Background: The Hawaii Regional Center operates under a Federal “immigrant investor” program in which foreign nationals investing in businesses creating ten full-time jobs for U.S. workers can obtain permanent residency.  Under the program's business structure, the investment is in an entity (limited partnership) that makes a loan to a job creating business.  Information regarding the investment and the job creating business are presented to investors in a private placement offering and are included in the investors’ immigration applications.    
Designation as a “regional center” allows the State to count “indirect” jobs, which means that rather than hiring 10 U.S. workers directly, each investor is credited with job creation in related industries or with jobs that are an indirect result of the investment.  The calculation of indirect job credit is based on standard employment multipliers commonly used by governmental agencies.

Moreover, while the immigration process is completed in approximately 2-3 years, the investment process is for a full 5 years.  The commitment letter and loan documents for the Hawaii Regional Center loan will reflect concerns related to both the immigration requirements related to job creation and the loan structure of the limited partnership investment.

Loan amount: $2.5-100 million
Term: 5 years, principal due at maturity
Interest Rate: 3.00-3.50% per annum payable semi-annually
Collateral:  TBD on a case-by-case basis
Location: The project must be located in a designated high unemployment area (defined as having an average unemployment rate 150% of the national rate) or rural area.  All islands other than Oahu qualify as rural areas.  Portions of Oahu also qualify, depending on the location of the project. 

Process to raise and release loan funds:  Once the offering materials are completed and the commitment letter is signed, we will begin signing up investors, each of which will invest $500,000 in the limited partnership.  Given our current waiting list, we expect that a loan in the range of $40-50 million can be raised within three (3) months of introducing the offering.

There are two stages to the immigration process.  The first stage involves an immigration application with the proposed investment and projected job creation, approval of which grants a “conditional” or temporary green card that expires in two years.  At the end of the two-year conditional period, the investors must submit a second immigration application proving that the projected jobs were, in fact, created.  Once the second application is approved, then the investor receives an “unconditional” or permanent green card. 

Once an investor decides to “subscribe” to a project, he or she will begin the first stage of the immigration process: obtaining the conditional or two year green card.  This stage is actually divided into two phases.  The first phase is an application submitted to USCIS.  Before the application can be submitted, each investor must deposit his or her $500,000 investment into a designated escrow account.  The escrow agent for the account is U.S. Bank, N.A., and the escrow agreement provides that once an investor’s application is approved by USCIS, then his or her $500,000 investment must be unconditionally released to the limited partnership, which will then fund the loan.  However, in the event that an investor’s application is denied, then his or her funds in the escrow account are released and returned.
The loan will be ready to fund once the investors’ applications are approved.  Currently, adjudication of the application is taking approximately 4-5 months.  Because of the large number of investors required for larger loans, submission of their applications and consequently, approvals, will be staggered over several months.  It is projected that a portion of the loan will be available within 5 months of the offering, with a substantial amount of the loan available within 8-10 months.
The second phase of the immigration process is a biomedical interview at the U.S. consulate of the country where the investor resides.  If the investor fails the consular interview and is consequently not granted a green card, then, reasonably, the investor will no longer wish to be part of the limited partnership and will be returned his or her investment principal. 

Disbursement of loan proceeds:  Generally, the loan is disbursed as reimbursement for qualifying expenditures, not dissimilar to a construction loan.  For large projects, DBEDT and CanAm will determine standard expense documentation to trigger the disbursement of the loan. Only expenditures made related to the project will qualify for loan advances. 

Meeting the job creation requirement: The immigration process requires 10 direct and/or indirect jobs created by each investor within an approximately 2-3 year period from the time that a commitment letter is signed.  Each direct job must be new full-time salaried positions or full-time equivalent hourly-wage positions working a minimum of 35 hours per week.  Indirect jobs are calculated using the Regional Input-Output Modeling System II (RIMS II) employment multipliers, which are issued by the U.S. Bureau of Economic Analysis.  Please note direct jobs from construction and construction spending are not considered permanent and are excluded; however, indirect and induced jobs from construction spending are included.
There are two primary means of meeting and evidencing the job creation requirements for the loan:

1. Direct hires multiplied against appropriate RIMS II multiplier for borrower’s industry to calculate the number of indirect jobs; payroll and employment documentation such as I-9 forms are submitted to evidence hirings.

Example of direct hires:  Hawaii General Hospital is building a new cancer research and teaching hospital with 350-beds.  The total project cost is $179.5 million, of which $50 million will be financed by a Hawaii Regional Center loan.  The RIMS II job multiplier for the Hospital Industry in Hawaii is 1.8962, which means that for every 1 direct job created within the hospital industry, 0.8962 indirect jobs are created in related industries.  A $50 million loan, requiring the creation of 1,000 total jobs, would only need to create 528 direct jobs, which would result in the creation of 472 indirect jobs, or a total of 1,000 direct and indirect jobs.  Hawaii General Hospital will submit employment reports to verify the number of new hires and hours worked by hourly-wage new hires.        

1. Consulting firm conducts economic impact study using standard methodologies for the type of project/industry to determine job creation; report must specify underlying assumptions of study, methodologies used and milestones to conclude that job creation has been met; borrower must submit evidence to demonstrate that underlying assumptions of study and milestones were met.

Example of economic impact study:  Hawaii First Group is developing a 450,000 square foot office and 145,000 square foot retail complex for $205 million, of which $50 million will be financed by a Hawaii Regional Center loan. Using standard real estate metric guidelines to project job creation in commercial office and retail spaces, it is projected that the office space will accommodate 1,800 employees and that the retail space will accommodate 580 employees at stabilization in year 3 when 85% of the office and retail spaces are leased out.  Based on the site’s demographics and tenants signed to date, approximately 35% of the office employees and 65% of the retail employees will be new full-time or full-time equivalent positions.  Using the RIMS II multipliers for tenants’ industries, these new full-time or full-time equivalent hires will result 121 indirect jobs.  In addition, 159 indirect and induced construction jobs are projected to be created during the construction phase of the complex.  Hawaii First Group will provide construction expenditures, architects certificates, certificates of occupancy and related documentation to demonstrate that the office and retail spaces were completed as planned as well as lease up information to demonstrate that 85% of the office and retail space have been occupied.

For the purposes of marketing the offering to prospective investors, it is advantageous if the projected total job creation is more than the minimum 10 jobs per $500,000 so that the investors feel that a project is expected to create more than enough jobs for their immigration requirements, adding extra comfort in the event that there are delays or other unexpected changes in a project.
Failure to create the minimum job creation for the loan amount is deemed a default.  In the event that a borrower fails to create the necessary number of jobs for our investors’ immigration process, we can recover the funds to reinvest in another project so that we can meet this requirement. However, any such default would be limited to an amount representing the number of uncreated jobs.

Reporting and documentation requirements for the loan: There are three main points in the loan process where reporting and/or documentation must be provided: (i) underwriting and preparation of offering documents; (ii) loan closing; and (iii) semi-annual reporting after closing. 

1. Underwriting: detailed description of borrower/project/timeline/impact; project budget; drawings/plans/photos/renderings of project
2. Closing: expense documentation for project expenditures to date; negotiated loan documents
3. Semi-annual reporting: brief description of project

In the event that USCIS require any supplemental evidentiary documentation, then we would need the cooperation of the borrower/project. 

For more information contact:

Mr. Karl Fooks

email: Karl.Fooks@dbedt.hawaii.gov

Telephone: 808-587-3830