EB-5 Broker Dealer

In this EB-5 Podcast Episode you’ll learn some key information about the Broker Dealer and their importance in EB-5 investments. A few things you’ll learn in this article and podcast are:

• What is an EB-5 Broker Dealer?
• Why are EB-5 investments securities that require an EB-5 Broker Dealer’s involvement?
• What background and experience does the Portal’s Broker Dealer have?
• What can you expect when working with an EB-5 Broker Dealer?
• Read on or listen to learn more about the EB-5 Broker Dealer.

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Charles “Duke” Runnels of T.R. Winston speaks with us about the role of a Broker Dealer in EB-5 Transactions. Podcast – 28 mins.

Introduction: (Episode Transcribed)

Hello EB-5 Investors this is Floyd Mitchell with eb5eb5.com and welcome to episode #1 of the EB-5 Investor Portal Podcast.

Recording on Friday June 23rd 2017. Today’s episode is titled:
The Role of a Broker Dealer in EB-5 Investments”.

Our guest is investment banker, Charles “Duke” Runnels of T.R. Winston & Company. Duke has an impressive background in not only EB-5 Investments but real estate as well. Some of Duke’s notable projects included the Minnesota World Trade Center, the Louisville Galleria along with its two adjoining office towers, the CCH Computax Headquarters building and the Torrance Marriott Hotel.

Since 2014, Duke has been acting Director for Capital Markets for TR Winston & Company, a privately owned merchant, corporate and investment banking firm. Today Duke will share with us some keen insight into the role of a broker dealer in EB-5 investments. Welcome again and I hope you find today’s show informative and helpful.

Are you an investor doing your research and trying to find the right project, or the right team? Are you familiar with the role of a broker dealer and how much this person can help you reach your dream of U.S. Citizenship? Have you read the bad news about EB-5 as it so often is published by the media? We’ll if so, today’s episode should bring clarity and give you confidence that there is a proper, safer and professional way to make your investment and improve the likelihood of you reaching your goal of becoming an American Citizen.

I’d now like to welcome Duke Runnels to the show. Duke, we appreciate your time today and really look forward to learning more about what you do as an investment banker and broker dealer for immigrant investors.

Q:
Let’s start with the basics Duke. There are many advisors that are not actual Droker Dealers like you out in the world promoting various EB-5 projects and giving advice to prospective investors. I understand that this can be quite risky and that there are actual safeguards in place for these investors. What are EB-5 Investments and why are they regulated by FINRA and what is your role in all of this as a broker dealer?

A:
EB-5 investments are securities and securities come under the purview and guidance of FINRA and its member firms. The Broker Dealer (also referred to as an investment banker) role is a critical role as one looks towards making an investment in the EB-5 arena. The reason for that is that you know that investment has gone through a certain amount of scrutiny, a certain amount of due diligence, investigation and that there has been a full identification of the risks along with the opportunities. Call it an enhanced vetting process that the project goes through before it is even made available to the investor for their consideration. So the role of a broker dealer or the role of an investment banker becomes a critical one. In the EB-5 industry this is somewhat of a new phenomenon because many people have been acting as advisors in this role without going through the various guidelines that are developed by FINRA. A Broker Dealer adds another avenue of safety that the investor may rely on.

Q:
What is involved to get approved as an investment banker to be licensed as an EB-5 broker dealer?

A:
What’s involved there is making application to FINRA to actually expand your firm or the investment banking firms suite of services. And when one makes that application to FINRA there is a process that is a laborious and expensive process to go through in order for that broker dealer to be authorized if you will to transact in the EB-5 arena. There are very few investment banking firms to my knowledge that have gone through that process as we have at T.R. Winston.

Q:
What is the process for an investor to work with the EB-5 Investor portal and yourself at T.R. Winston & Company to make an investment in one of the EB-5 projects you represent?

