Direct EB-5 investments vs. regional center investments
Historically, EB-5 petitioners could make an investment in one of two ways: a direct investment, or a regional center investment.
While both direct and regional center EB-5 investments require the same amount of investor capital and the need to create 10 full-time U.S. jobs, substantial differences exist between the two routes in terms of eligible jobs, the investment structure, the type of potential return and other benefits.
What is a direct EB-5 investment?
A direct investment is made directly into the job-creating business. In the past, most direct investments were made into owner-operated businesses, like franchises; but since the expiry of the Regional Center Program after June 30, 2021, a new kind of direct investment model has emerged: investment into companies with proven concepts that are looking to expand with non-dilutive EB-5 capital.
Direct investment job creation
A direct investment in a company is responsible for creating 10 full-time jobs. If they are operating their own business, the EB-5 applicant and family members do not count towards this quota. And direct investors are limited to counting only direct or operational jobs created by the business that received the investment capital.
What is a regional center investment?
According to USCIS, "An EB-5 regional center is an economic unit, public or private, in the United States that is involved with promoting economic growth." Regional centers sponsor job-creating projects, and pool together the capital investment of multiple investors for these projects.
The regional center investment structure is far different and more complex than the direct investment structure: the investment is made into the EB-5 fund, otherwise known as the new commercial enterprise (NCE), an entity solely created to raise and lend money. The EB-5 fund then restructures the investment capital as a loan to the business that creates the qualifying jobs, the job-creating entity (JCE). The different entities may or may be under common control.
Regional center job creation
Regional center investors can count not only direct jobs, but indirect jobs, those created by supplier industries, and induced jobs, employment in the local community that is created by spending of investment-project workers in the area. It should be noted that indirect and induced jobs are not actually counted, but projected by economic modelling.
Easier job creation and robust marketing by regional centers led to about 95% of all EB-5 investments having been made in the past through the Regional Center Program.
How are direct EB-5 investments the same as regional center investments?
Direct and regional center investments require the same investment amounts, $1,050,000 for a standard investment and $800,000 for a Targeted Employment Area (TEA) investment. Both options require the creation of 10 full-time U.S. jobs, as well as compliance with other EB-5 requirements, such keeping the invested capital “at risk” until the end of conditional permanent residency.
The advantages of direct investments
The nature and structure of direct investments offer many advantages not seen in regional center investments. First, as direct investing is done through the permanent EB-5 investor program, it is never subject to potential expiration dates. This offers greater assurances of long-term stability than the Regional Center Program, which had always relied on short-term extensions — and which has remained expired since July 1, 2021.
For investors, direct investments can potentially many advantages:
- As equity investments, they can potentially offer higher rates of return than the very low rates offered by regional center investments
- They don’t have the exit-timing challenges faced by regional center investments
- Redeployment isn’t a factor with direct investments
- Only actual payroll jobs are counted
- Jobs can be truly permanent and not just based on a short-term projects
- Jobs can be highly skilled in innovative sectors beyond construction
- Not being focused on real estate development allows businesses in virtually any location, including distressed or rural areas, to benefit from EB-5 capital
- The more simple structure of direct investments offers more transparency and less opportunity for conflicts of interests, abuse, and fraud
The advantages of a regional center investment
Regional center investments can count indirect and induced jobs, determined by economic modelling, making it potentially easier to satisfy the job-creation requirement. If the real estate development project spent its budget, the jobs were virtually assured of being credited, regardless of whether or not the project was successful.
Both regional center and direct EB-5 investments can be passively managed
Most investors and even EB-5 professionals have held the false assumption only regional center investments can be passively managed and that direct EB-5 investments require active management. This is not true, especially given the new model of making a direct investment in an established growth-mode business.
Immigration lawyer and former USCIS Acting Director Robert Divine gives clarity on the issue of USCIS management requirements: “The requirement in the statute to engage in the enterprise is the same in a direct investment and a regional center investment; there is no difference,” Divine states. “Whatever was passable in the Regional Center Program is also passable in the Direct Program. So language in the operating agreement, or whatever type of agreement for the enterprise, that the investor has the right to provide policy input is likely to be sufficient. It’s not an issue that the Immigration Service has chosen to make a big deal of.”
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