One trend with EB-5 that is interesting to note is the country of origin for visa applicants. The most recent data, from 2011, indicated that the top nations were China, S. Korea, Iran, Taiwan and Mexico.
Of the five largest contributors of investors, three are in Asia and two speak Mandarin as their national language. All five rank low on the Quality of Life Index for 2014 see here. All rank in the top 25 nations for nominal GDP (though Taiwan is counted as a part of China). All have established immigrant communities in the US (measured by citizens with origin of birth in other nations). They represent a variety of income inequalities, major industries and national history with the US.
They all have one important thing in common: a lot of rich people that want to come to the United States.
If you are familiar with EB-5, it should come as no surprise to you that China is the no. 1 place that investor applicants come from. The first time I heard about EB-5 it was from a Chinese real estate developer looking to build in Detroit, which at the time had an unemployment % that met the TEA requirements (1.5 times the national average). When he pitched it to us, he described it as a Chinese program. It wasn't until I did some research that I discovered that investors could come from anywhere.
There are a couple of items to note about the Chinese investors. First, they are repeatedly the largest group, far outstripping any other nation. Second, Chinese investors chose the Regional Center option 90-95% of the time. The best way to explain this at a glance is to compare the rising wealth amongst China's richest citizens set against the low quality of life. A Peking University study this year found that the wealth gap in China has spiked rapidly in recent years. 1% of the nation now controls 30% of the wealth, while the poorest 25% only holds 1% See the results here. There are more rich people in China than ever before but the quality of life has been improving slowly. This may incentivize many investors to move to another country (forget for a moment that it is also a nation with a very recent history of being hostile to the wealthy).
Another reason for the popularity of the program might also be the American university system and its popularity amongst Chinese students. Students and parents recognize the value of an American degree, to the point that "brand" names like Harvard and Berkeley are fetishized in the same way China's nouveau riche do to the black Audi (I'm completely serious).
Chinese students want to attend American colleges. More importantly, Chinese students' parents want them to attend American colleges (Further reading).
These parents want their kids to get an excellent education, and even by the rankings created by a Chinese university and backed by their own government, China doesn't even have a single one of the best 100 colleges in the world. On the other hand, the list is full of American colleges (rounding out with Georgia Tech at #99).
I bring this up to show how powerful of an incentive education is to EB-5 investment.
Students that want to stay in the US after college typically apply for a H-1B visa. However, getting approved for the H-1B is difficult: a random selection process that admits about 50% of applicants. Then take into consideration how many applicants China must produce every year (given its population and previous information) and all of a sudden $500,000 from an affluent family seems like a viable option.
In my experience, Chinese investors with children soon to turn 14 are a popular group to invest. These investors typically ask about the colleges and the high schools in the area that they are planning on moving to. Its a no brainer - if you wanted to send your son to an American university, you could save money by meeting certain state's residency requirements by having graduated from high school in that state. Furthermore, your chances of getting in are at least perceived as being higher when you've graduated from an American high school. Then take into consideration the value of the immersion process. Then multiply that by 2 or 3 for each kid. $500,000 isn't exactly a drop in the bucket, but it begins to makes financial sense.
The other figure, that most Chinese investors go with Regional Centers, I think is a matter of "guanxi". The Chinese custom of relationship building and networking (and the name of this blog) is built around the idea that an interpersonal network is the supreme way to approach any business decision. For example, if one investor had a good experience with an agent in Shanghai that is contracted out by a Regional Center in the US, then that investor is likely to recommend that agent to his friend if the friend wants an EB-5 deal. If you notice how marketing for EB-5 opportunities is done in China vs. the Middle East, you'll see this process in play. Meetings in China are small, if they even happen. It's rare to see an advertisement in a magazine or at an expo. Conversely, in the Middle East there are agents touring large facilities, preaching the good word of Green Cards and Regional Centers.
Chinese investors seem to be more shrewd. Online American forums make them seem like rare white elk. Peruse any open forum or LinkedIn group and you're bound to see a post that says something like "How do you find Chinese investors?" or "Who did you connect with over in China?" It's a mystery to any American without an overseas connection.
Heading over to the Middle East there are groups from the US that are sending pitch men (think Billy Mays in a $5000 suit). These investors are sold on the concept and it doesn't matter as much who is selling it. In China, a local contact is essential. Judging by the percentage of Chinese applicants, clearly the guanxi model & Regional Center models are working for that market.
This does leave a big question in my mind: since Chinese investors are going more by personal contacts, how well are they vetting opportunities? Are they comparing services and fees among Regional Centers? Or are they going with who they know and relaying on a personal relationship to keep them from getting a raw deal?
The Regional Center model is ideal for guanxi because it allows one contact to pursue a lot of investors. However I'm sure there are conversations being had from Monterey Park to New Jersey, where one investor has just learned he paid twice as much to get half the services that his neighbor got. 读万卷书不如行万里路!
David Guastella is an EB-5 consultant for Guanxi Consultants based out of Chicago, IL.