Project Balance Sheet and comes due on 8/9/2017. This loan must be paid in full before the EB-5 loan can be taken down.
  2. This loan should be paid down via pre-sales and/or the $125 million cash currently on the balance sheet.
  3. However, once this loan is paid down, there is nothing that is Senior to the EB-5 Loan.

LCR FUND AND FEES STRUCTURE

The management fee is derived from the loan interest set aside.  It is used to pay fund expenses and the Preferred Return.  Specifically, 100bps are set aside from the loan interest to pay:

  • Admin Expenses
  • Preferred Return

No. The expected payment date for the Bridge Loan has been moved to 2017.

Yes. Although the PPM included several NAICS Codes that did not include “Hotel” activity, it has been amended such that the hotel designation is now approved.

We are happy to work with any qualified and EB-5 experienced law firm. We highly recommend our investors pick a high-quality firm with significant EB-5 and immigration experience.

U.S. federal income taxes, owed by each LP, will be calculated based the amount of preferred interest earned each year (i.e. $1,250).

PREPAYMENT OF EB-5 LOAN / REDEPLOYMENT OF CAPITAL QUESTIONS

The project structure provides for the jobs created to be credited upfront. Any kind of prepayment and redeployment will not impact the job creation credit in this project. The investment in this project is being utilized to repay an Installment loan that was taken in 2013. A May 2013 USCIS memo clarifies that all jobs created by the project between 2013 and now (approximately 9000 jobs) can be counted. Even if the loan is prepaid back in the first year, it will not impact any jobs created credited to the investors.

USCIS stated in a draft Policy Memorandum on August 10, 2015 entitled “Guidance on the Job Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829” that “For the capital to be ‘at risk’ there must be a risk of loss and a chance for gain.” Based upon that definition of “at risk,” it is not required that the NCE redeploy its capital into another job creating entity, so long as the NCE’s original investment met the job creating criteria approved by USCIS in the NCE’s original business plan. This is consistent with the two requirements for condition removal in Section 216A of the INA (8USC§1186b), which are the sustainment of investment and creation of jobs.

  1. If the creation of jobs requirement has already been fulfilled, the only requirement remaining is the sustainment of the investment:
    1. Therefore, in the Project PPM, we mention two possible redeployment options, in case there is a prepayment. There are two additional projects being developed by Fort Partners that are candidates for redeployment should there be a prepayment made from this project. Any hypothetical redeployment will contain similar strict credit protection standards as in the existing loan.

The agreement provides for either party to extend the period:

  1. LCR has the option to extend the loan by two one-year periods. However, the only condition under which LCR would do so is if the 829’s have not been notified. In the event that some 829’s have been notified, LCR would then extend the loan in a pro-rata portion. The 829’s that have been notified would then be getting their money back. There is concern that because the 829 processing is 2 years longer for Chinese investors, the length of the time for the funds to be in the Project have to be for the entire duration. That is not the case here. The way the deal is structured is that the length of extension of the loan at maturity can be whole or in part, so that the money can be paid back to the applicants whose 829’s have been approved.
  2. The Developer has the option of two, one-year extensions. This is a hypothetical situation as the Developer has not decided nor informed LCR of any such intentions. The scenario in which the Developer would exercise this option is if they have a lack of liquidity (i.e., A 2008 situation where there in not an efficient refinancing market), or insufficient cash on the balance sheet.

Because of the “At risk” provision we cannot take the money in any escrow. And hence there is not an option to create a sinking fund like structure. The larger view in the industry is that such a structure is not permissible in EB-5 loans as it violates the “At risk” provisions. Any interest payment moved to an escrow for repayment of the principal via an escrow would not be approved by the “At risk” provisions by the USCIS.

