06 Feb Digital Platforms and the EB-5 Marketplace with Kurt Reuss – Episode 97
Are digital platforms a reliable way to compare EB-5 projects and make informed investment decisions? On this episode, Mona and Mark are joined by Kurt Reuss to discuss what differentiates his new site, EB-5 Marketplace. Listen in for Kurt’s insight on the evolution of EB-5 to include a broad range of opportunities and learn how his team conducts due diligence across a spectrum of diverse industries.
You simply can’t trust everything you read on the internet. But there are a small number of credible resources available online to help you compare the available EB-5 opportunities, including a new digital platform known as EB-5 Marketplace.
Kurt Reuss is the CEO of EB-5 Marketplace, a platform designed to empower EB-5 investors to make informed investment decisions. On this episode of EB-5 Investment Voice, Kurt joins Mona and Mark to discuss the current shrinking of the EB-5 marketplace, share his predictions around the program’s expansion to include a broad range of investment opportunities, and offer his take on the inflation of returns and administrative fees since the new regulations took effect in November 2019.
Mona, Mark and Kurt cover the history of EB-5 and the internet, explaining why online platforms were, traditionally, not a good way to evaluate investment options and how the popularity of EB-5 in India helped grow the demand for a digital marketplace. Listen in to understand how EB-5 Marketplace conducts thorough due diligence for the projects listed on its site and learn how you can leverage this digital platform to compare several different EB-5 opportunities and narrow down your options.
A Shrinking Marketplace?
- The changes to EB-5 initiated by the new regulations have significantly reduced the number of projects that qualify as TEAs in addition to nearly doubling the minimum investment amounts. This has led to a shrinking of marketplace and a decrease in the number and size of EB-5 industry events.
- While Mona believes that this trend will continue, Kurt is of the mind that EB-5 is in a pause while stakeholders digest the new regulations. But he is convinced that the industry will make a comeback, expanding its reach beyond big real estate projects in urban markets to include a broad range of diverse investment opportunities.
Inflated Returns & Administrative Fees
- For the majority of EB-5’s history, agent costs have been high and the ROI for investors has been extremely low. But as projects rushed to fill prior to the November deadline in 2019, there were no agent costs (as projects made direct deals with investors) and the ROI was what Mona calls “ridiculously inflated.”
- Since the new regulations took effect, Mona has seen Korean and Vietnamese agents demand $90K in administrative fees plus backend points (compared to the $55K—$65K fees of the past). In addition, she has seen ROIs shoot up from 0.5%—2% to 6%—12%, a rate she believes is not EB-5 compatible.
- Kurt has a different perspective. He doesn’t think that agents will be able to control the EB-5 market the way they have in the past, and he has only seen $90K fees associated with $1.8M EB-5 investments.
- Kurt also believes that the EB-5 program will split into two categories: 1) Investments with very low, approximately 1% rates of return but a good position in the capital stack and assurance that investors will get their money back, and 2) Investments with high risk and high rates of return (perhaps as much as 8%—12%) in industries like oil and gas or solar energy.
Kurt’s Weekly EB-5 Newsletter
- One of the digital resources available to EB-5 stakeholders is Kurt’s newsletter, EB-5 Weekly. He leverages his relationships with professionals in the industry and subscriptions to news outlets to aggregate the top EB-5 news of the week.
- Kurt and his team review the top news stories, determine which ones are most pertinent, and write a one-paragraph summary of each—with a link to the full article. While EB-5 Weekly does include scandals (e.g.: Jay Peak), Kurt is more interested in reporting what the industry is doing to improve.
The History of EB-5 & the Internet
- Historically, the internet was not a good way to evaluate EB-5 investment options because the program started in China and was controlled by Chinese agents (who, in turn, controlled the information). Once Indian investors got involved, however, the demand for a digital marketplace grew.
- Mona is still not a fan of using the internet alone to research EB-5 projects, as malicious posts published by rivals can hurt a good project and online assessments rarely explain the nuances of a given opportunity. She recommends that investors visit a project in person and speak with the developers if at all possible.
What Differentiates the EB-5 Marketplace
- Every investment listed on the EB-5 Marketplace has been thoroughly due diligenced by a third-party firm, EB-5 Diligence. In addition, the platform offers site visit videos and organizes the deal terms in a consistent format, making it easy to compare across a number of projects.
- Mona points out that EB-5 Marketplace focuses on real estate projects, leaving out hundreds of opportunities in other industries. And Kurt concedes that more and more non-real estate projects are likely to enter the space, including smaller VC-backed projects in a diversity of industries.
Due Diligence Across Industries
- Though the EB-5 Marketplace team does not include experts from every possible industry, the platform is overseen by a broker-dealer firm whose role is to bring offerings to market in various industries. Kurt contends that the CPAs of EB-5 Diligence don’t necessarily need to be industry experts, but they do need access to industry metrics to test the reasonableness of the financial models they are evaluating.
- In conducting due diligence for the EB-5 Marketplace, the team’s CPAs verify all material agreements, do background checks on the principals, and review the proposed exit strategy and immigration aspects of a project. With regard to the industry itself, the CPAs conduct detailed market feasibility and sensitivity studies based on the key operating metrics for that field.