Eight factors in assessing an EB-5 project
An EB-5 investor should look at more than the sales pitch. The eight factors set out here are whether the project creates more jobs than the investor needs, and how far the job report relies on tenant-occupancy jobs; the stage the construction has reached, since a conditional green card lasts only two years; the developer's own money and reputation; how much of the capital comes from EB-5; whether a bank has lent; what security and guarantees back the loan; and the commercial prospects of the project itself. A bank loan and a developer with capital at risk are the simplest signs of reliability.
1. Are there enough jobs?
Economics offers many models for calculating job creation. In the EB-5 field the two most often used are RIMS II and IMPLAN. Whichever model a project uses, an investor should confirm that the jobs it creates exceed the jobs required, so that the I-526 and I-829 petitions may be approved smoothly.
2. Tenant-occupancy jobs
A job analysis report shows how many jobs a project creates, and how many of them come from construction spending, how many from operating the project, and how many from tenant occupancy later on. Where the ten jobs required for each investor depend on tenant-occupancy jobs, the investor needs to know whether that report has already been reviewed by US Citizenship and Immigration Services. The Service has questioned tenant-occupancy figures in many projects, but has said at the same time that it will accept job reports for projects it has already approved; for details see the explanation published on the Service's website on 8 May 2012: http://www.uscis.gov/USCIS/Laws/Memoranda/2012/May/Tenant OccupancyGuidance - FINAL 5 8 12 pdf.pdf. So if it can be confirmed that the project rests on a job report already approved by the Service (an exemplar approval for a regional centre's first project or for a later project), that report is reliable too.
3. The construction period and progress
When EB-5 projects recruit investors they are at very different stages. Some have only just broken ground, some are more than half built, and some may not have started at all. Generally a project already under construction carries fewer uncertainties than one that has not started; large works in particular may be delayed again and again for many reasons. An investor's conditional green card is valid for only two years, and a project can obtain I-829 approval only if it creates the jobs within that period. Take the Maryland state government building project launched by the Washington DC regional centre in early 2011: because of litigation it could not begin construction, although investors had already put money into its EB-5 fund. In the end the regional centre moved its clients' investments into other projects rather than leave them to apply on the basis of that one; had they applied for conditional green cards on the Maryland project and it had never proceeded, they could not have converted to unconditional green cards when the conditional ones expired. From that point of view at least, a project that has started carries fewer uncertainties.
4. The developer's contribution and background
The developer, that is the borrower in a loan-based project, and what it has put into the project are also important. Generally, where the developer has made a substantial investment of its own, it has an incentive to complete the project quickly, and such a project feels far more reliable to investors than one that can be finished only with EB-5 money.
The developer's own strength, experience and standing are a further important factor. An EB-5 loan resembles a commercial bank loan, and a successful developer of good reputation will not readily default and damage its credit rating.
5. The proportion of EB-5 investment
One sometimes sees very large projects whose investment is to come entirely from EB-5. Where a project is very large and the developer has no other source of funds, and competition among EB-5 projects is as fierce as it is, the project may not be completed as planned if it cannot recruit enough investors.
6. Bank lending
Many projects include bank lending in their capital structure, which often shows that the project is comparatively reliable. A bank's system for assessing a project's risk is thorough, and it can obtain much information that an investor could not hope to understand fully. If a project can obtain a bank loan, that at least shows it has passed the bank's strict review and risk assessment, since a bank will lend only to a project it considers commercially sound and feasible.
7. Security and guarantees
In a loan-based project the borrower will provide some security or guarantee for the loan. If the borrower is later unable to repay the EB-5 loan, the limited partnership into which the investors have paid may enforce that security and those guarantees.
8. The commercial prospects of the project itself
This depends on the investor's own knowledge and industry background. An investor may investigate the position of that industry in the place of investment, to see whether local demand for the product or service the project offers is strong. Strong market demand for the project is a further positive factor.