What are the traditional sources of revenues for regional centers? Assuming the Private Placement Memorandum states that the expected return is say 3 percent. Is it legal for the New Commercial Enterprise (NCE) to loan the investors capital to a Job Creating Entity (JCE) at 5 percent and retain the difference of 2 percent for itself after providing the investor with his return?
The percentage may vary. It depends on the agreement between the parties, but the new commercial enterprise may loan funds to job creating entity. Please consult an experienced immigration attorney to assist you.
Yes, provided proper documents and disclosures in place, that would not be an issue.
In this loan model, the interest paid by the JCE to the NCE is subject to negotiation. There is a fine line between an interest rate which makes EB-5 attractive to the developer and one which makes it just another hassle. What you propose is fine as long as you also account for all the other costs the developer will encounter, e.g. legal fees, agent/broker interest fees, etc.
Traditionally, regional centers earn revenues from the projects they invest in. RCs are organized for commercial purposes. Also, it is legal for the NCE to loan money to a JCE at 5% and retain the difference of 2% even though the underlying PPM may state the expected return is 3%. The difference of 2% is the NCE's profit and costs of operation on its loans. Just in passing, be aware that generally a PPM is directed to all investors, both EB-5 and non-EB investors, it is only an adjunct document to the EB-5 immigration application. On the other hand, a loan arrangement between an NCE and a JCE has nothing to do with immigration law and it is strictly a business financing agreement, thus, the NCE loan arrangement is not subject to any EB-5 scrutiny and rules.
It depends on how it is structured. The investors cannot be guaranteed a rate of return as their money must be at risk.
Regional centers fund projects with a mix of EB-5 and non-EB-5 funding (other equity investors, traditional loans, etc.). The percentages vary, and some projects are 100% EB-5 funded. In a loan model (where the NCE loans funds to the JCE), the interest paid by the JCE on the repayment on the loan depends on how the developer or regional center wants to set it up and split among the investors, regional center, or other parties. Immigration attorneys with EB-5 expertise, like our law firm, review these structures from an immigration-compliance perspective, and can coordinate with corporate or business attorneys as well.
The best advice is to retain an experienced EB-5 attorney who can assist you in setting up an EB-5 compliant project which will legally allow the regional center to financially benefit. It is important to offer complete transparency to the investors as to where the percentages are being placed under your circumstances. It seems if, according to the PPM, the representation is that the investors will receive 5 percent, then they should receive the 5 percent.
