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Looking for an EB-5 investment: Here are 5 considerations

Written By: KURT REUSS

Kurt Ruess
EB5 Deals

   

1. Real estate projects have advantages

Real estate construction projects require a substantial investment with abundant job creation that EB-5 investors can rely on.  EB-5 Regional center projects are allowed to count direct, indirect and induced jobs based on the construction budget so an economic study will determine how many total jobs will be created. One needs only spend the project budget to ensure jobs will be created. Compare this to investing in a business where job creation estimates are tied to operational revenue. It is much more common to miss revenue targets in a new business than coming in under budget on a construction project.

2. Progress is positive

The more progress a project has made to date, typically the less risk there is for immigration purposes and financial success. Construction progress mitigates risks associated with permitting, financing, and means job creation is already under way. Progress also means market fluctuations have less time to impact a project. The closer you get to completion, the sooner operations and stabilization of the asset, allowing permanent financing to be put in place, which is often used to return capital back to EB-5 investors.

 

3. Exemplar and I-526 approvals

Once USCIS approves at least one I-526 petition, the Immigration Service is highly likely to defer other petition reviews to this approval. A single I-526 approval indicates that the project documents meet the EB-5 program requirements and job creation methodology has been accepted. Often people think that an exemplar approval is a special type of approval issued by the Immigration Service, but it is actually an approval of the project documents before they are filed with an I-526 petition.  Regional centers file for an exemplar in order to provide confidence to the market that their offering will not be rejected in a petitioner’s I-526 submission. So regardless of whether an exemplar gets approved or a single petitioner’s I-526 is approved, both indicate acceptance by USCIS.

 

4. Exit strategy coincides with your I-829 filing date

Ideally you want to select an EB-5 fund whose investments have an exit strategy, or maturity date, that coincides with your anticipated I-829 filing date. To do so, determine how long you expect it will take to file your I-829. You should consult with your lawyer on this. This is the date that ends the requirement of maintaining your capital “at-risk.”

 

Next, you’ll want to add in a cushion of time to this date, say one year, for potential delays in processing your petition. It is around this date that you want the EB-5 Fund to have funds available for repaying their investors.

 

The calculation is different if you were born in a retrogressed country. If you were born in India or Vietnam, you are probably facing a 7-year wait for an EB-5 visa to be available. But it may be possible to go straight to the I-829 stage after entering the U.S., so with a 1-2 year cushion, 8-9 years may be the optimum date to have your capital returned to you.

 

Loan vs. equity

Loans offer more certainty to estimating maturities as they have maturity dates, while with an equity investment, the Developer does not have an obligation to repay at a specified time. A loan must be repaid at the maturity date or it would be considered in default. But, of course, loans often include loan extension options. It is therefore imperative to identify who makes the decision to extend the maturity date of a loan, and to ask if all investors are subject to the new maturity date. Some EB-5 funds have multiple loans to the borrower with different maturity dates, thereby enabling investors to get repaid at different times as they meet their conditional residency requirements,

 

5. Be wary of higher than average rates of return

In order to get a rate of return of 3%-4% on your EB-5 investment, you will probably need to invest in a Project where a similar non-EB-5 investment would earn 12%-18%. Compare that to investments that are returning 0.25%, but are replacing money that might otherwise require 5%-8%. In this example we might be taking on 10% more risk for an additional rate of return of 3%.

 

EB-5 investments are primarily designed to result in a Green Card and are not typically an opportunity to earn a high return on an investment.

 

Conclusion

Real estate projects that have made significant progress, offer a maturity date that coincides with the timeline of your I-829, and has at least one I-526 approval or an exemplar approval is the starting point for selecting an EB-5 investment that meets your needs.


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