A:
Sure. The process would look something like the investor has been made aware of the web site EB-5 Investor Portal which has been fully reviewed by FINRA. They’re made aware of a project through that portal. Most often they’ve been made aware of that project through their own immigration attorney or an immigration attorney that they have been working with, once they decided to pursue making an application for an EB-5 Visa. Once the attorney is involved and they’ve started to pull together information, they have been in contact with the EB-5 Portal and have been made aware of a project at that point in time should their interest be sufficient enough they are put in touch with someone such as ourselves a T.R Winston, with an investment banker or broker dealer if you will. What will happen before then, what they can expect from that conversation with an investment banker is that we will have already reviewed the project, not only the project itself and its economic viability. We will have reviewed the viability coupled with the reports as to it’s job creation, we will have reviewed and done extensive background checks on the sponsors of that real estate development. In other words, it is our role to uncover everything there is to know, everything there is regarding the proposed project. What that brings to the table is another layer of safety, another layer of due diligence, another layer of vetting that the investor and his immigration attorney can rely on as they study and peruse and decide if the investment is correct for them. It really means there is another layer of comfort to be gathered by talking with the underwriter of the program which would be the investment banker and that’s where the interface with us and that’s where that conversation starts to lead.

Q:
Do you speak with the investor directly or do you work with any number of people they may have on their team such as immigration attorneys, wealth managers, accountants etc.?

A:
That’s a great question Floyd and I would say yes to all of the above. One of the unique aspects of the way this program is set up is that the investor does not need to let go of his individual advisers that he’s been accustomed to relying on. In other words they can retain their own immigration attorney as well as retain their own wealth managers or accountants or things on those lines. It is important though, that as the investment banker, we do interface directly with the investor but we can do that with the immigration attorney in most cases, accountants if need be. Bearing in mind that we are not accountants we are not legal attorney, so the investor would want to rely on his expanded team if you will. Be it individual conversation with the investor or conference calls with the investor and their advisers. All of those are tremendously encouraged.

Q:
Why is T.R. Winston qualified to help any investors out there that may be listening to this podcast? If you can as well, please tell us about your real estate experience and how that may help the investors you work with.

A:
Well I think there’s a number of things to consider. One of them is that the firm in this case T.R. Winston has been vetted and approved as part of their business operation to participate in the EB-5 arena. So that’s number one. Then secondly it is important that the actual investment banker or the actual adviser be someone that has real estate knowledge and experience because in most cases that’s where the EB-5 investment will rest in the real estate industry. And in our particular situation my particular career as well as our team has been rooted in the real estate industry both from a standpoint of equity and debt and more particularly in terms of real estate development. So our ability to underwrite to verify projections or challenge them as the case may be is a little bit more enhanced because of our career experience in the real estate market as it spans the United States and different product types. So as I circle back it’s important that the firm be authorized by FINRA to participate and EB-5 is a part of their business operation and it is critical that the actual investment advisors or investment bankers have extensive real estate experience and that that is a part of what they bring to the table not just financial projections and a process.

Q:
Because so many EB-5 projects really do involve real estate in some capacity and EB-5 investments are securities as you mentioned earlier, this must have created a very unique and interesting legal and vetting climate. You’re dealing with two different and uniquely regulated industries. What are your thoughts about this and can you expand on how EB-5 and real estate mesh together in the case of these investments?

A:
Well it is unique because there are two separate industries real estate and securities but they have started to blend themselves together and what I’m referring to there is the nature of real estate development and our experience there in developing projects such as mixed use projects with retail and office and senior living as well as high rise development as well as suburban office development, that experience and that industry has evolved to where oftentimes as one raises equity or raises debt, it has crossed over and has become a security as defined by FINRA. Once something has been defined as a security then by definition and by law you need to be licensed and a member of FINRA in order to make those offerings, or to offer those to the public. In the case of EB-5 that investment is in the form of debt and by definition is a security and that’s where FINRA guidelines come into play. What makes it very unique is that the licensing requirements for real estate as well as securities are significantly different. Real estate is licensed by the state. Each state where that development or that real estate property is located, Securities on the other hand are licensed on a national basis. Series 7, Series 63 and others that allow an investment representative as well as an investment banking firm to participate and make offerings around the country. So there’s a unique difference but there’s a unique blend here and that our experience, our resume, our credibility spans both industries.

Q:
How do you choose the right project for your investor clients? What are the types of projects that you look for when making your recommendation to EB-5 Investors and how do you increase the potential for success with the projects you recommend?

