Our due diligence process explained.

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The goals of our due diligence process.

Our thorough and independent due diligence review aims to determine the likelihood of I-526 approval, I-829 approval, and the full return of capital.

To achieve these goals, our process entails the following 10 elements:

  1. EB-5 Program Requirements
  2. Likelihood Of Job Creation And Project Completion
  3. Investor Fund Protections
  4. Corporate Governance
  5. Security Interests & Default Conditions
  6. Project Feasibility
  7. Regional Center Review
  8. Evaluation Of The Issuer And Project Management’s Background
  9. Site Visit
  10. And provide continual updates as due diligence is a moving target
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  • Any bridge financing in the project is temporary in nature.
  • The EB-5 capital is being used for qualified expenditures related to job creation.
  • Job creation is sufficient to meet the needs of all investors.
  • Construction inputs are modelled correctly, are reasonable, and align with the investor’s timeline.
  • A third-party corroboration of the Project budget is consistent with industry standards, and that the timeline is reasonable.
  • The investor’s role in the New Commercial Enterprise (NCE) meets the EB-5 visa requirements. NOTE: the NCE is sometimes referred to as the EB-5 investment company or EB-5 fund.
  • Confirm that there are no guarantees of return of capital which would cause a denial of the investor’s petition.
  • Regional Center designation includes the project’s geographic area.

EB-5 program requirements


To determine whether an investment meets the EB-5 visa requirements, we review the following key documents:

  • Offering memorandum (Private Placement Memorandum)
  • Business plan
  • Economic impact analysis
  • Operating agreement or limited partnership agreement
  • EB-5 loan agreement
  • TEA designation confirmation
  • EB-5 regional center designation letter

In order to determine the following:

  • The business plan is credible with reasonable financial projections and is Matter of Ho compliant.
  • The EB-5 capital will be placed “at-risk,” and is structured to remain “at-risk” until the end of each investor’s conditional residency period.
  • Any bridge financing in the project is temporary in nature.
  • The EB-5 capital is being used for qualified expenditures related to job creation.
  • Job creation is sufficient to meet the needs of all investors.
  • Construction inputs are modelled correctly, are reasonable, and align with the investor’s timeline.
  • A third-party corroboration of the Project budget is consistent with industry standards, and that the timeline is reasonable.
  • The investor’s role in the New Commercial Enterprise (NCE) meets the EB-5 visa requirements. NOTE: the NCE is sometimes referred to as the EB-5 investment company or EB-5 fund.
  • Confirm that there are no guarantees of return of capital which would cause a denial of the investor’s petition.
  • Regional Center designation includes the project’s geographic area.
  • Has the Project received all non-EB-5 funding commitments?
  • Does the Project developer control the Project site through ownership or a lease agreement?
  • Has the Project budget been finalized and a guaranteed maximum-price contract executed with the general contractor?
  • Confirm the Project’s budget and the to-date expenditures are consistent, and the progress is as expected
  • Do construction status reports reveal delays, and if so why?
  • Has the Project received all necessary approvals?
  • Does the EB-5 loan agreement require a completion guarantee, and what remedies are available in the event of the Project developer failing to complete the Project?
  • Does the Project developer have industry experience to execute the business plan?
  • Are the required jobs being created through construction or operations, or a combination of the two?
  • Are the projected jobs sufficient to meet job creation requirements of all EB-5 investors with a reasonable job cushion?

Likelihood of job creation and project completion


We seek answers to the following questions regarding the job-creating project to be funded by EB-5 capital (Project):

Construction of a modern building and a skyscraper

  • Is the required funding in place or highly likely to be in place for completion of the Project?
  • How will the Project be funded if EB-5 financing is not fully procured?
  • Has the Project received all non-EB-5 funding commitments?
  • Does the Project developer control the Project site through ownership or a lease agreement?
  • Has the Project budget been finalized and a guaranteed maximum-price contract executed with the general contractor?
  • Confirm the Project’s budget and the to-date expenditures are consistent, and the progress is as expected
  • Do construction status reports reveal delays, and if so why?
  • Has the Project received all necessary approvals?
  • Does the EB-5 loan agreement require a completion guarantee, and what remedies are available in the event of the Project developer failing to complete the Project?
  • Does the Project developer have industry experience to execute the business plan?
  • Are the required jobs being created through construction or operations, or a combination of the two?
  • Are the projected jobs sufficient to meet job creation requirements of all EB-5 investors with a reasonable job cushion?
Our review includes includes the following:
  • Escrow release conditions to determine whether EB-5 investment funds are held in escrow, and the terms pertaining to release from escrow to the NCE.
  • Determine whether investor funds will be refunded in the event of Project or I-526 denial.
  • Review any I-526 refund-guarantee language and financial statements of guarantor to ensure funds are available in the event of a denial.
  • Engagement of any third-party fund administrators, and whether the fund administrator will be a signor on the NCE’s bank account.
  • Engagement of any third-party construction monitor who is responsible to confirm construction completion and to authorize the release of funds by the EB-5 investment company to the Project developer.
  • Facts related to an event of default, to understand who will enforce the default and whether a third-party loan administrator will represent the interests of EB-5 investors.

