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Common EB-5 Investor Questions

Posted by Kurt Reuss on January 09, 2017

Q:  "I haven't paid taxes, individual or business, because my country of residence doesn't require it or it isn't customary. Is this a problem?"

A: Catharine: We normally tell clients if they can provide income tax returns, it’s great to do so. If they can't, it's not going to make or break their petition. 

We let them know that if USCIS sends a request for evidence (RFE) for copies of their income tax returns, they will need to either produce them or get a letter from an attorney in their country of residence stating the legal reason behind why they can't provide those tax returns.

I always request tax returns but I’ll still file a petition if I don't have them. 

  

Q: "When will I get my money back?"

A: Rupy: Often times an investor's understanding may be that their funds are being loaned to a project for five years so they can expect a return of their capital in five years.

Investors should understand that they are making an equity investment in the new commercial enterprise (NCE), and the NCE is making the loan.  So the return of capital is dependent on two outcomes, first the repayment of the loan by the JCE and second the liquidation of the NCE by the Manager.

EB-5 Due Diligence Checklist

Posted by Kurt Reuss on December 21, 2016

Making an investment of $500,000 - $1,000,000 in an EB-5 project that ultimately fails, jeopardizes both the investor’s funds and the U.S. residency of the investor’s family, therefore every investor would be wise to know as much as possible about the investments they’re considering.

What is due diligence?

Due diligence is an investigation of an investment prior to signing a contract. Due diligence contributes significantly to informed decision making by enhancing the amount and quality of information available to the investor allowing him or her to better understand the benefits and risks.

What is included in an EB-5 due diligence review?

Due diligence begins with a thorough analysis of the investment documents including the capital structure, project viability, exit strategy and job creation potential as it relates to the EB-5 program.

The due diligence review should also identify risk mitigation strategies that have been implemented by the Manager or General Partner to protect investors. These include use of a fund administrator to oversee all transfers of investor funds, and construction monitoring to ensure transfers to the Developer are in-line with construction progress.

Inferring that EB-5 due diligence firms are not independent and their findings can be procured is a red-herring, designed to maintain the status quo.

Posted by Rupy Cheema on August 30, 2016

CMB recently published a blog titled EB-5 Due Diligence - Third Party Websites: Considering one of the many independent EB-5 due diligence services? in which they dismiss the notion that investors are served by retaining a due diligence firm before selecting an EB-5 investment.

EB-5 Source of Funds Preparation

Posted by Kurt Reuss on May 07, 2016

If you are applying for an EB-5 visa, providing evidence of income and a lawful path of funds will be the key to your successful transaction. Since there are a myriad of ways to collect the money you need for your investment, having an expert eb-5 investment attorney to guide you successfully through the documentation process is a key element.

Here are a few common EB-5 source of funds scenarios and how to document them.

I-526 Insurance; Proper Disclosure is Critical

Posted by Kurt Reuss on April 20, 2016

Kurt Reuss: Proper disclosure is an important issue with this I-526 product, considering it is a new product with no claims paid to date. Doug, how do you approach a product like this, when developing disclosures in the PPM?

Doug Hauer: I think you have to be very careful to, in plain language, describe the mechanics of how this policy is actually working.

An investor who is reviewing the PPM should be able to review the section on the insurance and walk away with an understanding of how mechanically a policy would work and what kinds of claims would result in there being coverage and what kinds of claims would result in a denial of coverage.

I think the trap for an issuer or a regional center issuing a deal is that the term 'insurance' conveys a safety net, or a risk-free proposition. You have to be careful here if you're an attorney drafting a PPM for a client; you need to spell out in clear terms what the limitations are and what the parameters of the product are.

I think it would be important to alert investors, in a PPM, of the risks with this product.

One area that we see in these policies that leads to some confusion is how 'fraud' is defined. Fraud, in a securities law context, when you're talking about an issuer, can mean many different things.

It's going to be important to calibrate those disclosures, make them clear, put those disclosures in plain language, and ensure that all parties in a deal get protection through understanding what the limitations of the product are.

I-526 Insurance; The Criteria and The Coverage

Posted by Kurt Reuss on April 18, 2016

Kurt Reuss: Marc, what criteria do you use to decide whether or not a project is coverable under your I-526 policy?

Marc DiFanti: When we look to underwrite these policies and do our due diligence, we really look at it from two standpoints.

First, of course, is the strength of the project. We look at the project as a whole and its viability and its likelihood of success and how it can work going forward.

Secondly we would look at the team that’s been put together. Do they have a great securities council? Do they have a great immigration counsel? Do they have a great regional center with a great track record in the EB5 industry?

For example, we’d consider Bruce Rosetto from Greenberg Traurig as great; that is, he's somebody who’s been in this industry for a long time and he and his firm have handled a large number of EB5 projects. When we see team members like him, and a whole cohesive team that knows the industry and can handle these types of petitions and filings and understands all the work that goes into it, we realize that they're projects that we want to insure and projects that are likely to receive acceptance from us.

Kurt Reuss: That sounds like it could be a bit of a challenge to figure out who you want to enroll. Obviously, it comes down to the experience of the people involved.

What is an NCE?

Posted by Kurt Reuss on April 01, 2016

A requirement of the EB-5 visa program is for the foreign investor to invest and engage in a ‘New Commercial Enterprise’.

There are no restrictions on the type of business as long as it is a new business enterprise or the investment is made to into a failing business to save jobs, but in both cases the investment must create or save at least ten (10) jobs.

What is a JCE?

Posted by Kurt Reuss on April 01, 2016

EB-5 regional center offerings often involve a new commercial enterprise (“NCE”), the entity the immigrant invests into and an independent job creating enterprise (“JCE”), which the NCE invests or loans the EB-5 investors funds into.

EB-5 Business Plan Process, from Start to Offering

Posted by Kurt Reuss on March 22, 2016

Kurt: How long does it take from the time someone wants to start putting an EB-5 offering package together, to completing it and being ready to take the offering to market?

Lets say from the time they meet with an immigration attorney to the time they should expect to have completed putting together the offering package?

Martin, could you walk us through the process? My sense is that the immigration attorney typically acts as the quarterback on EB-5 package development. How do you see your firm's role?

Martin: As precisely that; we're the quarterback. We pull together a team which we think will be suitable for the project. That team might include a business plan writer, an economist and a securities lawyer. We also work with the client, their accountant and their business lawyer.

We usually have a kickoff call with everybody to assign tasks so everyone gets to know each other. Everybody will send out a questionnaire to the developer and we try to go through them so that there's not a lot of overlap. Then, we make sure that people are meeting their schedules to produce what they need.

Is a Feasibility Study a Requirement of an EB-5 Business Plan?

Posted by Kurt Reuss on March 09, 2016

Kurt: Here is a brief summary of the items that go into a business plan:

  • Project description
  • Management's background
  • Description of the sources of funds, (i.e. whether a senior loan or equity).

Marge, how frequently are you provided a feasibility study as an aid to drafting the business plan and how important is it?

Marge: I probably see a feasibility study about 80% of the time if not more, and I think its very important to the business plan.

Not every developer wants to pay the cost for a feasibility study, but I think it adds a great deal of credibility to both the numbers you're trying to support in the business plan, as well as on the marketing side.

Using a company such as PKF Consulting or Colliers International, or another firm with brand presence adds credibility, both to the project and to the projections themselves.

Kurt: As I see it, without a feasibility study, you've got two problems. On the one hand, you could be underestimating your inputs, which means you aren't counting as many potential jobs in your business plan as you could and alternatively, you could be overestimating your inputs, which is probably going to be the bigger problem in the long run.

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