A Simple Investment Framework for Selecting a Low-Risk EB-5 Project

EB-5 investments can be risky. Foreign nationals invest in EB-5 projects hoping to receive permanent residency in the United States. Investors also want their money to be returned—sooner rather than later. If they can eliminate immigration risk entirely by selecting an under-construction EB-5 project that has already created 10 jobs for each EB-5 investor, even better.

For foreign nationals seeking to immigrate to the U.S. with an EB-5 visa and to protect their investments, avoiding financial and immigration risk is key to success. EB-5 investors can invest with confidence by following the simple project selection framework outlined in this article.

Background

The EB-5 immigration process is complex, but understanding the risks involved in making an EB-5 investment doesn’t have to be difficult.

EB-5 investors do not need to understand every detail of the EB-5 program to select a safe project. Instead, investors can make informed decisions by learning some basics about the current state of the EB-5 program, by understanding key risks, and by applying our guiding principles for selecting low-risk projects.

Recent Migration Trends

The COVID-19 pandemic began in 2020 and deeply affected all aspects of life for people across the world. Immigration to the United States became increasingly difficult. COVID-19 also served to accelerate population shifts in the nation. In some cases, people began to move away from cities and states that had more restrictive COVID-19 laws and policies.

The southeast United States, in particular, has seen tremendous population growth in the last two years.

A New Era: The EB-5 Reform and Integrity Act of 2022

For the past two years, the EB-5 program has undergone significant changes.

In June 2021, the EB-5 Regional Center Pilot Program lapsed. This program allows licensed entities known as regional centers to pool EB-5 funding from multiple EB-5 investors. Since the vast majority of EB-5 visa applicants invest in regional center-sponsored projects, the lapse of the regional center program dramatically reduced the number of EB-5 investments available to foreign investors.

Then, in March 2022, Congress passed the EB-5 Reform and Integrity Act of 2022 (the “RIA”). The RIA reauthorized and substantially modified the EB-5 Regional Center Program. While United States Citizenship and Immigration Services (“USCIS”) has yet to provide guidance on much of the RIA, the effects of the reform bill are already being felt across the industry.

The RIA tightened regional center compliance and reporting requirements. The treatment of targeted employment areas (“TEAs”) also changed. One of the most important changes is that rural TEAs now qualify EB-5 investors for faster application processing.

The Two Key Risks for EB-5 Investors

Despite the recent changes to the EB-5 program, the two key risks to EB-5 investors remain the same: immigration risk and financial risk.

Immigration risk reflects how likely an EB-5 investor is to receive his or her Green Card. Financial risk, on the other hand, reflects how likely an investor is to recover his or her investment capital.

Understanding these two key types of risk is vital for EB-5 investors wanting to invest in low-risk projects.

Low-Risk Projects Have Current Success, not Future Projections

The guiding principle for selecting low-risk EB-5 projects is simple: show, don’t tell.

Many EB-5 projects make promises about future performance, but proof is better than promises. EB-5 investors seeking low-risk projects should look at what is currently true of a project, not what the developer hopes will happen at some point in the future.

Has the project already received financing, or does it hope to obtain financing in the future? Is the project already under construction, or is it waiting for permits or other approvals? Are EB-5 jobs already created, or are they merely estimates? Is the project already enjoying financial success now, or does it hope for success eventually?

EB-5 investors can reduce their immigration and financial risk effectively to zero by selecting projects that are compliant with all EB-5 program requirements and are—and will remain—financially successful.

Below is a simple framework that applies the guiding principle given above to the selection process of EB-5 projects with low immigration and financial risk. If a project fails to meet the criteria of any tier in this framework, the project relies on projections and hopes for the future rather than demonstrating real success now. Any such project poses a higher risk and EB-5 investors may want to avoid it.

Framework Tier I: Geographic Considerations

When deciding whether to invest in a project, EB-5 investors should consider its location. Because projects in states or cities facing economic decline are riskier, investors should avoid such projects.

Population trends often directly correlate with economic trends. If a city or state’s population is decreasing, the regional economy tends to be less active. Many people are moving out of states with high costs of living, a poor business climate, and high rates of crime. In the past two years, for instance, residents of California, New York, and New Jersey have been moving to the South and Southeast.

This recent population shift has largely benefitted the South and Southeast. States like Florida and Texas are among those experiencing the most growth. Prior to recent trends, the Southeastern United States had long been a destination for retirees; however, the region’s sustained population growth is resulting in increased economic activity and a strong housing market for young Americans as well.

EB-5 projects in the South and Southeast benefit from a stable trend of population growth. As a result, such projects are currently favorable and present a lower risk to investors.

