By When deciding on an EB-5 project, investors make not only a significant financial commitment, but the immigration status of their family relies on the ultimate success or failure of the project. This is why wise investors will rely on the EB-5 business plan to thoroughly assess the viability of a proposed project, enabling them to make an informed decision as to which ones afford the best opportunity for a successful EB-5 process.
Approval of an EB-5 petition is a key milestone for any EB-5 investor. It is important to understand that the business plan has been written not only for the investor but also to satisfy the United States Citizenship and Immigration Services (USCIS)’s expectations, setting the stage for the overall offering and becoming the foundation upon which the rest of the EB-5 application will be evaluated. In most cases, the business plan is the first EB-5 document drafted so that the project details can be solidified into a cohesive and simple presentation. All other EB-5 documents, including the securities documents, will rely on the business plan to provide the necessary details to be completed.
The business plan should be structured to demonstrate the viability and feasibility of the proposed commercial enterprise, providing a detailed description of the nature of the business, its organizational structure, market analysis, marketing strategies, financial projections, job creation projections, and exit strategy. Additionally, it must show that the investment funds are at risk throughout the sustainment period. This is commonly referred to as satisfying Matter of Ho, a decision made by the Administrative Appeals Office (AAO) of the USCIS in 1998.[1] All business plans written for EB-5 purposes should address the elements outlined in Matter of Ho.
While EB-5 investors should expect that the business plan includes all the necessary information to satisfy USCIS adjudicators, not all business plans that are Matter of Ho compliant are sound projects worthy of investment. The following are four important elements of a business plan that savvy investors utilize when selecting an EB-5 investment.
- EXPERIENCE OF THE DEVELOPER
Track Record: The competence and track record of the developer and development team involved with the project are critical to an investor’s analysis. A thorough assessment of the developer’s overall qualifications, portfolio of financially successful projects, especially ones previously involving EB-5 funding, and industry reputation can help determine the chances of the project’s success as outlined in the business plan.
Project Execution: Proven developers ensure the efficient execution of the project, can secure adequate financing options at favorable rates, and meet project deadlines. They are skilled in handling unforeseen challenges that may arise during the development process, such as financing, market fluctuations, risk management of delays, or cost overruns.
Management: Experienced developers also understand the importance of maintaining their equity in the project and do not remove it too early. A sophisticated team can navigate complex regulatory requirements and effectively manage construction and operational aspects, leveraging existing relationships with sub-contractors and vendors to complete the project according to the scheduled timeline in the business plan.
Project Type and Industry: Additionally, investors would be wise to identify similarities between the developer’s previous projects and the one presented in the business plan. While success with a previous project does not guarantee future success, and each project must be evaluated independently on its merits, developers with relevant experience are better equipped to handle challenges specific to a particular project type or industry.
Reputation: Finally, vetting the reputation and integrity of the developer and development team is key to minimizing the risk of fraud, mismanagement, or legal issues, thereby strengthening the overall chance of success of the EB-5 project.
Fundamentally, the developer is responsible for generating the EB-5 eligible jobs associated with construction and, ultimately, the operation of the business, necessitating careful due diligence on the part of the investor to ensure a successful project.
- THE EB-5 TEAM
Investors should also examine the business plan to understand the strength of the EB-5 team. A well-written plan will include a discussion of the various parties that were assembled to prepare the EB-5 offering. The EB-5 process requires meticulous preparation of the I-956F project application, which demands the expertise of a comprehensive team of professionals, each with a unique role and skill set.
Regional Center: To begin, investors should partner with an experienced regional center with a successful track record. Investors must also verify that the regional center is in good standing, currently certified to operate and comply with the Reform & Integrity Act of 2022 (RIA), current with their I-956G annual reporting, and payment of all fees.
Immigration Counsel: The EB-5 team should also include experienced immigration counsel who is well-versed in the EB-5 requirements under RIA and has a comprehensive understanding of the legal framework. Capable immigration attorneys will have the ability to interpret the RIA statute, policy changes, anticipate potential roadblocks, and ultimately safeguard the investors’ interests, and increasing the likelihood of receiving immigration benefits.
Securities Counsel: The EB-5 team should also include an experienced securities attorney adept at navigating securities laws to ensure compliance with federal and state regulations. They will perform due diligence, structure and prepare compliant investment offering documents, which seek to preserve investors’ capital and maximize the likelihood of a favorable outcome.
Economist: A reputable economist is critical to providing comprehensive economic impact analyses and job creation calculations that are aligned with the RIA statute and rules and regulations imposed by USCIS.[2]
Business Plan Writer: An experienced EB-5 business plan writer specializes in articulating the project’s vision, financial projections, and job creation strategy in a compelling manner. Likewise, the writer will ensure the business plan is consistent with RIA and USCIS guidelines, substantiates the project’s viability, and effectively communicates the potential for successful investor outcomes.[3]
- MARKET FEASIBILITY
While the business plan presents the developer’s vision and will include forward-looking statements, investors would do well to review a 3rd party market analysis and feasibility discussion to make an informed investment decision.
Market Study: A thorough market analysis prepared by a reputable 3rd party provides investors valuable insights into the industry landscape, target market, and potential customers. It should provide an overview of the demand-supply dynamics, competitive landscape, and growth prospects, demonstrating how the project addresses a genuine need in the market.
