A private placement memorandum (PPM) is a legal offering document issued to potential investors by entities seeking funding. A PPM outlines the investment terms, requirements, and risks associated with the offering. It provides all the information an investor needs to make an informed investment decision.
An EB-5 investor may need a PPM as part of the documentation for their EB-5 application, depending on their chosen investment route. Understanding the purpose and components of a PPM will guide the investor in choosing the right investment project.
In this article, we’ll look at the purpose and components of a PPM, what they mean for EB-5 investors, and what EB-5 investors should look for in a PPM.
Purpose of a Private Placement Memorandum in EB-5 Investments
Do All EB-5 Investors Need a PPM?
What Should Investors Look for in an EB-5 Project’s PPM?
- Security of Investment
- Project Development Timeline and Job Creation
- I-526E Denial Guarantee
- Investment Term and Number of Possible Extensions
- Conditional Repayment
EB5AN Offers Comprehensive EB-5 Guidance
Purpose of a Private Placement Memorandum in EB-5 Investments
In EB-5 investments, a PPM outlines the terms of the investment offering between the fund-seeking entity, such as a regional center or developer, and the EB-5 investor.
It provides all the investment details, including the requirements and potential financial risks. It also outlines the measures the new commercial enterprise (NCE) put in place to secure the investor’s money. The information provided in the PPM can help the investor choose the EB-5 project that best suits their financial and immigration goals.
Components of a Private Placement Memorandum
A good PPM must provide details of all, but not limited to, the following:
- Ownership information and legal structure of the regional center and NCE.
- A general description of the enterprise and project operations.
- All SEC required disclosures, including the risks associated with the offering.
- Biographies and experience of the senior management.
- All the investment’s primary systemic and non-systemic risks.
- Historical and projected financials of the NCE and job creating entity (JCE).
- Details of how investors’ funds will be used in the JCE.
- Details of how the investment will meet USCIS’s job creation requirements.
- Investment terms and repayment structure.
The subscription agreement for purchasing the offering described in the PPM is usually included at the end of the PPM. It is the actual “sales contract” between the NCE and the EB-5 investor. If you agree to the investment terms after going through the PPM, you’ll sign the subscription agreement and send it in along with your investment funds.
Do All EB-5 Investors Need a PPM?
Whether an EB-5 investor needs a PPM depends on their chosen investment option. EB-5 applicants can make a direct investment or invest through a regional center.
EB-5 applicants going through the direct investment route do not require a PPM since they’re the sole investor in their NCE and are not selling any shares to anyone. They only need to invest at least $800,000 in an NCE (if it is located in a targeted employment area) and provide a comprehensive business plan detailing how the NCE will create at least ten direct jobs for Americans.
However, EB-5 applicants investing through a regional center need a PPM since the NCE is raising capital from more than one EB-5 investor. The NCE issues the PPM to potential investors, providing them with all the details of the investment.
EB-5 investors who agree to the terms laid out in the PPM will sign the subscription agreement and enter into a partnership with the NCE. The EB-5 investor will then include the PPM and subscription agreement as part of the supporting documentation for their I-526E petition.
What Should Investors Look for in an EB-5 Project’s PPM?
Below are some key issues EB-5 investors must consider when reviewing an EB-5 project’s PPM.
Security of Investment
When reviewing a PPM, check the investment model used in the EB-5 project and the security of your capital. EB-5 investments come in two models: equity and loan.
In the equity model, you’ll hold equity ownership of the project, but the development does not secure your investment. The project will have to make profits for you to receive any interest or returns. And you can only receive back your capital if the project is bought out or refinanced.
In the loan model, your investment is structured like a loan to the developer. It has a set interest rate and a specific maturity date when you’ll receive back your capital. Your investment is also secured by the developer’s assets, which can be liquidated to pay back your money if the project fails. Still, you must conduct due diligence to ensure the project is viable and avoid losing your immigration status.
Project Development Timeline and Job Creation
The United States Citizenship and Immigration Services (USCIS) currently requires that the NCE meet the job creation requirement in two years. So, check the project development and job creation timeline to ensure the project will create the ten required jobs within the required time and before filing your I-829 petition.
If the project is already underway, check with the regional center to understand the current job creation status and the order in which jobs are allocated to investors. Jobs are typically assigned to investors based on the order of receipt of their conditional Green Cards. However, a large project may have already created enough jobs to allocate ten jobs to you even before you invest.
I-526E Denial Guarantee
When evaluating a PPM, check if the project guarantees a refund of investment if USCIS denies your I-526E petition. Most low-risk EB-5 offerings have a refund guarantee, known as the I-526E Denial Guarantee. However, you need to check repayment terms and conditions to ensure they cover both your $800,000 (or $1,050,000) capital and any administrative fees you paid.
Investment Term and Number of Possible Extensions
The investment term for each EB-5 project depends on the financing structure. For EB-5 projects financed through a loan or preferred equity loan model, there’s often a stipulated term (usually three to five years) and a possibility of extension for one or two more years. Carefully analyze the PPM to ensure that the NCE does not have the right to extend loans without investors’ consent, as multiple extensions can delay your capital repayment.
There’s usually no specific investment term for equity-based EB-5 investments.
Conditional Repayment
Some PPMs outline when investors will get their money back. However, this is usually after they’ve met the conditional residency requirements. While funds must remain “at risk” for two years under the current regulations, USCIS allows investors to receive repayment once they’ve filed their I-829 petition.
Check the PPM to see whether it agrees to repay investments before I-829 approval. This is important because some PPMs stipulate that investors will only receive their funds back after their I-829 petition is approved.
EB5AN Offers Comprehensive EB-5 Guidance
PPMs are usually issued to investors to help them make informed decisions when choosing an EB-5 project.
However, a PPM is a complex document, and EB-5 investors who do not have legal or financial backgrounds might struggle to analyze it independently. They should seek help from EB-5 experts to review the offering and determine if the investment is worthwhile.
EB5AN‘s team of industry experts can help you choose the right EB-5 project for you. We’ve guided over 2,300 foreign nationals in relocating to the U.S. in 10+ years of practice. We offer our clients first-rate, low-risk EB-5 regional center projects with a 100% USCIS project approval rate to date.
For more information on EB-5 documentation and help with reviewing PPMs, schedule a one-on-one call with our team today.