Key Question: Is the project in an area with a declining population? If so, avoid it.

Framework Tier II: Industry Considerations

EB-5 investors should seek projects from select industries that align well with the EB-5 program’s requirements.

Some types of projects—like hotel and multi-family rental apartment buildings—are often riskier for EB-5 investors. Any project in an industry that relies on forecasts and operational estimates carries more risk.

Investors cannot know whether a project is successful based solely on projections. For such projects, predicted success will not be proven right or wrong for years. Investors should avoid these types of projects.

Instead, EB-5 investors should choose projects that clearly demonstrate whether they are currently viable.

Two ideal industries for EB-5 projects are condominium and single-family home developments. With these types of projects, investors can easily identify whether demand exists based on actual sales data. As a result, they can see how successful the project is at any given moment, not just how successful the developer hopes it will be.

These kinds of projects are far less risky to investors.

Deciding on the Right Industry

Two of the lowest-risk project types on the market today are condominiums and single-family home developments. For EB-5 purposes, the main difference between these two types of projects is their location. Condominiums are found in urban locations, while single-family housing is often found in rural areas.

The location of a project is important to EB-5 investors for several reasons.

A project’s location will determine whether or not it is in a TEA—and, if so, what kind of TEA it is in. Projects in TEAs allow EB-5 investors to invest $800,000 instead of $1,050,000.

In addition, projects in both urban and rural TEAs qualify investors and their families for reserved visas. If an EB-5 investor’s country of birth is experiencing a backlog of EB-5 visa applications—as is currently the case with China and India—investors who qualify for reserved EB-5 visas through a TEA project can avoid extensive processing delays.

Rural TEAs also qualify investors for priority immigrant petition processing. For investors already in the United States, this faster processing is not needed. But for those out of the United States, faster processing means getting an EB-5 visa much more quickly than otherwise possible.

EB-5 investors not yet in the United States should strongly consider investing in rural TEA projects.

Key Question: Is the EB-5 investor already in the United States? If not, choose a rural TEA project.

Urban Condominium Development Projects

Condominium projects are ideally suited to EB-5 investment.

First, investors can quickly determine whether a condominium is being built to respond to the current demand in the housing market; sales show whether demand exists. If little demand exists, the project is likely being developed based on future projections.

Clear indications of demand make condominium projects safer for EB-5 investors because they can determine whether the project is already successful.

Second, condominiums are typically pre-sold. Even while under construction, condominium projects often have some cash flow in the form of deposits. These deposits provide developers with cash to help offset costs and become part of a project’s source of capital.

EB-5 investors can examine sales to better gauge the financial risk involved in a project.

Rural Single-Family Home Development Projects

Like condominium projects, single-family home projects are excellent candidates for EB-5 investment.

With single-family home projects, investors are able to assess demand in the current market. Home sales velocity reveals real demand, and investors can avoid projects that do not have strong sales. By relying on actual sales data rather than predictions, EB-5 investors can lower their financial risk.

Single-family home sales, like condominium sales, provide developers with cash that can be used to fund subsequent construction. Unlike condominium projects, though, single-family home projects can be split into individual home builds that require relatively small sums of capital to complete.

Unlike condominium projects, construction costs do not all need to be spent prior to construction completion. With less capital needed upfront for each house and revenues from sales funding future construction, single-family home projects are safer for EB-5 investors.

Avoiding Risky Industry Categories

Some types of projects have high upfront costs and earn no revenues for months—sometimes years. Hotel, manufacturing, and multi-family home projects all require tremendous long-term spending before they see any revenue stream.

EB-5 investors should avoid projects with high upfront costs and delayed earning potential.

Because of the development timeline for such projects, expected revenues are based on assumptions that may not prove to be true. Current demand is not necessarily an indicator of future demand. An economic downturn can quickly turn predicted gains into losses.

EB-5 investors should generally avoid projects that rely solely on predicted future revenues rather than actual present earnings.

Key Question: Is the project’s industry reliant on predictions rather than current sales data? If so, avoid this kind of project.

Framework Tier III: Project Considerations

Not every condominium or single-family home project in the Southeast is low risk. While the location and industry of a project impact its risk, each project has its own risk profile. EB-5 investors need to carefully consider the specific risks of a project before choosing to invest in it.

Strong Developer Track Record

EB-5 investors should seek projects by reputable developers with a track record of success. While success in the past does not guarantee it in the future, a pattern of success over time does lower risk.

Developers should have direct industry experience and proven market knowledge. Saying they are experts or industry leaders is not enough—their expertise should be demonstrated in their track record.

