How Broker Dealers vet EB-5 Projects


In our previous blog post we introduced Mike Xenick, CEO and President of InvestAmerica Capital Advisors, a broker-dealer affiliated, full-service EB-5 Investment Bank, and strategic partner of e-Council Inc. Mike shared tips on the ways in which investors, business owners, and project developers can vet broker-dealers to make sure that they are professional, skilled, and ethical. Recent allegations of broker-dealers participating in fraudulent activities highlight the importance of carefully selecting the right team of professionals to guide EB-5 and other investment decisions.

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Perhaps the most important job of a broker-dealer is to perform an initial due diligence analysis of an EB-5 venture and assess the likelihood of success, which is usually done before accepting the engagement. This involves, among other elements, evaluating both the sponsor and the project; reviewing the project’s marketing, offering, and subscription materials; and investigating the accuracy of these materials.[1]

Since many EB-5 investors and project owners rely on the guidance of broker-dealers, we asked Mr. Xenick to walk us through InvestAmerica’s due diligence process, in which EB-5 ventures are scrutinized to ensure their viability, soundness, and potential for success. The step-by-step overview, outlined below, is essential information for EB-5 investors and project owners, alike.

Mr. Xenick’s due diligence assessment varies somewhat depending on the project and the applicable asset class (e.g. hotel, multi-family housing complex, restaurant, senior living facility, etc.). However, across the board, “The number one consideration is whether or not the project developer and/or operator have successfully completed and operated similar types of projects before, and if they pass background checks with flying colors.” As we’ve discussed on our blog, investigating the reputation and track record of all involved parties—which can include project developers, business owners, Regional Center principals, securities attorneys, and broker dealers—is a crucial step in selecting an appropriate EB-5 project that is worth the investor’s or business owner’s time and money.

After investigating the track record of the principals, Mr. Xenick then analyzes the latest industry financial metrics in the relevant industry segments for the project. Financial metrics are mathematical measurement tools used to evaluate either (1) a company’s investments and streams of cash flow events or (2) its financial position and performance. Financial Metrics reveal characteristics of financial data that might not be apparent from a simple review of the numbers. [2] Mr. Xenick also reviews the evaluations of other EB-5 professionals who are assessing key EB-5 components, such as job creation and TEA analyses.

Once Mr. Xenick determines that a project and its principals meet these basic requirements, he looks at the venture’s marketability, which involves answering the following set of questions:

  • Is the project located in a state or city with which a foreign national residing abroad is likely to be familiar?
  • Is the project in an industry that is easy for investors to understand?
  • Is the job creation cushion at least 30% or higher?
  • Is the exit strategy clear? And, based on the financial strength of the developer or project owner and project financial metrics, is it likely to occur?
  • Is the total EB-5 investment less than 50% of the capital stack?

According to Mr. Xenick,

Marketability wasn’t as big of an issue even eighteen months ago as it is now, when there are hundreds of projects in the market. Given this market saturation, if a project doesn’t possess ALL of the above components, at a minimum, then the capital raise will be an even bigger challenge than it normally was, and has a low chance of success. Unfortunately, we see this occurring more and more with many project owners having one or more failed attempts [to raise money] for projects that are solid in their own right, however just not marketable for EB-5.

The increased competition in the EB-5 arena explains why Mr. Xenick strongly recommends that

a comprehensive project assessment be conducted by a qualified and experienced EB-5 market study/due diligence firm prior to hiring a full team of EB-5 professionals prepare an EB-5 offering. Doing so will likely save the project owners a significant amount of money, time and frustration, for they will have the opportunity to determine whether on its face EB-5 seems “right” for the project, and if there are any key deficiencies that could be corrected before preparing what will hopefully be a successful offering.

Mr. Xenick went on to note that “One such due diligence firm is e-Council Inc.—a team of highly experienced and ethical professionals, who have a superior track record in vetting EB-5 projects and preparing all the necessary documentation for USCIS to ensure project approval.”

Conducting a thorough and complete due diligence assessment can be overwhelming and time consuming. e-Council Inc.’s  attorneys, researchers, financial experts and other professionals specialize in providing due diligence services and creating Matter of Ho compliant business plans for the EB-5 program. Working with e-Council Inc. on all of your business plan and due diligence projects eliminates the need for outside services from unrelated sources; all of our diverse service providers have been vetted and are immediately available. We also recommend that interested parties peruse our informative articles on due diligence assessments for investors, Regional Centers, and developers/business owners.




This post originally appeared on e-Council. Reprinted with permission.

About The Author

e-Council Inc.'s team of professionals specializes in creating custom-designed Business Plans and supporting documents to meet the needs of both clients and their counsel. What sets us apart is the fact that we are an attorney-driven business plan and ancillary services team, whose principal is an active AILA member and a sought-after speaker. We pride ourselves on the exceptional quality of our work product. We are experts in the field, and boast a stellar track record of success.

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