Making an investment of $500,000 - $1,000,000 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 EB5 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 USA investor visa 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.

After reading Elliot Winer’s article, who is someone I've known for years, I thought I would share these docs (Edward Kennedy Letter, the first TEA Designation Letter) which we have kept since EB-5 was conceived as part of the Act in 1989-1990.

About a week ago, I was asked by an EB-5 practitioner why I thought EB-5 TEA methods had slipped into using census-shared or, excuse the expression, "gerrymandered" Census Tract arrays?  I told this fellow that Massachusetts and the INS (USCIS) had allowed this technique from before the Industry was accepted or recognized as a viable financial alternative by the investment community.

It looks like we in Massachusetts elongated (again, “gerrymandered") the Census Tract array from the very beginning for very good reasons. We did this in Boston in 1991.

Please notice the letter from Senator Ted Kennedy (who introduced the Act for consideration in 1989) showing the makeup of the 1991 Senate Judiciary Committee! It seems to show that Senators Grassley and Leahy, and other notables, were at least aware of the genesis of Senator Kennedy's legislative interest in the EB5 Program. We were also there; we're old!

Bob: Getting ahead of legislative changes rather than waiting for them is very important. As far as we know, there is no date certain set for when new EB5 visa requirements are going to be imposed.

But there's no question that the folks working on Capitol Hill are ultimately going to put revised legislation forward.  We just don't know when this legislation is going to be enacted and when it's going to become an active requirement. 

Whatever the case, you'll have to be prepared to change your internal business processes because whatever cookie cutter approach you have to newly instituted regulation is probably not going to be looked upon favorably.

Kurt: Why do you suspect that a cookie cutter approach won’t be an effective strategy?

The TEA provisions in the Goodlatte Bill are even more restrictive than thos proposed in the final Grassley-Leahy Bill last December. I would go so far as to say that the Goodlatte Bill would pretty much end TEAs as we know them.

EB5 Projects would need to be in a qualifying tract with no combinations allowed, nor would block groups which about 15 states currently rely upon. I would estimate that about 90% of current TEAs would no longer qualify.

The EB5 Securities Roundtable is an informal, independent group of EB-5 securities attorneys organized to facilitate best practices in the offerings of EB-5 securities.This roundtable has been working to provide comments to legislation (commonly known as the Integrity Bill) that we expect will be proposed by Congress to improve the integrity of the EB-5 program.

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.

There are a number of responsibilities involved in supervising the New Commercial Enterprise's (NCE’s) EB5 loan to the Job Creating Enterprise (JCE). What are the best practices for ensuring proper supervision and what are the potential issues that can arise?

David Appel: One common issue is when a project starts and there's no money in the budget for supervising and administering the loan to the JCE. 

Examining EB5 Loan for Job creation

Lets explore how to structure, manage and monitor a deal so that investors are afforded significant protection against fraud.

Rupy Cheema: The first question we ask when looking at an offering is what is the NCE industry knowledge and experience? When I conduct a site visit and meet the NCE management, I want to better understand the manager’s experience with underwriting a loan or investment.

Do they understand the industry and the market they are investing in? Do they have access to the market data they need to prepare cash-flow models? Do they have an investment committee that ultimately makes the investment decisions?

Role of EB-5 Broker Dealer

Kurt: Lori, Could you give us your thoughts about the need for a broker-dealer in EB-5 transactions?

Lori: Since I'm the only person on the panel who doesn't work for a broker-dealer, hopefully I'm objective. Let me begin by saying that every deal is different and thus all the facts are different. Obviously, we take that into account when we advise participants in an EB5 offering what they need to do. Generally, however, we believe that participants, whether issuers or regional centers, could have a better outcome if they associate with a broker-dealer, especially in regard to the following topics:

I have always been a big proponent of loan administration as a key EB-5 process best practice.

It is essential that for the integrity of the program, given the fact that most EB-5 capital is deployed in a loan model, that loan transaction more closely resemble a traditional loan. It is prudent to provide many of the protections seen in a traditional loan transaction to the EB-5 lending company and its investors.