A:
They have to fall into an area of interest for that investor. Though I would hasten to add that I believe every investor’s primary objective is to obtain a visa through the EB-5 offering mechanism. Having said that, once a project or a number of projects are identified one may hold greater interest to an investor. That is all very well and good and yet our role is to make sure that the project is a viable project. That it’s one that can be built, it’s one that the city or the various governing authorities will allow to be developed through the permitting process. And then most important is that, that development will create the number of jobs necessary to warrant granting an EB-5 Visa. And that is critical. Now, coupled with that is the economic viability of the project itself. It’s one thing to say “I will build it”. It’s another thing to raise the money for it but then, is the project economically viable? And that’s one of the areas that we underwrite as well. Now do we present a number of different projects to various investors? If they are interested in that, Yes we do. But I think what is critical in nature is that whatever is presented to an investor is one that is a project that has already passed the scrutiny of diligent underwriting from a security standpoint so that they have another level of comfort that their investment is safe and they have a reasonable, or better than reasonable expectation that they will receive their investment back as called for in the offering documents. There is a risk to any sort of investment made and as a matter of fact that is required by law, that in order for the investment to be qualified for EB-5 consideration it must be “at risk”. But our role as an investment banker is to quantify that risk, to identify that risk and hopefully minimize that risk as much as possible, but having said that it’s still a requirement of law that their funds be at risk. We go to the lengths of not only testing a proforma, making sure the cities have provide appropriate permits, making sure that all documents for the development are in order and even going so far as to doing extensive background checks on the developers themselves and their credibility, their resume as well as just their legal background check. So we go to all ends to try and verify that everything is as presented and is as safe and secure as possible.

Q:
Can you tell us about escrow, fund control and how the investors money is being managed after it has been invested?

A:
Sure. The process that has been set up in this particular EB-5 portal process is that all the funds that are invested go into a third party escrow. I’ll say an independent escrow, the funds are not released until the appropriate request for release has been made, or the appropriate progress has been made on development along with the appropriate jobs creations identified in process of the development. So there are a number of different checks and balances that have been established. It’s not simply one invests their money and it’s gone, or it goes into a whole not to be seen again. The distribution of those funds are ones that are subject to checks and balances as well. And once again, that is simply another layer of safety which has been established.

Q:
I understand that there in the TEA (Targeted Employment Areas) the minimum investment is 500k and also calls for an admin fee of 50k for a total of 550k. Are there additional costs that an investor needs to plan for in engaging a broker dealer as part of their professional team?

A:
That’s a great question. There are no additional costs. The cost for broker dealer involvement and everything associated with that and the costs of being legally compliant is all embodied within that investment amount that $550,000.00 that you refer to again. As it goes up, as the Congress may require that to go up in the coming months, that does not impact the cost of securities or the other administrative costs of getting into the EB-5 program. So it’s all self-contained.

Q:
First can you make referrals to a few good immigration attorneys if the investor comes directly to you and doesn’t already have one? And lastly many people practicing in the EB-5 industry are not using a broker dealer. Is it safe to caution investors who may be looking at projects that don’t involve an investment banker like yourself?

A:
Absolutely. Absolutely. And I think you hit on one very important topic. One of the major benefits of having a broker dealer involved and following the process that all of us have identified for this EB-5 investment is one of transparency because everything is completely transparent. There are no hidden costs, hidden fees and it’s all laid out very clearly. At the end of the day every investor knows that this has complied with all US rules and regulations regarding securities and investment in an EB-5 program.

Q:
Our goal with this podcast and having you as our first guest is we want to help create awareness that there is a professional and a safer way to make EB-5 investments that the media may have led you to believe. To the investor listening today that feels a bit of fear or uncertainty around the EB-5 space, what can you say to make them more comfortable with this process?

A:
From the standpoint of recognizing that $500,000.00 or $550,000.00 is a lot of money. And we have to acknowledge that and respect that. We also have to look at a situation to say if we were going to invest that money ourselves we would want to know who we’re investing it with. We would want to know what type of project we’re investing in and we would like to know with reasonable certainty that it what we believe to be a safe investment. Now the only way to accomplish that, is to abide by the rules and the rules that have been set out for transparency, the rules that have been set out for underwriting standards, understanding not only the process but who the sponsors are who are behind the projects. What is their track record? What is their reputation? And you know when there have been problems in the past and there have been quite a few and it has all come from someone being surprised. In every situation that I’m aware of, someone chose not to follow all of the rules because let’s be honest, following all the rules means a little bit of extra work. Between the EB-5 Portal and T.R. Winston and all of the people involved in this effort, we chose to do the extra work in order to have a safe and secure investment opportunity for the EB-5 investor.