Investor fund protections


Almost all cases of fraud in EB-5 have one common element: lack of transparency. Therefore, we analyze whether the interacting EB-5 companies — the New Commercial Enterprise (NCE), and Job Creating Entity (JCE) — are under common control.

Conflicts of interest can be effectively mitigated through the proper use of third-party fiduciaries. In evaluating conflicts of interest and the role of third-party fiduciaries, we review the following documents:

  • Ownership structure of NCE and JCE
  • Subscription agreement
  • Escrow agreement
  • Fund Administration agreement
  • Any other third-party agreements
Our review includes includes the following:
  • Escrow release conditions to determine whether EB-5 investment funds are held in escrow, and the terms pertaining to release from escrow to the NCE.
  • Determine whether investor funds will be refunded in the event of Project or I-526 denial.
  • Review any I-526 refund-guarantee language and financial statements of guarantor to ensure funds are available in the event of a denial.
  • Engagement of any third-party fund administrators, and whether the fund administrator will be a signor on the NCE’s bank account.
  • Engagement of any third-party construction monitor who is responsible to confirm construction completion and to authorize the release of funds by the EB-5 investment company to the Project developer.
  • Facts related to an event of default, to understand who will enforce the default and whether a third-party loan administrator will represent the interests of EB-5 investors.
  • Whether the NCE’s management fee is guaranteed, thereby obligating the NCE to pay the Manager regardless of the success of the EB-5 investment
  • Whether the NCE has duly organized and in good standing

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Corporate governance


In order to ascertain the rights and remedies of the EB-5 investors and obligations of the Manager/General Partner of the NCE, we review the following items:

  • The form and frequency of reporting provided to investors
  • Annual audits (if available)
  • Conditions related to reinvestment of funds
  • Conditions and process necessary to replace the Manager/General Partner
  • Matters that require investor voting
  • Frequency of payments related to return on investment (ROI)
  • Triggers that might cause the liquidation of the NCE
  • Guarantees of return of capital that might violate the EB-5 program’s at-risk requirement
  • How offering expenses and operating expenses are paid
  • Whether a reserve for extraordinary expenses exists
  • Whether the NCE’s management fee is guaranteed, thereby obligating the NCE to pay the Manager regardless of the success of the EB-5 investment
  • Whether the NCE has duly organized and in good standing

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  • Whether a senior loan has been concluded, and whether consent has been received from the senior lender. If the senior loan has not yet been concluded, the senior lender may not consent to some of the terms that have been offered in the EB-5 loan. We review the intercreditor agreement to determine what remedies are available to the EB-5 lender in case of default.

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Security interests & default conditions


Investments do fail. The rights and remedies available to the EB-5 fund (NCE) vary from project to project depending on the structure of the EB-5 investment. Therefore, we review the following:

  • The organizational chart, to understand the relationship between all the entities who are party to the transaction. If the EB-5 loan is not being directly made to the Project entity, determine what steps would be required to enforce default in order for investors to get access to the Project’s assets.
  • Whether the EB-5 loan is secured or unsecured (whether the EB-5 loan will have a lien on the Project’s assets, which should be recorded).
  • Whether a senior loan has been concluded, and whether consent has been received from the senior lender. If the senior loan has not yet been concluded, the senior lender may not consent to some of the terms that have been offered in the EB-5 loan. We review the intercreditor agreement to determine what remedies are available to the EB-5 lender in case of default.

