How to Ensure That Your EB-5 Project Will Succeed
As an EB-5-investor, it is critical that the Regional Center project you are investing your funds in succeeds. A failed project not only means that you lose your $500,000 investment but also that you and your family may not obtain the Green Cards for which you made the investment originally. Performing due diligence prior to making a financial commitment will improve the odds of your EB-5 project’s success.
EB-5 Project Evaluation
To determine whether a Regional Center project is viable, there are various aspects the investor, their attorney and advisors must investigate. Here’s a basic list:
- Is the project located in a Targeted Employment Area (TEA)?
TEAs are located in rural areas or where the unemployment rate is 150 percent or more of the United States’ average rate. Regional Centers may sponsor projects in non-TEA areas, but the investment amount required by EB-5 investors doubles, from $500,000 to $1 million. Do not rely on the developers’ statement that the project is in a TEA. Check that the project has a TEA approval letter.
- How much experience do the developer and management have in developing EB-5 projects?
You do not want to risk your money with a novice developer. Find out how much experience the developer has with similar projects. Have previous projects been successful? The same holds true with those managing the project.
- What is the project’s capital structure? Has the developer invested in the project?
An EB-5 project generally has many sources of capital. It is essential that you find out exactly what these sources are before adding your own funds. Besides funding by EB-5 investors, look for construction loans, equity capital, and the developer’s own investment. Understand the structure of each loan.
Your investment is always “at-risk,” as part of the EB-5 visa requirements. Make sure the developer has invested its own funds in the project. If none of their funds are at-risk, find a project in which the developer has “skin in the game.”
- Will the project create 10 full-time American jobs within two years?
Job creation is the reason Congress enacted the EB-5 program nearly 30 years ago. An EB-5 investment is required to create a minimum of 10 full-time American jobs within two years. Should your project fail to create these jobs within the two-year timeframe, you are probably not obtaining a Green Card. That’s why it is crucial to analyze how the project calculates the number of jobs it expects to create, whether directly or indirectly.
- What do the third-party reports state about the project?
Review and thoroughly understand any independent third-party reports of the project. You can also hire your own independent evaluator for their assessment of the project. Third party reports can include project appraisals and construction cost verifications.
- Does the developer claim you will receive your money back?
While such a promise seems comforting when investing, for an EB-5 project a claim to receive your money back is a major red flag. Since your investment must always remain “at risk”, a developer claiming you will receive your money back may jeopardize the investor’s EB-5 visa application.
- Do you understand USCIS accepted expenditures?
When performing your due diligence, familiarize yourself with the USCIS’ accepted expenditures. As a rule, the USCIS accepts actual construction costs, such as materials, labor and demolition. It is the soft costs that tend to raise red flags with the USCIS. While fees for project professionals, such as architects and engineers, aren’t usually an issue, other such fees are more problematic. Again, an understanding of USCIS’ accepted expenditures regulations can help you. Keep in mind that the USCIS does not permit property taxes, permits and local government fees to be treated as expenditures.
How Lightstone Can Help
One of the best ways to ensure your EB-5 project will succeed is by choosing a company with a strong track record. As one of the largest private real estate companies in the United States, Lightstone provides individuals with an opportunity to invest in high-quality projects in choice American cities such as New York City, Miami, and Los Angeles.
Lightstone currently has the US $6 billion assets under management and development and over US $400 million of EB-5 capital raised over seven past and present projects. We collaborate with major brands including Marriott and TAO Group in the heart of Manhattan, Miami Beach, and other prestigious real estate locations. Our experienced team is ready to answer any questions you may have about our projects.