The purpose of this post is to provide EB-5 investors with a startup list for evaluating EB-5 regional center projects. Our belief is that smarter investors will lead to better regional center projects, which in turn will lead to greater success for the industry as a whole.
Please note in advance the following caveats and qualifications:
- This post (and following commentary) is a collaborative effort. In fact, we are calling it the “TWENTY QUESTIONS Project.” We will be seeking the input of other professionals in the EB-5 industry in order to refine and improve the list.
- The list is deliberately not exhaustive, for the following reasons:
- We wish to discourage the notion among investors that any list of questions, no matter how long, with be sufficient for performing a thorough analysis of a private placement financial investment. Every question on the list can provoke additional questions, and every project has some unique elements, so no list can anticipate every question that must be asked.
- We wish to encourage participation by experienced professionals in the industry who might be concerned that an investor who loses money might later complain “you forgot this question, that’s why I lost all my money.” So, again, its just a “startup list.”
- We believe that long lists are intimidating and, generally speaking, remain unread. The questionnaire we send to regional centers is 318 questions long, and growing. Want to see it? We doubt it.
- We have left out questions investors and their financial advisors are capable of determining without the aid of an EB-5 specialist, e.g. what is the minimum investment, what is projected return on investment, what have been the past returns, will funds be held in escrow until spent, will principal plus application be refunded if I-526 denied. etc.?
- We admit to a bias toward legal issues. This is because –
- There has been a thin field of EB-5 project due diligence analysts so far, with EB-5 attorneys filling the void to a great extent.
- Legal questions are where investors most need help. Many standard financial questions, like “patent on technology” will occur to investors or their advisors and are more or less universal / international in nature.
OK, here’s our “Top 20” list (not in any particular order):
- When will the investor receive his or her money back and how will the amount of capital returned be determined?
- How many I-526 approvals/withdrawals/denials (even if later appealed and overturned) to date, and reasons?
- How many I-829 approvals/withdrawals/denials (even if later appealed and overturned) to date, and reasons?
- How many project-based RFEs on I-526s during the past two years, and how many of the RFEs have been successfully resolved?
- How much money has the Center returned to investors to date?
- Do the RC principals or project general partners have any history of financial misconduct or a history of criminal convictions?
- Does the Center pay success-based referral fees to unlicensed brokers or finders operating in the U.S.? If so, how does the Center’s securities attorney defend this practice?
- Who are the RCs economist, immigration attorney, and securities attorney and what are these experts’ experience with the EB-5 program, what is their reputation and history of risk-tolerance? How closely does the center consult with its attorneys and other experts during project development?
- Does the Regional Center provide regular reporting of the status of the investment and fulfillment of job-creation goals to the investors? At what intervals?
- Is there a surplus or buffer in the jobs creation projections such that, even if all the milestones in the economist’s report are not met, sufficient jobs will be created for all immigrant investors?
- How will the Center allocate jobs in the event of a shortfall at the I-829 stage? How might additional jobs be created?
- Is the regional center affiliated with any government entity? Does the project have federal, municipal or state support?
- Does the TEA designation rely on the use of contiguous census tracts? If so, does the selection of tracts for aggregation appear to be designed to artificially lower the average unemployment for the targeted employment area?
- Does EB-5 project have non-immigrant investors who are investing in the project strictly for financial reasons? If so, who are these investors and how risk- tolerant or averse are they?
- What is the possibility, based on the developer’s past history and the structure of the current project, that the project will deviate from the plan as stated in the I-526 petitions such that the USCIS might decide that the project has undergone a “material change”
- Where do investors stand in the queue of other investors and creditors with regard to return on investment and return on capital?
- Has any Regional Center project lost money? Been in default? Investors lost money?
- How many years of experience does the general partner or principal in the investment project have in working with EB-5 immigrant investor programs?
- Will the project rely on bridge financing until EB-5 funds are transferred?
- Are the jobs direct, indirect, induced or a combination?
Each person who wishes to propose a question for inclusion on the list (please don’t forget it’s a “Top 20” list, and not a list of all important questions) should state the question they think merits inclusion, then explain why it should be a “Top 20” question, and then nominate one current question for removal, explaining why that question should be demoted from the list.
We look forward to reading your comments.