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In evaluating the feasibility of a Project, we review the following documents:

  • Market feasibility report
  • Appraisal
  • Cash-flow projections
  • Construction cash-flow schedule

The review seeks to determine:

  • Are the assumptions used in the construction cash flow schedule reasonable?
  • Are the contingency reserves reasonable?
  • Is there an interest reserve to pay interest expenses to all lenders during the construction period?
  • Are the assumptions used in projecting revenue and expenses reasonable?
  • Is the projected valuation of the Project sufficient to refinance the senior loan and the EB-5 loan upon maturity?
  • Is the value of the Project sufficient if the net operating income is reduced by 10-30% (sensitivity analysis) by adjusting factors such as occupancy rates, average daily rates, key expenses, and net operating income?

Project feasibility


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In evaluating the feasibility of a Project, we review the following documents:

  • Market feasibility report
  • Appraisal
  • Cash-flow projections
  • Construction cash-flow schedule

The review seeks to determine:

  • Are the assumptions used in the construction cash flow schedule reasonable?
  • Are the contingency reserves reasonable?
  • Is there an interest reserve to pay interest expenses to all lenders during the construction period?
  • Are the assumptions used in projecting revenue and expenses reasonable?
  • Is the projected valuation of the Project sufficient to refinance the senior loan and the EB-5 loan upon maturity?
  • Is the value of the Project sufficient if the net operating income is reduced by 10-30% (sensitivity analysis) by adjusting factors such as occupancy rates, average daily rates, key expenses, and net operating income?

Some fundamental  reviews include the ownership structure of the Regional Center, and the most recent I-924A filed. We review the following:

  • That the Regional Center entity is duly organized, and remains in good standing.
  • That the Regional Center received approval for the Project’s geographic scope.
  • That the most recent Form I-924A filed lists the Projects sponsored by the Regional Center, any I-526 approvals, any I-829 approvals, and the number of jobs created by each sponsored Project.
  • That the Regional Center has appropriate written policies and procedures, in cases where the Regional Center is unaffiliated with the issuer for the EB-5 offering.

Regional center review


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Some fundamental  reviews include the ownership structure of the Regional Center, and the most recent I-924A filed. We review the following:

  • That the Regional Center entity is duly organized, and remains in good standing.
  • That the Regional Center received approval for the Project’s geographic scope.
  • That the most recent Form I-924A filed lists the Projects sponsored by the Regional Center, any I-526 approvals, any I-829 approvals, and the number of jobs created by each sponsored Project.
  • That the Regional Center has appropriate written policies and procedures, in cases where the Regional Center is unaffiliated with the issuer for the EB-5 offering.

We perform background checks on the persons and entities involved in the NCE and JCE. We look at Project news and press releases if available, and local government websites to confirm approval of the Project. Proper searches can identify any pending litigation or resistance to the Project by local authorities or neighbours.

Evaluation of the issuer and project management's background


 

We perform background checks on the persons and entities involved in the NCE and JCE. We look at Project news and press releases if available, and local government websites to confirm approval of the Project. Proper searches can identify any pending litigation or resistance to the Project by local authorities or neighbours.

When making site visits, we arrange to meet with management of the Project developer and the NCE in order to evaluate the following:

  • The current condition of the Project site and the surrounding demand generators
  • Whether the NCE has sufficient expertise and staff to manage investor funds
  • Project management motivations for using EB-5 funds, and future plans for the Project
  • Any questions that may have arisen from our review to date

Site visit


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When making site visits, we arrange to meet with management of the Project developer and the NCE in order to evaluate the following:

  • The current condition of the Project site and the surrounding demand generators
  • Whether the NCE has sufficient expertise and staff to manage investor funds
  • Project management motivations for using EB-5 funds, and future plans for the Project
  • Any questions that may have arisen from our review to date

Our firm develops scores for Likelihood of Immigration Success and Likelihood of Financial Success, which are subject to constant updating as projects progress, key agreements are executed, I-526 petitions are approved, and unforeseen problems occur. 

Due diligence is a moving target


Due diligence can only provide a snapshot in time. Continual updates are necessary throughout the capital raise and the lifecycle of the Project.

Our firm develops scores for Likelihood of Immigration Success and Likelihood of Financial Success, which are subject to constant updating as projects progress, key agreements are executed, I-526 petitions are approved, and unforeseen problems occur. 

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Conclusion


We conduct a thorough analysis of everything referenced here to ensure that you as an investor understand an EB-5 project's strengths and risks — and you don't take unnecessary chances with your hopes for a Green Card and the return of your capital.

Your dreams and financial well-being deserve it.

Schedule a call with us now

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