Evaluating Regional Center Investment Opportunities

With rapid and drastic changes in U.S. immigration policies, foreign nationals seeking permanent residency find the EB-5 Immigrant Investor Visa Program to be their best resource. The recent tightening of the H-1B regulations (addressing the rights of employers to hire non-US workers) by the Trump administration has made the EB-5 investment option even more attractive.

A Growing Demand for EB-5 Visas

Although the EB-5 Immigrant Investor Program has operated since 1990, it recently experienced noticeable growth in activity. A maximum of 10,000 EB-5 visas may be issued in any given fiscal year. In 2005 only 349 foreign nationals filed applications. Nine years later, 2014 marked the first time that the maximum allowable visas were approved.

A similar pattern has emerged for applications. The number of EB-5 applications filed in 2014 was 11,744; this jumped to 17,691 applications in just one year. Experts attribute this increase to the difficulty of successfully applying for residency using other immigration methods.

EB-5 Investment Options

When Congress passed the EB-5 Program in 1990, foreign investors were able to form a new business in America. This was the only option available until 1992, when Congress expanded the program to include the Immigrant Investor Program. This new program included the option of investing in a regional center.

Experienced general partners manage regional center investments. The limited partner investment is passive, as there are no day-to-day responsibilities.

Understanding Regional Center Investments

Regional center investors look to their general partners for its success. It is important to assess the risks involved in such an investment. The administrator of the EB-5 Programs, the Department of U.S. Citizenship and Immigration Services (USCIS), reviews and approves regional center investments. This process neither endorses nor guarantees the success of any approved regional center project.

Investments made by EB-5 applicants must be “at risk” investments. It cannot be encumbered by debt, provide guaranteed financial returns, or offer any capital protection structure. It is especially important for investors to perform their own due diligence prior to committing to any EB-5 investment.

The most standard investment type for regional center investments is a limited partnership. Foreign investors are treated as limited partners, their liability limited to the amount of their investment.

Potential Investment Pitfalls

General partners present their proposal in the most positive and attractive light possible. Investors considering the investment should analyze the project unemotionally, performing the necessary research to validate the assumptions and future projections that are presented in the investment offering.

The following are just a few examples of problematic regional center investments that could be avoided by doing the proper homework:

• Loan defaults as high as 20% of their portfolio value.
• No clearly defined exit strategy; you have no idea when you might see your investment returned.
• Paying down loans instead of paying back investors, and earning considerable management fees on those investments.
• Comingling of investment funds—investors own shares in pools of investments rather than an identifiable commercial enterprise.
• Promoting a franchise-style investment with a brand-name coffeehouse chain. Franchises are difficult to analyze and often carry extra fees.

These examples illustrate the need to work with a reliable partner who can show their ability to perform above the industry average.