I am an about-to-be EB-5 investor and I am reading the agreement offered by my regional center. My question is, what are some common exit strategies for EB-5 investors? What should I pay special attention to when it comes to the language in the exit clauses?
Exit strategies vary from project to project. You will want to work with your attorney to discuss further.
It is important to review the offering documentation for a specific project to determine whether it is a loan-based or equity-based investment loan. Consult an EB-5 immigration attorney to review and advise you.
You should review triggering events/conditions under which you can get your initial capital returned.
The agreement may provide that the investor will receive their principal back if the investor has an approved I-829 petition and the developer has paid back the loan.
The easiest way for the exit is to dissolve the partnership when the loan term matures and the developer returns the money to the partnership after you receive the I-829 approval. However, due to the number of Chinese investors whose visa numbers are backlogged for years, this may not be an option for many projects that relied on their investments. Thus, most of the regional centers are redeploying the funds to keep the funds from Chinese investors at risk to have them eligible for removal of condition. Having their money tied for up to 10-20 years may not be what non-Chinese investors want. Thus, one of the cleanest exit strategies that I have seen was for the Regional Center, who is the General partner of the limited partnership, to buy out the limited partners who have received their I-829 approvals and keep the limited partnership intact for others who still need to remain. This option, however, may not be possible for very large projects with thousands of investors, or where the regional center and developers are one in the same or closely affiliated (vertically integrated).
The timing and method you exit an EB-5 investment will depend on the agreements you signed with the regional center EB-5 project and whether the project was based on a loan-model or an equity-model. You should consult with an experienced attorney or EB-5 exit strategist who can review the documents and the structure on your behalf and represent you in the process of exercising the rights you have under the agreements.
There is no general standard on exit strategies as each regional center tends to include a variety of exit clauses. Therefore, avoid compiling a checklist which may not fit well with the documents you are reviewing. Advisably, consult an EB-5 attorney to thoroughly go over the documents you have received from the regional center that you are considering to invest. Lastly, do not undertake an EB-5 investment without the assistance of an attorney.
In terms of best practices regarding exit strategies, the very best exit strategy is the initial investment decision and making sure that you have picked an EB-5 Regional Center project that is sound where the developer has a proven track record and is reputable. It is also very helpful if the Regional Center has a history of obtaining approvals of EB-5 petitions at both the I-526 stage and the I-829 Removal of Conditions stage. It is also helpful if the Regional Center has one or more prior approvals, which is a good indication that the next EB-5 Investor Petition on Form I-526 filed for the same project will likely be approved. You should, of course, read the documents regarding the exit strategy and if it is a real estate project, whether or not it is contingent upon selling the property or whether or not there is a promissory note with a date certain that provides that after the normal holding period of 5 years, the note will be paid.
Refinance and sale are the most common ways of financing investors exit. Each project is different, however, and specific clauses will govern the exit process and circumstances. You need a counsel to help you understand the particulars of the project you have chosen.
Exit strategy would depend on the type of project. For example, if it is a hotel development, exit strategy can be (I) refinancing or (ii) sale of the hotel.
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