The Individual EB-5 Visa and Regional Center Due Diligence – Part 2/3 of ABIL’s 2011 Webinar Series (Session 1)

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In Part 1 of the partial summary of ABIL’s April 2011 EB-5 webinar made clear, there are several “types” of clients for whom the EB-5 visa may be appropriate – 17 to be exact.

After discussing why immigration practitioners might want to bring up the EB-5 option not only to their high net-worth clients but also to those who may have wealthy relatives, the conversation among ABIL’s attorney presenters shifted to the individual EB-5 visa and how it differs from a regional center investment.

The basic (and probably the most obvious) difference between the two options has to do with who is operating the U.S. business. The individual option is appropriate for those few EB-5 investors who elect to manage a business themselves. The vast majority, upwards of 90 percent, prefers to let a regional center handle the investment.

The individual EB-5 option and its difficulties

Perhaps a less obvious difference between the two EB-5 options is the issue of direct jobs. As Mark Ivener explains, the individual EB-5 investor must show that 10 jobs have been directly created through the investment. The regional center investor, on the other hand, can count indirect jobs toward its total of 10 jobs per investor. Those jobs, in other words, do not have to be on the regional center investor’s payroll.

According to Steven Yale-Loehr, the individual EB-5 investor must also be aware of very stringent USCIS requirements, including the submission of an extremely detailed business plan. USCIS will also need proof that all the funds are available at one time. It is not possible to invest a portion of the $900,000 one year and the rest of it the following year, for example.

Individual EB-5 investors should also be aware that the immigration agency takes a “snapshot,” as Yale-Loehr puts it, of the number of jobs created after two years. In other words, it’s not possible to create 10 jobs the first year and still qualify for an EB-5 visa if workers are laid off the following year.

For these reasons, most EB-5 investors prefer the regional center option. It also allows them to live wherever they please, meaning they are not obligated to reside anywhere near the business in which their funds are invested.

The Powerpoint presentation that accompanied this webinar contained a useful overview of the kinds of EB-5 clients who might prefer either the individual option or a regional center investment.

Performing EB-5 due diligence

As all four ABIL presenters agreed, to arrive at the “removal of conditions” stage – the point at which an investor’s I-829 petition is approved and he or she is a permanent U.S. resident – investors can expect to wait up to four years.

This reality is significant because it can have a great effect on which EB-5 regional center an investor chooses. As Mark Ivener pointed out, only 6 out of 125 regional centers have ever reached this stage with a single investor.

That’s because most regional centers are quite new. A substantial number of them only received USCIS approval within the past two years.

That being the case, there are several questions that all four attorneys agreed should be asked before handing over between $900,000 and $1.8 million to an EB-5 regional center. The following list of due diligence questions comes directly from the Powerpoint presentation shown during the webinar:

• What is the projected return on investment?  (in prospectus)
• Is there any documentation of returns on past EB-5 investment projects?
• How many projects has the EB-5 company completed?
• May the EB-5 applicant need to invest additional money over and above $900,000 at a later date?
• Does the EB-5 project have U.S. investors as well as immigrant investors?
• Does the applicant get interest on money until it is spent on the EB-5 project?
• When is the return paid? Monthly, yearly, or at the end of the project?
• How is the return determined?
• In the subscription agreement or purchase contract, is there a provision for return of money if the I-526 is denied? How much is refunded?
• Does the investor have to make any deposit or pay any fee for the offering materials?
• What is the amount required to be paid by the investor?
• Does the regional center provide regular reporting of the status of the investment to the investors? At what intervals?
• Does a referring attorney get finder’s fee from the regional center? How much?
• Has any regional center project lost money or been in default? Have investors lost money? Have there been any lawsuits?

In addition to these questions, it was also suggested that prospective immigrant investors understand whether a particular regional center has ever filed a single I-526 petition. If it has, how many have been approved or denied? Many new regional centers will have little or no information to share about their history with I-526 petitions – especially if they are opening their doors for the first time.

Even fewer can say whether their investors have cleared the removal of conditions stage.

A complete audio recording of the webinar is available on the ABIL website. A Powerpoint presentation corresponding to the panelists’ comments is also available.

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