EB-5 INVESTOR PROTECTIONS OVERSIGHT

  1. S. SEC and FINRA- licensed Broker Dealer: Primary Capital provides a monitoring and supervisory function to ensure compliance with standards required by both FINRA/SEC and USCIS. Key Benefits for EB-5 investor include:
    1. Investor Confidence & Protection: The independent due diligence of an SEC-approved U.S. broker adds confidence for both the issuer and the investor.
    2. Project Compliance and Accountability: Primary Capital provides a monitoring, supervising and approving role in compliance with standards required by both FINRA/SEC and USCIS.
  2. Fund Administrator: To provide our investors with additional security and transparency, LCR also works with NES Financial, the EB-5 industry’s leader in fund administration. NES Financial provides technology-enabled services for the efficient middle and back office administration of highly specialized financial transactions.
    1. Founded in 2005, NES Financial is the recognized leader in the EB-5 industry with over $20 billion of capital across over 450 projects and has been recognized for two years in a row in Inc. Magazine’s 500 & 5000 lists of the fastest growing private companies in America.
    2. Each investor has proprietary access to a customized investor portal to track LCR’s progress regarding job creation and capital deployment. This provides each EB-5 investor with visibility into the uses of their capital.
      1. This also includes a comprehensive tracking of funds throughout project life cycle, and the ability to generate documented audit requirements to complete the immigration process.
      2. PLEASE REVIEW APPENDIX A FOR FURTHER INFORMATION
    3. Escrow Agent: Signature Bank® (Nasdaq:SBNY), founded in 2001, is a New York-based full-service commercial bank with 29 private client offices. With currently about $33 billion in assets, Signature Bank is one of the 50 largest banks in the U.S.
    4. EB-5 Econometric / Jobs Report: Founded and led by, Kim Atteberry, former Chief Economist for the USCIS, Vermillion provides expert advice on project feasibility, EB-5 compliant structures, job creation methodology, targeted employment area (TEA) analysis, and Matter of Ho compliant business plans.

Yes, Primary Capital, the SEC and FINRA licensed Broker-Dealer, has issued a comprehensive 3rd party report on project.

According to the IIUSA (Invest In the USA), a national membership-based 501(c)(6) not-for-profit industry trade association for the EB-5 Regional Center Program, the number of Securities and Exchange Commission (SEC) enforcement actions for EB-5 totaled 28 cases from FY2013-2016. That is less than 0.9% of the total 3,116 enforcement actions brought by the SEC for enforcement actions across the entire U.S. financial services industry during the same period.