Finally, developers should also have a clean record of repaying all debts.

Key Question: Does the developer have a clear record of success? If not, look for another project.

Construction Underway

The safest projects for EB-5 investors are already under construction and have created enough jobs to meet the job-creation requirement for all their EB-5 investors at the time of investment.

EB-5 investors should avoid projects that are not yet being built. Delays in construction can happen at any time, for unexpected reasons, and may last longer than expected. Such delays can affect job creation, which may jeopardize an investor’s immigration efforts.

Key Question: Is the project under construction? If not, look for one that is already being built.

Sales Have Begun

Condominium or home sales show the project is actively meeting demand and is attractive enough to draw buyers. EB-5 projects with existing sales are far less risky than those that have not proven their market viability.

Key Question: Does the project have current sales? If not, look for one that does.

Financing Already in Place

As the U.S. economy once again enters what many economists fear is a recession, project financing is a major issue for EB-5 investors to consider when looking for a safe investment. EB-5 investors should seek projects with financing from major institutional lenders with fixed rates.

In addition, investors should be leery of any project that has not secured its senior financing. The safest projects for EB-5 investors do not rely on EB-5 funds but use EB-5 capital to replace more expensive forms of capital.

Key Questions: Is the project fully financed without EB-5? If not, avoid it. Does the project have fixed-rate financing in place? If not, look for one that does.

Independent, Reliable Regional Center Sponsor

Compliance with USCIS regulations is vital for success in the EB-5 visa program. An EB-5 project’s regional center sponsor is responsible for EB-5 compliance and reporting.

Having an EB-5 regional center sponsor with a clean record has always been important. Because of the RIA’s increased compliance and reporting standards, now, more than ever, EB-5 investors must carefully vet their regional center sponsors.

EB-5 investors should not simply accept a regional center’s claims but should look for a record of compliance. A good regional center has a clear compliance policy and follows it strictly.

EB-5 investors seeking low-risk projects should set a high standard for regional center sponsors. Regional centers should be highly transparent and provide regular updates. They should be experienced in EB-5 documentation and compliance. The regional center operators should know the industry and stay up to date on changes to the EB-5 program.

Moreover, a safe project will have an independent, third-party regional center that is not affiliated with the project’s developer. Independence reduces the likelihood of conflicts of interest, which in turn reduces the risk for EB-5 investors.

Key Question: Does the regional center have no compliance history or a history of project denials? If so, avoid this project, as immigration risk is high.

Examples of Low-Risk Projects

EB5 Affiliate Network (“EB5AN”) is pleased to offer an array of high-quality, low-risk projects. EB5AN prides itself on providing the highest caliber of EB-5 compliance through independent, third-party regional center sponsorship. With a 100% project documentation approval rate with USCIS across more than a dozen projects, EB5AN offers investors the confidence and peace of mind that come only with proven reliability.

To help ensure successful outcomes for EB-5 investors, EB5AN sponsors projects only if they meet strict criteria. Three such projects are listed below:

Wohali Utah: Rural Master-Planned Golf Community Development Project

Wohali Utah is a 428-residence community and golf course under development just north of Park City, Utah. It offers some of the best features of any EB-5 project available today.

Wohali Utah is in a rural TEA, construction has begun, and significant job creation has already taken place. The developer has provided EB-5 investors with industry-best guarantees, and the EB-5 loan is secured by the developer entity. A unique loan structure minimizes the loan term for each EB-5 investor and reduces risk.

Saltaire St. Petersburg: Urban Condominium Development Project

Saltaire St. Petersburg Phase II is a 35-story luxury condominium development in downtown St. Petersburg, Florida. With a host of best-in-class features, Saltaire is one of the most compelling urban EB-5 projects available today.

Saltaire St. Petersburg is an urban TEA project already under construction. This development has already created more jobs than required for all EB-5 investors in the project to obtain Green Cards. All condominiums have already been sold.

Saltaire St. Petersburg is being developed by the Kolter Group (“Kolter”), an experienced condominium developer.

Twin Lakes Georgia: Rural Single-Family Home Development Project

Another project by Kolter, Twin Lakes Georgia is a 1,300 single-family home community being developed just outside of Atlanta, Georgia. It is one of the most compelling rural EB-5 projects available today at $800,000. Twin Lakes Georgia is an equity investment.

Twin Lakes Georgia is a rural TEA project under construction with all necessary EB-5 jobs already created. Kolter is also an experienced single-family home community developer that has built more than 20,000 homes.

Contact EB5AN

For more information on EB5AN’s low-risk projects, please schedule a one-on-one call with EB5AN or send an email to info@EB5AN.com.

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