Q:
Why do EB-5 investments sound so risky in the news? When done right, the EB-5 program can actually lead to permanent residency for the investor and their entire family. What should any investor expect when working with the EB-5 Investor Portal and T.R. Winston & Co.

A:
So this whole process should not be like going to Las Vegas. It should be a process that if you follow all the steps and follow all the rules you should be able to expect a visa at the end of the day. That’s the goal. That’s the goal of everybody involved and that should be not only the goal but the expectation of the investor. That’s what our objective is at T.R. Winston & Co., to provide that.

Q:
What are the potential red flags that you may come across in working with a potential investor and what kind of advice can you give investors to increase their chance of an approval?

A:
You know one of the big red flags that can pop up, is Source of Funds. Where is the money coming from? And to make sure that it is clean money, if you will. That’s one of the reasons why we absolutely love to have the investors working in tandem with their immigration attorneys, because as I said we are not attorneys but their immigration attorneys will have a real good handle on that in terms of their source of funds and they will have a relationship that can help them understand exactly how the investment is being made, with what funds where they’re coming from and how they’re to be delivered. That is one particular area and I would say that, that may be the most common area. Not necessarily a red flag is thrown up but it’s something for everyone to be attuned to for everyone to be cognizant of, or to be aware of. So that’s one of the areas that does receive some attention and probably the greatest one that receives attention or the most scrutiny but it is certainly a topic that can be worked through and making the assumption that most people are upfront and honest and if they’re working with the right team of which T.R. Winston would be one of them. If they’re working with the right team of attorneys and whatnot. it’s certainly a challenge that can be easily overcome.

Q:
What about the immigration attorney who may be listening today…Many of these attorneys are just referring clients directly to regional centers instead of investment bankers like you – Do you have any advice for these attorneys?

A:
It’s a wonderful question and one that’s not asked too often Floyd because in most situations if an attorney refers their investor client to a regional center or to a sponsor or whatnot that is not set up the way that we’re set up, that is the last that, that attorney sees of their investor because the regional center or whoever they’re referred to will put them in touch with the regional centers’ immigration attorneys. As I mentioned at the onset, our goal and our objective is to work together with the team that the investor already has set up. So if an attorney calls us to refer an investor into the program, we not only respect that relationship we encourage that relationship to continue and the investor is not handed off to someone totally separate. They’re very strongly encouraged to keep their own legal representation. As a matter of fact, that is included within the administration fee upfront as we discussed earlier. I think the benefit to immigration attorneys is knowing that when they refer somebody into this program they absolutely get to keep their client and preserve the relationship and expand and grow the relationship. So I would see that as a big advantage.

Q:
So the attorney keeps the client and flies the necessary legal paperwork. You don’t take the client from them?

A:
That is absolutely correct.

Q:
Duke, thank you for your time today and for such great information on this topic. As we are coming to a close, I’d like to ask if there is anything else you’d like to contribute or that I might not have covered?

A:
I really can’t stress enough that when one steps back and looks at various opportunities for an EB-5 investment, that transparency just has to be a huge key. If there’s one thing that an investment banking firm such as T.R. Winston, if there’s one thing that we do and do well it’s ensure that there is absolute and full transparency to the transaction, as well as just another layer of underwriting, another layer of offering security of knowledge to the investors. If one is looking for a safer investment, one that they can feel more comfortable with, this is certainly the way to look.

Q:
It sounds to me that working with a broker dealer in any EB-5 Investment is right way to go about it.

A:
Well it’s not only the right way to go it is how the entire process is evolving because it’s the only way that the government can ensure that the problems we talked about earlier don’t happen again. The whole industry will continue to evolve as we do.

Ending Segment:

EB-5 Investors thank you for listening. We hope you enjoyed the episode and I’d just like to recap some of the big takeaways that I’ve learned in speaking with the Broker Dealer today.

Broker dealers add an extra layer of safety. They also vet the projects well before they are presented to you. When working with the right team and following the process properly – you should expect a visa as the end result of your investment. EB-5 Investments are securities and should be handled by FINRA licensed broker dealers and investment bankers. If the consultant you are working with is not licensed, we recommend you exercise a great deal of caution before making an investment. You may also reach out to us with any questions you may have at our website eb5eb5.com and we’ll answer them in the order we receive them. More on TR Winston and Co can be seen at TRWINSTON.com.

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