EB-5 Project Immigration Risk Due Diligence Part 1

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Evaluating Immigration Risk in EB-5 Projects

There are two categories of risk involved in an EB-5 investment: immigration risk and financial risk. Immigration risk involves the possibility that the investor will not be successfully granted permanent resident status. Financial risk involves the possibility that the investor will not get their investment returned either following the investment period or earlier if the initial I-526 petition is denied. Each type of risk should be carefully evaluated before beginning the EB-5 investment process.

The following section lists key issues to explore when conducting due diligence in evaluating the immigration risk for a specific regional center investment.

1. The amount of financial cushion the project has
In an effort to minimize immigration risk, investors should make sure that the project they are investing in has adequate funding to be able to continue operation even if it is unable to obtain the expected amount of EB-5 capital. The project should have funds from other forms of equity, loans from financial institutions, etc. that are not EB-5 funds. A project that is funded almost entirely from EB-5 funds has the risk of falling through if one or more of the investments is not approved, thus preventing eligible investors from receiving permanent resident status.

2.The projected job creation
In order to meet EB-5 requirements, each investor must ensure that their investment is used to create a minimum of 10 new fulltime jobs. If a project is only projecting the creation of the exact number of needed jobs, there is a higher risk that the requirement will not be met. If the number of projected jobs is higher than those actually needed, there is a greater job cushion, and the risk is minimized. Certain projects are easier to do this with when investing through a regional center, such as those that include construction jobs, where the job requirement can be met with the purchase of materials and other construction costs. To minimize the risk of not meeting the requirements and thus losing the opportunity to immigrate, investors should try to find projects that project job creation at double the required amount.

3. The timeline for job creation
USCIS has provided strict guidelines as to when jobs can be created to be counted toward the 10-job requirement. That window is between the initial investment being put into the project and 2.5 years after the investor’s I-526 petition has been approved. In the final stage of the EB-5 process, investors must provide proof of the job creation from their investment being completed during that timeframe or risk losing their permanent resident status.

The one exception to this is if jobs were created from other forms of financing prior to any EB-5 investments; those may also be included in the 10-job requirement.

4. Project pre-approval
EB-5 projects can petition for “exemplar” status, giving the project preapproval before EB-5 capital starts coming in. As the processing timeframe for preapproval ranges from 12 to 16 months, a project may not yet have preapproval before investments are made, but investors can ask for documentation that the appropriate forms have been submitted for the request. If a project already has approval either through exemplar status or the approval of already-submitted I-526 petitions, future petitions will usually be approved.

5. Location of the project
The required dollar amount of an EB-5 investment is determined by the location of the project receiving the investment. The minimum investment requirement is $1,000,000 in most cases. However, if the project is located in a targeted employment area (TEA), it qualifies for a reduced investment requirement of $500,000. The Certification Letter for TEAs must still be valid at the time of the investment and must have been issued by the individual state agency where the TEA is located.

6. The project’s business plan
USCIS uses the project’s business plan to determine if the project will meet the requirements of the EB-5 program in regard to being able to create and maintain the necessary number of jobs, keep the necessary amount of capital at risk for the designated timeframe, and see the project through to its completion. If the project meets the EB-5 requirements, it is referred to as being “Matter of Ho compliant.”