TRACK RECORD QUESTIONS

  • LCR has rapidly emerged as the leading investment firm focused on helping international HNI investors outside of China achieve U.S. residency. In particular, our firm is widely considered the #1 market leader for Indian, Brazilian and South African HNIs and their families, both in terms of the number of clients and reputation.
  • Since earning our first regional center designation by the USCIC in May 2014 and subsequently closing our first fund successfully in late 2015, LCR has welcomed clients from 15 different countries into five LCR-sponsored, investment projects. This track record places the firm in the top 10% of all investment firms operating in the industry today.
  • Our first EB-5 investors will receive their I-526 approvals later this year (current estimate is September 2017). It is also worth mentioning that the latest, industry-wide approval statistics for I-526 petitions were 93% as of Q1 2017.  LCR firmly believes that it will beat this industry average and therefore has contractually committed to returning the full investment amount if any of our investors were not to be approved at the I-526 stage.
  • LCR applies a rigorous and consistent process of evaluating, selecting, and managing our EB-5 investments.  We have earned a reputation for strict standards around USCIS and SEC compliance as well as institutional-quality level, project due diligence.  These exacting standards help provide much-needed transparency and 3rd party monitoring and controls to the benefit of all our investors.
  • LCR also serves as the General Partner for each of its EB-5 investment projects and follows a structured, in-depth due diligence process to ensure compliance with EB-5 regulatory requirements (both investment and immigration-related).
  • LCR EB-5 Projects are Focused on Premier, Global Brands with Dependable Job Creation:  By design, LCR has taken a conservative, risk-averse approach to project selection and thus structures our investors’ capital as five-year, secured loans to help fuel the expansion of premier hospitality brands (e.g. Four Seasons hotels) and restaurant franchise brands (e.g. Dunkin’ Donuts) with decades of proven success.   We strongly believe that these types of strong brands are ideally suited for our EB-5 investors, as they have long, proven histories of operating success and are one of the most efficient converters of capital into jobs.
  • LCR’s Diverse Array of Institutional Partnerships with World-Class Institutions: LCR has also assembled strategic, institutional-level relationships with many of the leading wealth management and CA firms in the country including IIFL, Barclays, Ambit, and Grant Thornton. In addition, our firm is currently finalizing partnerships with Kotak Wealth, Centrum, Julius Baer, and Avendus, among others.  In addition, we have successfully developed strong partnerships with other world-class firms such as Morgan Stanley (global); Safra Bank (Brazil) and C.V. Starr (the predecessor company to AIG).
    1. LCR underwent extensive due diligence and vetting from each of the firms mentioned above, including our firm’s background and track record as well as our EB-5 projects themselves. Based on successfully completing each firm’s own due diligence process, our strategic partners gained the comfort necessary to distribute LCR’s EB-5 projects to their valued, HNI client base.
    2. Our firm is one of the few (if any) firms that has been vetted as extensively, and by as many diverse parties as LCR Capital Partners.
    3. Thus, our EB-5 clients benefit and gain additional comfort from this unique approach to institutional-caliber projects and service.
  • Caliber and Mission of LCR’s Senior Management Team: Founded in 2012, LCR is a partner-owned and operated investment firm, founded by Harvard Business School alumni, who first saw and then seized on the opportunity to serve the U.S. residency needs of international HNI investors (i.e. outside of China) whom, because of their country of origin, were not aware of the significant benefits the EB-5 investment visa can provide.
    1. By design, in 2014, LCR began these efforts by devoting significant time, focus, and capital to establishing a leadership position in rapidly emerging EB-5 markets including Brazil (4th largest EB-5 market); India (5th largest EB-5 market); and South Africa (Top 15 EB-5 market) where (i) most HNIs’ were rarely aware of the EB-5 program’s existence and/or (ii) were not being treated with the transparency, 3rd party institutional controls, and overall professionalism that immigrant investors deserve.
      1. Professional Track Record and Reputations:  With seven Harvard MBAs on its senior management team and advisory board, our CEO, Mr. Rajan, has assembled an experienced, multi-faceted leadership team whose distinguished professional track records were earned over two decades while serving at many of the world’s premier organizations including Goldman Sachs, Credit Suisse, McKinsey, BlackRock, UBS, HSBC and MSD Capital (Michael Dell’s $17 billion family office).
      2. Mission-Driven:  As first-generation U.S. immigrants, the founders of LCR, including our CEO, Suresh Rajan, are intimately aware of the opportunities and challenges.
  • Nadim Ashi, Fort Partners Chairman, sits on the Advisory Council of the Four Seasons Hotel.
  • Based on their track record [over $1.8 billion in Four Seasons development experience to date], Fort Partners was awarded exclusive rights to all new development on the Atlantic Coast of Florida.
  • The average time to develop and open a Four Seasons property is ~ 10 years, however, Fort Partners’ track record is ~ 3 years.
  • V. Starr, LCR’s strategic partner for China, independently assessed Fort Partners’ track record of success and similarly concluded that they are a top-notch developer.

LCR only works with proven Regional Centers with demonstrated track records of success.

For this project, LCR selected EB-5 Affiliate Network.  Their exact statistics are proprietary to EB-5 Affiliate Network, an independent Regional Center based in Palm Beach Gardens, Florida.  They shared with us that they have a 100% approval to date (meaning no investors have had an I-526 or an I-829 denial to date due to project or regional center related reasons).

The minimum raise is $25 million.

As of July 31st, 2017, LCR has secured a total of $23 million (i.e. 46 committed investors).