While all EB-5 investment immigration carries risk — albeit with the high reward of a U.S. green card —several factors can lessen the risk if implemented properly and carefully, industry actors say.
One way to lessen the risk is to closely examine the track record of who (and what) is handling the investment funds and the EB-5 project. It’s important that EB-5 investors know as much as possible about who they are getting into business with, potentially for the long term.
How EB-5 investors can choose the right project and service providers
Irina Rostova, an EB-5 broker dealer, said it’s imperative to do “an in-depth review of the project’s offering documents, to make sure there is no hidden option for the developer to repay himself before investors and understanding the start date of any loan.”
More importantly, Rostova said, is understanding how the project will fulfill its contractual terms, and not just look at the agreements. “If the project promises a three-year term, do they have a realistic plan in place that will allow them to safely create the jobs and sell/refinance the project within a short timeline?”
The EB-5 investor’s capacity to choose correctly will depend on the amount of information they have, added EB-5 broker-dealer Marko Issever, CEO of America EB5 Visa.
“Selecting a low-risk EB-5 project is as much of an art as a quantitative analysis process, given the specific information available on the project and the EB-5 market,” Issever added. “Investors are well-advised to use the services of a licensed broker-dealer who has access to several rural and urban [targeted employment area] projects, with rigorous due diligence done on all of them.”
Kyle Walker, co-founder and CEO of regional center Green Card Fund, notes that applying for the EB-5 visa and its projects takes time. So, it is important to find the right people, like a Regional Center and New Commercial Enterprise (NCE), during such a prolonged period.
“Look for EB-5 regional center and NCE managers that have completed full-cycle (permanent green cards and repayment) EB-5 deals and have longevity,” Walker noted. “USCIS and U.S. immigration in general can take extended periods of time, and you need someone that will be by your side all the way through.”
He also stressed that “big brands are not always better,” advising: “Look at the people behind the project … look for experience, character and integrity.”
The importance of EB-5 due diligence
Due diligence is necessary to reduce risk, and EB-5 investors must evaluate a business partner’s completion history, financial management skills, and asset security to maintain a low-risk environment, said Rishabh R. Gandhi, senior director for India, Southeast Asia, and other regions for EB5AN.
“The borrower’s experience with similar projects can provide insights into their capability and reliability,” he said, adding that “a borrower’s history of financial obligations and repayments is a direct indicator of their risk level.”
There’s also consensus about the red flags EB-5 investors must be on the lookout for.
Walker said it’s important to know if the project can be completed without EB-5 funding, and to ascertain what happens if additional funding is needed toward completion. How would that scenario, for instance, impact the EB-5 investment positions?
“All of these are important questions to understand the reliability of job creation (immigration) and investment security (collateral),” Walker said.
It’s all about knowing the details, Issever stressed.
“Investors are well-advised to read the fine print of various guarantees the projects offer, such as I-526 denial guarantee, building completion guarantee and third-party loan guarantees, if any. Understand these guarantees before they invest, as opposed to if — and when — any one of them is triggered.”
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