$100M in foreign funds eyed for Washington-area banks

$100M in foreign funds eyed for Washington-area banks

Premium content from Washington Business Journal by Bryant Ruiz Switzky, Senior Staff Reporter

Date: Friday, February 3, 2012, 6:00am EST

Related:

Banking & Financial Services, Commercial Real Estate, International Business, Investing

Photo by Joanne S. Lawton

Mahnaz Khazen’s company is opening an office in D.C. to connect foreign investors with local distressed banks.

Bryant Ruiz Switzky

Senior Staff Reporter – Washington Business Journal

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Struggling local banks may soon have a new sugar daddy.

A California startup company is coming to D.C. with plans to use an obscure federal program to facilitate $100 million in investments in distressed local banks over the next two years.

San Jose, Calif.-based U.S. Immigration Investment Center LLC signed a lease Jan. 30 for an office at 1025 Connecticut Ave. NW.

The company, which began operations in August, uses a longtime but little-known U.S. Citizenship and Immigration Services program called EB-5 that allows foreigners to get U.S. visas in exchange for making

$1 million investments in new or distressed U.S. companies. Those investments must save or create 10 jobs over a period of about 2½ years per $1 million invested.

“The EB-5 program is a fantastic program for foreign investors and for Americans who are in need of capital,” said Managing Director and Chief Operating Officer Mark Nichols, who will lead the local office.

Nichols is a former investment banker and was a State Department senior adviser in the Clinton administration. He has worked extensively abroad and comes from a community banking family, which has invested in banks in the South for more than 60 years.

U.S. Immigration Investment Center facilitated a passive $5 million investment for Gaithersburg-based HarVest Bank of Maryland in December, though that deal is still pending and has a couple of hurdles to overcome — including regulatory approval.

The company also completed a $10 million investment in a California solar company through the program, though it intends to focus on community banking in this area.

There are several sputtering local banks that likely could benefit from such an infusion, including Sterling-based Millennium Bank and District-based Independence Federal Savings Bank, both of which have long been struggling to raise money. Officials from those banks could not be reached for comment by press time.

U.S. Immigration Investment Center was founded by Mahnaz Khazen, an Iranian immigrant and longtime entrepreneur in Northern California, where she has owned commercial real estate and several businesses. She was named one of the 100 most influential women in Silicon Valley in 2009 by the San Jose Business Journal, a sister publication of the Washington Business Journal.

Khazen, who in an interview described her motivations for this effort as largely philanthropic, heard about the EB-5 program a year ago from a fellow real estate developer who used it to fund projects. She thought the investments would be more effective at creating jobs and long-term economic growth if the funding was channeled into community banks, where each dollar of capital can be leveraged to make about $10 in loans.

After considering investments in distressed banks on the West Coast and in Florida, Khazen decided she needed to focus on a geographic area where the economy was stronger and the banks would have a better chance of achieving a turnaround.

This is key, as investors would lose their green cards if the investment recipient failed within 2 ½years. That led her to the Washington area and HarVest Bank, which has been trying to raise desperately needed capital for more than two years.

With very little marketing (U.S. Immigration Investment Center’s website just went live), more than 50 foreign investors have already shown interest in participating. As the company gears up marketing and outreach, Khazen expects over the next year to see an additional 500 applicants, most of whom are interested in sending their children to the U.S. to study and work.

One reason this approach might be a godsend for banks that haven’t been able to secure funding from U.S. sources is because foreign investors wouldn’t be looking at these institutions as purely economic investments, said banking consultant Dave Danielson of Bethesda-based Danielson Associates.

“An investor who is placing a lot of value on the visa would evaluate their investment in different terms,” he said. “That’s the real advantage to it.”

Khazen said her company won’t consider investments in other institutions until bank regulators approve the HarVest Bank deal — essentially blessing her company’s approach. But before HarVest files for approval, it must lock down an additional $4 million in capital, which is says it is close to achieving.

While regulators are often wary of approving bank recapitalizations that are anything but plain vanilla, Danielson argued that this approach may be relatively easy to swallow, given that all EB-5 foreign investors have already been vetted and approved by the Department of Homeland Security and ICE.

“If this is successful, you can be sure that instantly every law firm will be trying to do this,” he said. “Anyone could replicate it.”

“That would be wonderful,” Khazen said. “If we are successful in what we’re doing, I hope that others will use the E-B5 program in the same way — the way it was meant to be used.”

Kevin Wrege, Esq.

Founder & President

Pulse Issues & Advocacy LLC

Office: 202-625-1787

Mobile: 202-253-4929

4410 Massachusetts Ave., NW, #150

Washington, DC 20016

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