When evaluating EB-5 investment opportunities, how do I find out whether the individual project itself is trustworthy? I do not want to just rely on the regional center's track record on other projects.
There are some standards that you can use to assess an EB-5 project. Although the track record of the company is a very important factor, the other factors are important too. You need to know the percentage of funds from itself, the percentage of the loan and the percentage of the EB-5 funds. The lower the percentage of the EB-5 funds, the better.
This is a great question that will yield many differing responses. For real estate projects, please examine (i) the prior experience of the developer (the more experience in the real estate development generally and in the type of project at issue, the better), (ii) the amount of equity the developer invested in the project and procured from other sources that would be subordinated to the EB-5 funds in the capital stack (the greater the percentage of equity subordinate to the EB-5 funds the better), (iii) the presence of public monies such as tax credits, bonds, TIFs, subsidies, tax holidays, etc., in the deal means that the project has been scrutinized by local officials, which is equivalent to free due diligence, (iv) the presence of third-party feasibility reports to ascertain whether there is a need for the project whether it is hospitality, residential, commercial, etc., (v) whether the developer has procured all (or at least most) zoning and building permits/approvals, and (vi) what security and guarantees the EB-5 lender/investor will receive to protect/preserve the EB-5 investors' capital contribution in the event of the developer default. I hope this is helpful.
In essence, what you need to do is conduct due diligence to ensure your information on any investment opportunity in question is really good. Also, do not disavow the investment record(s) of any particular regional center because it is a good source of evaluation. Advisably, an EB-5 attorney should be able to help in this regard.
I. Client Due Diligence regarding EB-5 project: 1. What is the projected return on investment? (in prospectus) 2. Obtain documentation of returns on past EB-5 investment projects. 3. How many projects has the EB-5 company completed? 4. May the EB-5 applicant need to invest additional money over and above $500,000 at a later date? 5. Does the EB-5 project have U.S. investors as well as immigrant investors? 6. Does the applicant get interest money until it is spent on the EB-5 project? 7. When is the return paid? Monthly, yearly, end of project? 8. How is the return determined? 9. In the Subscription Agreement or Purchase Contract, is there a provision for return of money if the I-526 denied? How much is refunded? 10. Does the investor have to make any deposit or pay any fee for the offering materials? 11. What is the amount required to be paid by the investor? 12. Does the regional center provide regular reporting of the status of the investment to the investors? 13. Does a referring attorney get any fee from the regional center? Please describe. II. Client Immigration Due Diligence: 1. How many I-526 approvals? 2. How many I-526 denials? 3. How many Conditional Green Card approvals? 4. How many Conditional Green Card denials? 5. How many Removal of Condition approvals for the late 90s cases? 6. How many Removal of Condition denials for late 90s cases? 7. How many post-2002 law Removal filings/approvals? 8. How many post 2002-law Removal denials? III. Client Due Diligence of Removal of Conditions. Will the regional center company and principals be in business in the future for Removal of Conditions?: 1. Obtain bank reference of the EB-5 general partner and/or principals. 2. Obtain Dunn and Bradstreet on general partners and/or principals. 3. Any past lawsuits? (general partners or principals) 4. Any past criminal convictions? (general partners or principals) 5. When was the regional center established? 6. How long has the EB-5 company been doing business? Any previous business? 7. When can the investment be sold? When can the client get money ($500,000) back? 8. How is the amount determined? 9. How many years of experience does the general partner or principal in the investment project have in working with immigrant investor programs? 10. What precautions are taken to monitor job creation? What steps are taken if the requisite job creation has not occurred?
Hire an attorney to work with a broker dealer to perform meaningful due diligence on the project. You may also want to hire a private investigator to check on the background of people working on the deal.