The EB-5 Immigrant Investor Program has historically been a driving force behind economic growth in the United States. It attracts foreign capital and generates employment opportunities for US citizens. Central to the program’s success are Regional Centers (government-approved bodies), which play a pivotal role for global investors when it comes to project evaluation, selection, and management.

Today, EB-5 projects encompass a broad spectrum of industries, transcending the traditional focus on real estate and hospitality. They now include manufacturing, services, agriculture, and energy sectors, reflecting a diversified landscape. Given the complexity of these various industries, external experts play a vital role in offering guidance and expertise to ensure the success of these projects.

One key aspect that investors are worried about is the viability of the project that they invest in. While the overall goal of the investment is to secure an EB-5 Green Card, most investors also want to ensure they recover their invested funds, due to the sheer cost attached.

While the funds are required to be at risk for a pre-determined period, it is crucial that the overall project analysis and due diligence are strong, so that the investor is at ease, and can hope for a speedy approval of their application.

Project selection is crucial to ensure investors immigration and investment goals are met. Here are some of the considerations Regional Centers need to take into account when selecting a project:

Comprehensive financial analysis

The most important aspect is that the project makes financial sense. Regional Centers need to determine whether the business plan is credible considering the projected economic conditions, the location of the project, and the demand for the product or service. Regional Centers need to carefully review the financial models and projections to make sure the underlying assumptions are reasonable. EB-5 regional centers often use a credible third party to do an appraisal of the existing property or business to ensure valuations are accurate.

Due Diligence

Regional Centers also conduct thorough due diligence on project developers, ensuring a track record of successful projects. Background checks on principals are conducted, and documents such as the private placement memorandum, operating agreement, and loan agreement are reviewed. All necessary permits and approvals are verified.

Fully financed

It’s important that the project is fully financed and not dependent on EB-5 capital for completion. If senior financing is involved, it should be confirmed as in place. Ideally the owner should have significant equity in the project in order to have “skin in the game”.

It is also preferable to have a more mature project where development is already well underway and EB-5 capital is replacing bridge financing. This reduces the project financing risk and has the added benefit of allowing the jobs that were created during the bridge financing phase to count towards the number of EB-5 qualified jobs.

Well-structured deal

The Regional Center should act as a fiduciary to protect the EB-5 interests in the deal. In the event of a default, the Regional Center needs to be able to step in to protect EB-5 investors and claim the collateral if available. This is why it’s important that the Regional Center is not affiliated with the developer of the project.

Other things to look for in a well-structured deal would be to limit to the amount of debt that can be layered ahead of EB-5 investors and to include a refund in the event of a denial.

The Reform and Integrity Act which came into effect last year, requires a third-party fund administrator to be in place which provides independent oversight and needs to sign off on the release of any funds to the developer/operating entity to ensure they are used for the correct purpose.

Another important aspect is to ensure there is a clear exit strategy for EB-5 investors. Most EB-5 investments are structured as 5-year loans which provides a fixed exit when the loan matures, but if it’s structured as a preferred equity investment, you’d want to make sure there are strong incentives built in to pay back the preferred equity.

TEA Qualification

The location is important since rural and high unemployment areas qualify for set aside visas which is particularly beneficial to investors from backlogged countries like India and China. These areas also qualify investors for the lower investment amount of $800,000.

Job Creation

It’s important that there is ample job creation to cover all the investors. Ideally, you’d want a significant cushion to more than cover the required 10 jobs per investor. Regional Centers can rely on indirect and induced jobs, in addition to the direct jobs, which are derived from the capital spent and revenue generated by the project.

Immigration and legal compliance

Regional Centers work with legal experts to ensure that all aspects of the project, including investor offerings and documentation, comply with U.S. securities laws as well as the Reform and Integrity Act. This includes full disclosure of all fees, registration of all the agents, ensuring the marketing material is accurate and the proper registration of US and foreign investors.

The Regional Center’s role is to provide ongoing monitoring to ensure compliance with the laws as well as provide regular updates on the operational performance and job creation of the project.