Free EB-5 Project Evaluation The Importance of Due Diligence for EB-5 Investors

Although EB-5 investors come from a wide range of backgrounds and are generally experienced with conducting due diligence in their respective fields, many are unsure how to proceed with due diligence in the unique EB-5 context. In the regional center model, investors must conduct two levels of due diligence, the first on the EB-5 project and its developers and the second on the regional center itself. Aside from allowing investors to inform themselves and better protect their investments, due diligence can provide an idea of the chances of successful immigration under the EB-5 Program based on the track record of the regional center.

This article discusses the importance of due diligence in the EB-5 context and outlines five questions investors should ask when conducting due diligence for their potential investments.

Investment / Project Concerns for EB-5 Investors

 EB-5 investors have two central concerns. The first is whether investing in an EB-5 project will allow them to become permanent residents of the United States. The second is whether a project will provide a return on the investment.

The EB-5 Program requires that investors submit two visa petitions. The first is the I-526 petition for conditional permanent residence, which the investor files after he or she has made the initial investment. This proves the source of the investment funds and demonstrates to United States Citizenship and Immigration Services (USCIS) that the project will be capable of creating the required ten fulltime jobs in the United States per investor. At the end of the residence period of two years, the investor files the I-829 petition for removal of the conditions of permanent residence and must provide documentation that the EB-5 project has fulfilled the program requirements as outlined in the I-526 petition. This process takes approximately six years, but investors from China may experience longer waits as a result of recent visa retrogression concerns.

Aside from evaluating whether a project will be financially capable of sustaining itself throughout this visa application period, investors must determine whether the new commercial enterprise established under the program will be able to repay the investment amount afterward. This is generally a significant sum of $1,000,000 or $500,000 if the enterprise is located in a targeted employment area, so investors are understandably wary of entering into a loan agreement without proper assurance that they stand to be repaid at the appropriate juncture.

Due diligence in confirming the viability of a project is thus crucial within the EB-5 context.

Due Diligence Questions for Investors

An investor must take several factors into consideration when conducting due diligence. First and foremost, he or she must evaluate the regional center, its track record of success with USCIS, and its ability to manage a project that will provide a return on the investment amount. The following are key questions investors should examine when investigating a regional center in this regard.

  1. Has the regional center previously facilitated successful visa petitions?

A regional center should be able to provide investors information on how many previous investors have filed visa petitions successfully. If any previous investors have been denied permanent residence, the center should likewise be able to provide the legitimate reasons for those denials and show that it has taken steps to prevent such issues with future petitions. Investors should keep in mind, however, that petitions are sometimes denied for reasons not owing to the regional center, as in cases where the denial is based on an issue with the source of investment funds, for example.

  1. How long has the regional center been operational?

Investors should look into when the regional center was designated as such by USCIS and whether it has previously managed any projects. A regional center experienced with the unique concerns surrounding projects and funds in the EB-5 context will be able to more adequately account for the areas of focus of USCIS visa petition adjudicators and additionally will have the knowledge and competence to deal with any issues as they arise. As USCIS has recently begun reviewing regional centers which have not met the goals of the EB-5 Program, a proven track record will increase the chances that the regional center itself will remain operational throughout an investor’s conditional residence.

  1. Has the project been approved by USCIS?

The first visa petition associated with an EB-5 project includes an additional level of USCIS review regarding the business plan and economic impact report for the project. This increases the adjudication time for that petition, and thus investors may benefit from entering a project after it has already passed this initial USCIS review. The regional center should be able to confirm the status of the project for potential investors. Aside from this, a project may require various licenses or permits, and investors should confirm that these have been granted to avoid additional delays after having committed funds.

  1. Can the project support the required number of jobs?

To be granted a visa under the EB-5 Program, each investor must be able to prove that his or her investment has resulted in the creation of ten fulltime jobs within the employment area. As such, regional center projects drawing on multiple investors must time job creation carefully to ensure each investor is credited with the correct number of jobs. Investors must carefully review the project documentation to ensure developers have included an adequate buffer in terms of the number of jobs created. A project should not aim to create only ten jobs per investor, as investors may be left short under those circumstances if contingencies affect the number of jobs created.

  1. Does the regional center have a redeployment plan for the investment funds?

Because the investment amount must remain at risk throughout the conditional residence period, regional centers must carefully account for the possibility that a loan may be repaid early. One option is to not allow borrowers to repay the loan before the I-829 petition is adjudicated. Another option is for the regional center to immediately reinvest any repaid investment funds into another project to ensure they remain at risk for the necessary amount of time. Investors should consult with a financial advisor to determine which strategy best suits their needs.

Consulting with EB-5 Practitioners

In conducting their due diligence, investors benefit from working with professionals experienced in the requirements of the EB-5 Program. A financial advisor can help an investor guard against the possibility of fraud or misrepresentation in a project and can provide valuable financial advice to help the investor negotiate favorable loan and repayment agreements. Similarly, an immigration attorney will work with a regional center on behalf of the investor to gather documentation for the I-526 and I-829 petitions. This includes the project offering, financial statements, and source of funds documents as well as payroll records and other proof of job creation.

In conducting due diligence on regional centers and projects, investors gain the ability to make informed investment decisions and increase their chances of a successful visa petition. As the stakes are so high in terms of both the investment amount and the permanent residence of the investor and his or her family in the United States, due diligence plays a key role in assisting investors during the planning stages and in allowing them to invest in EB-5 projects with confidence.