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  • Article: Five Things Investors Should Ask When Selecting an EB-5 Project – Due Diligence 101 By Mark A.M. Catam, Esq. and Joseph Barnett, Esq.

    Five Things Investors Should Ask When Selecting an EB-5 Project – Due Diligence 101

    by


    With 39,443 I-526 EB-5 petitions filed in the past three fiscal years, at least $19 billion has been invested in the U.S. economy through the EB-5 Immigrant Investor Program during the period from October 1, 2014 to September 30, 2016. As of May 30, 2017, there are 1,258 Regional Centers designated by USCIS. Regional Centers offer a variety of investment opportunities to prospective immigrant investors, including real-estate development, hotels, manufacturing, medical facilities, and shopping complex, among many others.

    Accordingly, EB-5 investors now have an array of choice. Selecting an immigration compliant project is the most important aspect of the process. Before investing, investors should perform extensive due diligence to ensure that they will receive a permanent green card, as well as ensuring the likely repayment of their EB-5 capital investment upon final approval of the case.

    Below are five items prospective EB-5 investors should ask prior to making an EB-5 investment decision:

    1. Reputation and EB-5 Experience of the Regional Centers and Developers. It’s critical to understand who will be using EB-5 capital to create jobs for U.S. workers. Who are the principals, and what are their qualifications? Do they have a track record of previously successful EB-5 projects? Did previous projects receive Form I-526 or Form I-829 approvals? Has the Regional Center returned EB-5 investment capital after Form I-829 approval? If there is a manager of the job creating entity (such as, for a hotel or a medical facility), what is the operating history of the manager?
    1. Infrastructure, Oversight, and Administration of Regional Center and EB-5 Project. Do the Regional Center and EB-5 project developers have the necessary infrastructure to carry out an EB-5 project, with appropriate staff, office, and funds to operate? Is there a system of reporting and notifying EB-5 investors of developments on the project on a regular basis? Does the EB-5 project have an established administration framework that provides adequate oversight to ensure the funds are correctly deployed and spent appropriately (no comingling of funds for other projects)? Is the Regional Center and EB-5 project set up to meet relevant federal, state, and local legal requirements, including U.S. securities laws?
    1. Capital Stack of EB-5 Project. If EB-5 capital is the sole source of capital for the project, then it must be understood that the development and operational timeline of the project will be based on the timeline for fundraising efforts. If the total amount of EB-5 capital is not raised, will the EB-5 project be able to proceed, and will the jobs be created. Have other sources of capitalization for the project been identified and formalized? How is the EB-5 investor positioned within the capital stack? Does the developer have any “skin in the game”? If the business fails, what type of security interest or collateral is there for the EB-5 investor?
    1. Job Creation. EB-5 is a job creation program with an immigration benefit. If the EB-5 project which the investor invests in does not create enough jobs, then it is possible the EB-5 investor may not be able to obtain a full green card. How many jobs are expected to be created for EB-5 investors? Are the jobs based on successful operations and the revenue of a company? If so, has construction already started and indirect/induced jobs already created?
    1. Miscellaneous Considerations. Aside from these questions, EB-5 investors should be aware of the different types of offerings in the market. Is it a debt or equity offering? Is an escrow account being used and when are funds released from escrow? What are the terms for repayment in the event the Form I-526 is denied? Is the project located in a location which most likely meets the proposed, or reformed definitions of “Targeted Employment Area”? Is the Regional Center subject to an SEC investigation or complaint?

    This post originally appeared on Wolfsdorf Immigration Law Group. Copyright © 2017 Wolfsdorf Connect - All Rights Reserved.


    About The Author

    Mark Catam Mark A.M. Catam is an Associate Attorney in the firm’s Los Angeles office. He specializes in the areas of EB-5 investment, including EB-5 compliance, foreign direct investment (FDI), investor/trader category, business/corporate immigration and compliance, and global mobility. His clients include multinational companies, high-net worth individuals, tech companies, start-ups, entrepreneurs/investors, regional centers, developers, executives and highly skilled professionals. He is a member of State Bar of California (licensed to practice law in California), and a designated Global Mobility Specialist® by Worldwide ERC – The Association of Workforce Mobility. Joseph Barnett is licensed as an attorney in the State of Illinois and the State of Wisconsin and practices exclusively in immigration and nationality law. Mr. Barnett represents immigrant investors seeking permanent residency in the United States through USCIS-designated Regional Centers and investment in their own businesses. Mr. Barnett also assists developers with the establishment of complex corporate and financing structures for EB-5 capital. He works with economists, securities lawyers, business plan writers, and other professionals to prepare Regional Center applications, amendments, and project “exemplar” approvals.


    The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.

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