The EB-5 Immigrant Investor Program has always been complicated, with various pathways for foreign nationals to choose when making their EB-5 investment and pursuing U.S. permanent resident status for themselves and their immediate family members. With so many moving parts, every EB5 investment looks different, but successful every EB-5 path, no matter starkly it deviates from others, leads to the same outcome: a bright, prosperous future in the United States.
In October 2020, Michael Schoenfeld of EB5AN and fellow guest Bernard Rojano of Xecute Business Plan Solutions joined Mona, Rebecca, and Mark of Mona Shah & Associates to discuss how to go about successfully sponsoring your own EB-5 project. The 40-minute podcast episode is jam-packed with valuable information for those considering sponsoring their own EB-5 project to gain U.S. green cards for themselves and their family. Read on to learn about some of the topics discussed.
A Push Toward EB-5 Investments with Friends and Family
When the Modernization Rule came into effect in November 2019, it increased the minimum required EB5 investment amounts by 80%, pushing the amount for regular projects from $1 million to $1.8 million. The targeted employment area (TEA) minimum required investment amounts increased at the same rate, jumping from $500,000 to $900,000. This massive change to EB-5 regulations naturally resulted in major changes in the EB-5 landscape.
The majority of investors prefer to invest in TEA projects, but at the $900,000 level, investors prefer to be more involved than with $500,000 EB5 investments. Since the amount of capital at stake is significantly higher, investors often want to take a more proactive role in their investment to avoid possible financial loss. As a result, more and more investors are opting to enter into self-sponsored EB-5 investment projects with their family and friends. For example, a family with two nondependent children may elect to invest in an EB-5 project together in three separate investments: one for the parents and one each for the two children.
EB-5 investments with family and friends are typically more informal than average and are based on trust, not strict operating documents. Of course, United States Citizenship and Immigration Services (USCIS) doesn’t operate on trust: Investors in such arrangements must still produce comprehensive operating documents for USCIS.
Family and friend EB-5 investments typically also forgo escrow accounts, which are par for the course in projects conducted between strangers. In an EB5 investment arrangement where everyone trusts each other, there is no need to leave EB-5 capital unused until I-526 approval, eliminating the risk of the project being completed prior to the funds being deployed.
Direct Projects vs. Regional Center Projects
Those looking to sponsor their own EB-5 project must choose between the two available project models: the direct model or the regional center model. The regional center model reigns superior in nearly every aspect, from the complexity of the paperwork to the ease of job creation. The relaxed job creation requirements offered through regional center investment is the most vital factor: Depending on the type of project, it may not be possible to create enough direct jobs to satisfy the EB-5 requirements.
For example, say a family of EB-5 investors is undertaking the construction of a shopping mall as an EB-5 project. The jobs created through the construction can be counted as direct jobs, but finding enough operating jobs could be a challenge. EB-5 rules specifically stipulate that in direct investments, the jobs must be created by the new commercial enterprise (NCE), so jobs created by the companies leasing space in the mall cannot be counted as direct jobs.
Renting a Regional Center vs. Acquiring a Regional Center
For those looking to sponsor their own EB-5 project, the regional center path is clearly superior, but should investors rent a center or buy their own? It depends on the investors’ goals for the future. If they’re only interested in sponsoring a single project and will stop participating in the EB-5 project after obtaining U.S. permanent resident status, renting is the best option, but for those hoping to undertake more EB-5 projects in the future, whether with friends and family or strangers as investors, buying a regional center is a better bet.
Those considering buying a regional center should, however, be aware of what acquisition entails. Given the rapid pace of EB-5 regional center terminations in 2019 and 2020 following the enactment of the Modernization Rule, it’s important to acquire a regional center that has been approved relatively recently. Additionally, although the price is typically around $20,000 to $30,000, prospective buyers must consider the lawyer fees involved, which can reach as high as $80,000, not to mention the $19,000 filing fee to register the new ownership of the regional center with USCIS. Then, those who own a regional center must remember to file annual paperwork to USCIS on the regional center and all ongoing projects, including information on all involved EB-5 investors.