Though the EB-5 immigrant investor program can be an express lane to permanent residency, navigating its process and requirements can be a bit overwhelming. Since EB5AN is the foremost vendor for EB-5 regional center setup and access, our expertise is a reliable resource for investors, lawyers, and developers who need a little help to make sense of the assortment of administrative fees that the program comprises.
Know Where Your Money Goes
As an investor or developer, you likely have a list of questions about the amount and purpose of these fees. For example:
- What do the fees cover?
- Are agents’ commissions part of my fees?
- Is my project exempt from any of these fees?
The answers to these questions are crucial; after all, they influence your investment decisions. Though the US securities markets are heavily regulated and enjoy a higher level of transparency and sophistication than any other market worldwide, protection against bad actors is imperative to preserve the integrity of the system.
Typically, when fraud occurs, it’s the result of consolidating management of both the funds and the project in the same person. The Jay Peak case is a prime example of this mistake. In an effort to prevent such fraud, legislation is in the works that would further stifle deception by requiring a third party to supervise transactions.
Admin fees are sometimes deposited in escrow rather than being paid directly to the regional center or developer. Filing the I-526 petition prompts release of both the capital and the escrow. Occasionally, admin fees are simply applied toward the NCE or its general partner, sidestepping the escrow.
In a few cases, a third party has administered escrow release, but in the minimally regulated EB-5 world, third-party oversight is generally reserved for the capital contribution, since it’s more closely tied to the job-creating enterprise (JCE). The usual destination for admin fees is the fund or the finder’s fee, which are not subject to third-party oversight.
What Administrative Fees Cover
The purpose of administrative fees (sometimes referred to as syndication fees) is to pay the expenses incurred in the process of offering the project. These costs include:
- Marketing expenses—cost of attracting investors
- Administrative expenses—payments to lawyers, economists, and other consultants who help ensure the project is EB-5 compliant
- Agent commissions—finder’s fees for agents who recruit investors
The administrative fees are charged by an EB-5 regional center. They are unrelated to the initial $500K investment required by USCIS, and do not count toward it; however, most centers require them to be paid up front, before filing the I-526. Regional center admin fees vary widely between centers and projects, but usually fall somewhere between $30K and $60K, with an average of $50K. Investors should think critically about the fees they’re being charged, as a relatively high fee could mean the regional center is dishonest, and a relatively low one could mean the center cut corners or failed to plan adequately.
Of course, investors could maneuver through the obstacle course of forms, regulations, and business documents themselves, but it would cost them much more time, energy, and money. Though regional center admin fees significantly increase the cost of investment, they are an ethical, reasonable, and legal part of the EB-5 process.
Why Administrative Fees Vary
Lawyers and others who deal with EB-5 investments have noted that administrative fees are higher than they used to be. This price hike is due to the demand for more lucrative commissions by agents, who sometimes charge a commission equal to the entire fee.
Securities laws are designed to protect investors by enabling them to make informed decisions. For this reason, they require agents to disclose the amount of their fees. Agents who charge exorbitant commissions are not eager for investors to be informed when the admin fee is pure commission, or when they recommend regional center projects based on which centers pay them more.
Administrative fees generally remain consistent. At the same time, investors who insist on lower fees often get them. Unless the possibility of charging different fees to different investors is stated within the offering documents, doing so is irregular and should be avoided.
The same applies to bending the rules for how the funds are to be used. Admin fees are meant to cover only offering expenses, so it’s inadvisable for developers to allot any portion of the fees to personal expenses. Unless this use is specified in the offering documents, it’s an inappropriate use of the funds.
Possible Exemptions From Administrative Fees
When it comes to exemptions from admin fees, in short, they’re rare. Extensive planning and know-how is required to pull off an EB-5 investment project, from ensuring everything is done legally to forecasting the financial success of the enterprise to complying with regulations specific to the type of business the investment is funding. This level of planning involves a whole team of people, each with a particular area of expertise, whose services are worth paying for.
There is one exception to the rule: cases where no solicitation occurs, such as when associates decide to join forces and form a new company. When there is no need for offering documents, no one needs to be paid for them. But even in instances where disclosure documents are unnecessary, the legal protection they provide is worth the added expense. An access letter is a useful alternative to a PPM in these situations.
When the PPM is MIA
Disclosure documents are integral to an honest and transparent deal. In the absence of necessary documents, there is always a possibility of a he said/she said scenario. Meticulous documentation protects both investors and developers, helping to resolve disputes easily and streamline your project’s acceptance by USCIS.
It’s essential to understand the circumstances to determine whether the absence of a PPM will negatively affect the project.
- Did an offering take place? If so, what kind?
- What types of investors are involved?
A deal that relies on the offshore exemption, for example, necessitates a PPM, while a Reg D offering with an accredited investor may not.
Contact EB5AN to learn more about EB-5 administrative fees. We’d love to answer your questions and guide you through the investing process.