How do direct and Regional Center investments differ?
What is difference between direct investments vs. regional center investments for investors? Does time frame differ depending on which investment type? I would like to choose the best option but I do not know the requirements for each.
A major difference is the job creation requirements. For a direct investment, the investor must operate and manage the business. In addition, he or she must create 10 direct jobs. Investments through a regional center can take credit for indirect and induced jobs to reach the 10 job threshold. As to the second part of your question, the time frame between direct investments and one through a regional center do not necessarily differ.
One of the primary differences relates to the way job creation is calculated. Direct investment requires creation of 10 full time direct employees (i.e. W-2, I-9 employees). Regional Center based investment allows for job count based on economic methodologies that include indirect and induced job creation.
A direct EB-5 would be one in which normally you control the investment and the investment must create 10 new direct jobs. A regional center project is one in which you normally do not control the investment. You have to create 10 jobs but they can be direct, indirect or induced. The RC allows you to invest in real estate because of the indirect and induced jobs component more easily.
Regional center investment projects can use indirect job creation, which is calculated by an economist using a reasonable methodology accepted by the USCIS. A basic, direct investment must create 10 direct jobs in order to qualify for EB-5 classification. Otherwise, all EB-5 requirements are the same.
The only real difference is how the job creation numbers are calculated. The direct investment that you will operate or manage must create jobs directly meaning you must actually hire employees and must show with I-9s and tax reports. The regional center investments/projects could count the jobs indirectly meaning that that they could show how many jobs could be created by spending a certain amount of money for construction, for example. In order to do this, the regional centers spend a lot of money hiring economists who will analyze and calculate proper jobs report for the project.
A direct investment requires the investor to be active in the day-to-day management of the enterprise. As a limited partner in a regional center project, investors are not required to be active in day-to-day management.
Philip H Teplen
The main difference is one is entrepreneurial and the other passive. Further the Regional center is generally pre-approved as a $500k investment. There are many other changes.
There are a number of differences, however, the most significant relates to job creation. Remember, the EB-5 program is driven by job creation. In a direct EB-5, one can only count direct W-2 jobs. This means that when the investor files the I-829 (removal of conditions to receive a permanent green card), the investor will have to show that his/her investment created 10 actual full-time jobs (s/he needs to be able to furnish detailed evidence of these employees in the application). In the regional center scenario, the main advantage is that one can count both indirect and induced jobs as determined by an economist. If the project will entail more than two years of construction and the developer is able to furnish ample proof of this time frame, the economist can even count direct jobs as well. Therefore, at the I-829 stage, the investor only needs to show that his/her investment was actually spent on the project and the impact of such investment will be demonstrated by the economist. There is no need in this case to show the actual names of the employees. The differences can get a little bit more nuanced, however, this is a summarized difference between both strategies. Regarding what option would be best, there is no right or wrong answer. Often times, it depends on the investor''s risk tolerance and ultimately, could be a business decision. The regional center deals tend to be much larger while the direct investment deals tend to be smaller. I encourage you to visit my firm''s website where you will find multiple blogs and articles discussing the differences between both types of investments.