Escrow and Banking with Robert (Bob) Sloposky – Episode 4
How does an institution like Signature Bank work with EB-5 investors and developers?
This episode answers that question. We also cover how Escrow is used and how the bank handles disputes (both proactively and re-actively ).
EB-5 visas are multifaceted and complicated. At many point during the process investors are vulnerable to the possibility of losing their investment. The easiest way an investor can take to insure that their investment is safe is by depositing their investment into an escrow account. Escrow accounts are not legal required by the USCIS but they do offer an added level of security to investors and are becoming increasing necessary for projects.
Host Mona Shah and co-host Mark Deal talk with Robert Sloposky of Signature Bank about escrow accounts. Signature Bank was founded in 2001 and soon positioned itself in the financial world by working with private businesses that are traditionally undeserved by major financial institutions. This focus was recognized in 2015 when it was ranked the #1 bank in the United States by Forbes. Signature Bank began working with EB-5s in earnest about five years ago and has become one of the largest banks dealing with EB-5s; they currently hold over $15 billion in signed escrows and Private Placement Memorandums (PPM).
3:20 Robert Sloposky explains that Signature Bank is uniquely positioned in the EB-5 market. Signature has a large share of the EB-5 market, as a result they can see trends in the market such as types and location of projects.
4:00 An overview of the role of escrow accounts in the EB-5 process. While not legally required by the USCIS escrow accounts are almost essential and are increasingly used as a marketing tool to attract developers and investors. Two reasons for the growing popularity of escrow accounts are: project protection for the investor and tracking the source of funds.
6:00 When depositing funds into an escrow account, the source of the funds is thoroughly checked. Banks that work closely with foreign financial institutions, what documentation they require and what it looks like have a distinct advantage over other banks.
7:03 Through its own due diligence, Signature Bank rejects 15-20% of projects developers are trying to start. Before accepting a project or the money, the bank thorough reviews the documentation to ensure that there is validity to the project. Banks can also verify that a developer’s financial guarantees actually valid.
9:50 Ms. Shah explains 8 CFR 204.6(j)2 , which states that investment funds must be placed at risk and committed to the project; if the funds are in escrow then they are considered committed to the project.
12:00 Mr. Sloposky talks about the benefit of escrow agreements which lays out the guidelines and expectations for all parties involved. The bank is bound to the terms, and the developer, investor, and any other group see when and how the money will be dispersed between all the parties.
12:50 Ms. Shah reinforces how important it is that the accounts be set up correctly. The USCIS has denied cases because accounts were not clearly set up. This is an issue that must be addressed immediately because it can’t be corrected and resubmitted.
Mr. Sloposky answers the question – how can banks help a project developer when the USCIS is talking too long to adjudicate a project:
15:40 Bridge Loans. Though less common, these short-term loans provide developers with a percentage of the amount raised through EB-5 and repayment would be through the release of funds.
19:06 Early Release. A percentage of the escrow funds are released when the I-526 is filed and the remaining percentage is a hold back portion is released when the I-526 is approved. The hold back portion is used to pay a denied investor’s money back and give the developer time to find a new investor. On average a “good project” would see 80% released at filing, 20% released at approval.
20:20 Much of a projects risk can be mitigated through evaluation and its likelihood of success. The proposed project has achieved a level of market credibility and the interest of investors, and it turn can be leveraged to ensure early release of funds or other possible hurdles.
23:43 Ms. Shah reminds the audience that developers most know that even if EB-5 funding has been approved until all the petitions are approved full funding is not available.
24:30 Attention needs to be brought the entire EB-5 team (attorneys, economists, etc.) know how important the escrow agreement and related documentations is to any project.
26:05 Mona asks Bob to explain how banks handle changes to Private Placement Memorandums (PPM) on a case by case basis.
29:03 Reservation Escrow Accounts are used by investors and any other parties to express interest in a project and ensure there is a space for the investor when all paperwork has been filed and it’s ready to move forward. These are financially very safe – the money either goes to the project or is returned back to the investor.
30:30 Mona and Bob discuss the recent changes and developments to infrastructure projects. There’s now the ability for Signature Bank to underwrite municipal bonds using EB-5 funding.
32:20 Unlike traditional real estate investing which is safe but money is tied up in the physical spac