By Wonjoon Kang
The EB-5 Immigrant Investor Program is one of the most attractive immigration programs. Many people have successfully settled in the United States and earned the long-term benefits for the whole family. However, there are still some cases where the investors choose the wrong partner or project, which can lead to challenges.
It’s important to have an EB-5 project evaluation system based on three aspects: immigration, investment and an independent third party to ensure that the EB-5 projects marketed to the Vietnamese investors are secure. The two success factors for the EB-5 investors are the permanent resident green card and to get the investment refund after 5 years.
This rigorous process includes the following 10 important steps:
STEP 1: THE PROJECT HAS BEEN APPROVED BY THE UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES (USCIS)
All EB-5 projects must be approved by USCIS. Regional Center in special zone projects may be approved by USCIS prior to the mobilization or disbursement of EB-5 funding into the project. In this case, a new Regional Center was established and approved in accordance with the project. However, there are cases where the Regional Center has special geographic locations that can build an EB-5 project, mobilize and disburse EB-5 funding while concurrently submitting I-526 to USCIS for the approval. At that time, the first I-526 filings to the USCIS and the project will be processed at the same time. Once this I-526 is approved, the project has also been approved and other investors will depend entirely on the legitimacy of their investment fund.
STEP 2: IS THE LOCATION OF THE PROJECT IN A TARGETED EMPLOYMENT AREA (TEA)?
The TEA is a rural area or an area that has experienced unemployment of at least 150 percent of the U.S. national average rate. If the project is in the TEA, the investment will be reduced from $ 1 million to $ 500,000 so the TEA structure is part of the form I-526.
There are many ways to prove that the project is in the TEA, but the most important thing is to consider the data, maps, census and TEA approval letter of the project. These data must be still valid throughout the project life.
STEP 3: OVERVIEW AND EXPERIENCE OF THE PROJECT DEVELOPER
Understanding the experience of the project developer helps investors determine whether the project can be completed on time or using the financial resources effectively. Collaboration with a new unproved project developer could generate some problems because there wasn’t a successful track record in the past to show.
STEP 4: THE MANAGEMENT ROLE OF REGIONAL CENTERS AND PROJECT DEVELOPERS IN THE EB-5 PROJECT
The experience and effectiveness of the joint management partner, project developer, and regional center are important factors behind the success of an EB-5 project, and also determine the level of risk for the EB-5 investor who invest in the project. In addition, immigration consultants’ agent and immigration attorneys play important roles in the success of the I-526 application.
There are some projects that have the participation of the regional center and that may be a convincing factor to prove that the regional center believes in the project success and acts as an investor while expecting the project to repay the loan.
STEP 5: PROJECT CAPITAL STRUCTURE
Capital structure is a crucial role in considering all the money invested in the EB-5 project. For example, the source of funding for the project may come from many sources such as: EB-5 capital, project developer capital, priority loans or construction loans, equity capital and so forth. Many investment sources show that the project can attract many different investors (individuals, organizations or banks). These units believe the project is feasible and can yield the profit.
In the project capital structure, investors should consider whether the regional center or project developer has invested in the project. In the structure of the loan, it should be considered whether the loan includes collateral, and the regional center as well as the project developer's plan in an effort to help investors recover their funds after the permanent resident green card is issued.
Normally the EB-5 capital adequacy ratio in real estate development projects should be around 30 percent, job creation formula should be funded by the owner to lower the risks.
STEP 6: THE INVESTOR’S ROLE IN THE EB-5 PROJECT
Investors must know their position in the project investment structure. Is the EB-5 fund an equity investment or loan model? Many projects use limited partnerships, in which the regional center acts as a joint management partner, establishes a project management company, and acts as a limited partner in the project.
Under U.S. law, with the EB-5 program, investors' money must always be “at risk” and their investment will have a mortgage from the project. This structure protects the investor’s interests in case the project developer (the borrower) is unable to repay the loan within the time specified in the contract loans. In the equity model, there is usually no specific repayment plan and protect the investors from risks.
STEP 7: JOB CREATION
Analyzing how the regional center calculates the number of jobs and which documents that prove the creation of 10 jobs per investor is very important. Indirect jobs, direct jobs and induced jobs are essential elements to review feasibility of the EB-5 project. This is a very important part, so when USCIS process the application, they look at the factors that create jobs carefully.
STEP 8: FINANCIAL ANALYSIS, THIRD PARTY EVALUATION
Financial guarantees are one of the key factors for the project’s feasibility. The regional center must provide a complete financial model and an independent third-party evaluation report showing that the income and expenditure of the project are reasonable and accurate. In addition, third-party reports help investors understand the supply and demand of the market, showing the current project financial as well as the project future then prove the possibility of an EB-5 investment refund.
STEP 9: PROJECT CONSTRUCTION TIMELINES COMMITMENT
A successful EB-5 project can be built and completed without the full EB-5 investment funding, so it is important to understand the financing process and project progress.
It’s very necessary to know when and how much equity has been invested in the project to ensure that the construction process is timely. The regional center must provide to investors an understanding of the Loan Agreement and the Ownership Commitment when the regional center starts mobilizing capital from the EB-5 investor. These documents will help the project commit to having sufficient funds to build and complete the project as scheduled.
STEP 10: EXIT PLAN
Although there is no guarantee that the investment will be repaid after five years according to the EB-5 program, this is a major issue in EB-5 projects and investors are keen to find out.
Any projects that pledges to return the money mentioned in the project file, the I-526 of that investor will be denied by law because the investment must always be in a state of "at risk" until the I-829 application (removal of condition) is approved. Projects may refer to a successful return on a project, such as a sale to a third party or refinancing from another source. However, investors should study carefully and ask the investment consultant agents for support to analyze the project risks before starting to invest.