Due diligence, EB-5 Steps, EB-5 basics, EB-5 immigrant visa
Aug 15, 2019
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Kurt Reuss
Kurt Reuss
Kurt Reuss is a registered securities broker who has been specializing in EB-5 since 2012. He offers advice on investment structuring and market conditions related to EB-5 investments.

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EB 5 projects due diligence checklist

Making an investment of $800,000 - $1,050,000 in one of the EB-5 projects 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 EB-5 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 Immigrant Visa 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 the EB-5 green card 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.

The due diligence review should point out any conflicts of interest, especially between the Manager (lender) and the Developer (borrower). Also background checks on all persons who have access to investor funds should be conducted.

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To perform your own due diligence, here’s a list EB-5 Document checklist

The following list will help you get the information you need from the EB-5 Regional Center, the New Commercial Enterprise and the Job Creating Entity.

EB-5 Documents to review

Private placement memorandum, operating agreement or limited partnership agreement, escrow agreement, subscription agreement, business plan, economic impact study, TEA designation, regional center designation letter, significant third-party service contracts, market feasibility study, appraisal, loan and equity commitment letters from non-EB-5 capital sources, site control documents, construction cashflow schedules and revenue and expenses projections.

Visit the EB-5 project site

Don’t just tour the project; arrange to meet with management of both the construction company and the new commercial enterprise. This is the opportunity to ask questions which arose upon your review of the aforementioned documents.

Research the EB-5 regional center

Regional centers are responsible for overseeing the EB-5 investments they sponsor. In regard to that oversight, we suggest asking regional center management for their written policies and procedures in monitoring those projects. Also, review the regional center’s designation letter to confirm that it is in good standing with the USCIS EB-5 and review their current I-924A form, which is filed each year with USCIS.

Review the economic impact analysis

Regional center investments rely on an economic model to predict the jobs that will be created, based on either business expenses or from revenues. A short fall in the projections could affect an investor’s ability to get a Green Card.

Review the market feasibility study

Understanding the demand for the business’s products or services is explained in the market feasibility study. This report should be developed by an experienced firm which understands the industry. Be sure to review the inputs in that make up the projections because, should these projections come up short, the job creation estimates could be overstated.

Perform background checks

For each of the people that have access to your funds, be sure to look at their employment history, past litigations, bankruptcies, regulatory violations, sanctions or criminal proceedings. The background check is a private investigation into someone’s life and it should be performed by a reputable firm.

Evaluate risks from construction start until completion

Confirm site control and property entitlements. Find out whether the Developer has negotiated a maximum price contract with the Contractor and whether there is a completion guarantee. As an imminent part of EB-5 Process one must confirm the capital stack commitments to ensure that the EB-5 project has the money it needs to ensure completion.

Review the investor fund protections that have been put in place

Wiring funds into escrow is an important first step to protect investor funds, but more important are the terms that release funds from escrow. Be sure to review them carefully.

Third-party fund administrator to sign off on transfers

Some regional centers provide investors with an on-line portal which allows investors to see exactly which account their invested funds are at any point in time. This real-time transparency is a comfort to investors and a protection against fraudulent activities going unnoticed.

Ensure that loan administration procedures are similar to a bank’s

Does the Manager release investor funds based upon project completion criteria or does the Manager simply release funds upon Developer request. You want protections similar to a bank’s protections.

Investor refund policy

It’s a good idea to understand under what conditions the investor is allowed to get a refund.

Selecting the right EB-5 investment project is critical

Other than selecting an immigration attorney, selecting the right EB-5 investment is the most important decision an investor will make. A well run EB-5 funding will have better policies and procedures, better investor protections, more justifiable projections, more experienced management and will offer investors more transparency throughout the life of the investment, all of which will improve the chances that you will get your invested funds returned in a timely manner and reducing any chance that your U.S. residency petition will be denied or terminated.

Ensuring TEA eligibility

As per the EB-5 modernization rules that took effect November 21, 2019, there are new and more stringent requirements for Targeted Employment Area designation. This is of vital concern to any EB-5 immigrant investor who hopes invest at the lower investment level of $900,000, rather than the non-TEA amount of $1.8 million. While this designation previously resided with individual states, the burden of proof has now shifted to the investor. The decision to accept or deny this qualification is now made at the federal level along with the adjudication of the investor’s I-526 petition.

To qualify as a TEA, an EB-5 project must be meet in a rural area or an area with at least 150% of the national unemployment rate. One noteworthy policy change requires that for high-unemployment TEA’s, only tracts directly adjacent to the project tract may be used. Best practices advise to use the most recent data and to be clear and complete in the documentation.

United States Citizenship and Immigration Services (USCIS) claims that determining TEA qualification may be done by investors themselves, as the information needed to prove eligibility is publically available. With that said, industry experts strongly advise investors to enlist the services of an economist to ensure such a determination is indeed correct. A failure to ensure that TEA designation is correct could cost a petitioner an extra $900,000 in EB-5 investment, more time, or even extinguish their hopes for a Green Card.


Author’s Bio 

Ms. Cheema is recognized as the industry’s leading authority on EB-5 due diligence, having extensively reviewed offerings of both the largest, most prestigious EB-5 investments in the market as well as many smaller EB-5 visa offerings. EB5 Diligence publishes due diligence reports as a resource for investors and agents to better understand the strengths and risks of an EB-5 offering.

Prior to co-founding EB5 Diligence, Ms. Cheema spent 13-years as the CFO of Internet marketing firm and prior to that performed business audits for the Canada Revenue Agency. For a free consultation about the EB-5 requirements, call us @ 888.313.6222

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