Feasibility Study or Appraisal: It is important to note that a feasibility study or appraisal by a licensed appraiser that includes a valuation has a much higher level of credibility than merely a market study because of the level of due diligence, analytical rigor, and potential liability associated with the findings. An appraisal will also provide clarity on the amount of equity already in the project based on the as-is valuation as well as the at-stabilization valuation, which can be helpful in determining the relative safety of the EB-5 investment in the project.
Competitive Advantage: Investors must ascertain whether the business plan outlines a compelling competitive advantage that sets the venture apart from existing players. The market analysis section of the business plan provides an opportunity to assess competitors’ strengths and weaknesses, identify market gaps, and evaluate the proposed business’s positioning strategy. Investors can gauge the uniqueness of the product or service, the feasibility of capturing market share, and the sustainability of the competitive advantage.
Profitability: EB-5 investors will be looking for evidence that job creation from operations is likely to occur, and as such, the business plan should contain a robust market analysis and feasibility discussion via a 3rd party that estimates the potential income that will be generated in the market. By examining the market size, growth rate, competitive landscape, and financial projections, investors can assess the profitability of the business.
By carefully evaluating the market analysis and feasibility portions of the business plan, investors can make informed decisions as to the likelihood of success over the lengthy EB-5 investment period.
- JOB CREATION
While the core of the job creation analysis will be found in the economic analysis, the EB-5 business plan should include a dedicated section that outlines job creation, specifying the total number of jobs the project will generate. For investors to receive a green card, the project in which they invest must generate a minimum of ten full-time jobs per investor.
Job Buffer: As a measure of security for the investor, strong projects often incorporate a job buffer. Though not required by USCIS, a job buffer is an industry-standard when assessing projects for job creation security. It is now common for projects to have a minimum job buffer of 20 percent or higher, with some even reaching 30-50 percent or more.
Construction Jobs: The business plan should provide some level of detail as to the breakdown of job creation across the various North American Industry Classification System industry (NAICS) codes. Jobs that are created through construction expenditures are generally considered safer than operational jobs because the likelihood of meeting the construction expenditure requirements is high. Development costs of a project rarely decrease, and unforeseen additional costs are common in the construction industry.
Operational Jobs: On the other hand, operational jobs typically modeled using revenue are more variable, as the income required to create those jobs can be greatly influenced by market events, as has been witnessed in the hospitality market during COVID-19. An EB-5 investor should look to calculate the job buffer as a percentage based on the ratio of construction to operational jobs generated by a project.
Confidence Levels: Projects that satisfy the ten-job requirement primarily through construction jobs while utilizing operational jobs for the job buffer provide a higher level of confidence than those heavily reliant on operational jobs to meet the minimum requirement. Moreover, a project that creates sufficient jobs through construction alone to fulfill the required job creation, with additional construction jobs to support a job buffer for each investor, is deemed highly robust. In some cases, projects that have incorporated bridge financing may have already satisfied their job requirements before EB-5 investment has been received. These projects are considered extremely safe to invest in, assuming the EB-5 funds can replace bridge financing per USCIS policy.[4]
Using the business plan to understand the job creation dynamics, including the size of a job buffer, is crucial when evaluating the feasibility of an EB-5 project. By carefully examining the ratio of construction to operational jobs, investors can assess the strength and safety of a project.
THE KEY TO SUCCESS
A comprehensive EB-5 business plan provides the investor with a roadmap that outlines the project’s vision, strategies, and financial projections. A well-crafted plan should also highlight the competence of the developer team, the experience of the EB-5 support team, the feasibility of the project, as well as job creation analysis. With a robust and thorough plan, investors can make an informed decision that will give them the best chance of success in the EB-5 immigration process.
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[1] USCIS Policy Manual Volume 6 – Immigrants, Part G – Investors, Chapter 2 – Eligibility Requirements, Section B Comprehensive Business Plan, available at: https://www.uscis.gov/policy-manual/volume-6-part-g-chapter-2; See also Matter of Ho (PDF) at www.justice.gov/eoir/vll/intdec/vol22/3362.pdf, 22 I&N Dec. 206, 213 (Assoc. Comm. 1998).
[2] USCIS Policy Manual Volume 6 – Immigrants, Part G – Investors, Chapter 2 – Eligibility Requirements, Section (D)(4) Measuring Job Creation, available at: https://www.uscis.gov/policy-manual/volume-6-part-g-chapter-2.
[3] See Footnote 1.
[4] USCIS Policy Manual Volume 6 – Immigrants, Part G – Investors, Chapter 2 – Eligibility Requirements, Section D(1) Bridge Financing, available at https://www.uscis.gov/policy-manual/volume-6-part-g-chapter-2.
Tom Martin
Thomas Martin is Managing Director of Baker Tilly US, LLC. With more than eleven years of experience in the EB-5 industry, Martin leads Baker Tilly Capital’s EB-5 U.S. consulting practice, where his main focus is structuring EB-5 offerings. Before joining Baker Tilly, he served as vice president of Wright Johnson, one of the largest EB-5 consulting companies specializing in economic impact studies, business plans, and regional center formation.
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