EB-5 investments may rank lower or higher in repayment priority depending on the EB-5 Investors’ position in the capital stack.
EB-5 investment
The EB-5 Program enables foreign investors to make an “at-risk” investment of $800,000 in a U.S. business that creates jobs, allowing them to qualify for a U.S. Green Card. The term 'at-risk' does not imply inherent riskiness; instead, it indicates that the investment must have the potential for both profit and loss. As a fiduciary, our role at EB5 United is to design EB-5 investments that minimize risk by ensuring the creation of 10 jobs per investor and protecting investor capital. Below is an analysis of possible risks and strategies for Indian investors to effectively manage them:
ADVERTISEMENT
Immigration Risks:
- Job Creation Requirement: Failure to create 10 full-time U.S. jobs can jeopardize the investor’s chance of receiving a Green Card.
- Mitigation: Look for EB-5 projects that are under construction and creating jobs and be sure that the economic analysis provided 10 jobs for all investors with an additional buffer of extra jobs.
- Source of Funds (SOF): The intricate EB-5 process demands attention to detail on the Source of Funds since incomplete documentation is the top reason for I-526E denials.
- Mitigation: As SOF is completed by an investor’s Immigration Attorney, this underlines the need for experienced EB-5 counsel behind every investor petition.
- Risk of Project Denial: If the project is denied its I-956F Approval this will lead to investor denials.
- Mitigation: Work with experienced Regional Centers that have a track record of approved projects. Projects can also have I-956F Approval prior to you investing, mitigating the risk of project denial entirely.
Financial Risks:
- No Guaranteed Returns: Investors may not receive any return and could lose their entire investment if the project fails depending on the structure of the offering.
- Mitigation: Utilizing a Regional Center that acts as a fiduciary is key, this means that your EB-5 funds are being managed by a party that is not involved in the development of the project. If your project developer is also involved in managing the EB-5 raise, this is an inherent conflict of interest.
- Capital Stack: EB-5 investments may rank lower or higher in repayment priority depending on the EB-5 Investors’ position in the capital stack, affecting potential risk and return.
- Mitigation: The structure of the EB-5 investment is crucial to the security of your funds. Senior loans can create the most security if coupled with high amounts of developer equity. Mezzanine loans, Preferred Equity, and Equity investments are also utilized in EB-5, they will typically have higher risk than a senior loan depending on the structure.
- “At-Risk” Sustainment Requirement: EB-5 investors are required to have their funds “at-risk” in the project for a minimum of two years. This does not mean that investors need to make a risky investment, but that they need to have the funds spent on the project rather than sitting liquid in a bank account for at least 2 years.
- Mitigation: Identify projects that meet the required 2-year sustainment period.
Subscribe today by clicking the link and stay updated with the latest news!" Click here!
