A Regional Center can either be a privately-owned or state-owned company that functions as a fund manager or sponsor of different EB-5 business projects. This center has a role in boosting the local economy, creating jobs and encouraging capital investment into various businesses in the United States. They are responsible for raising capital for a variety of EB-5 development projects which includes manufacturing, real estate, commercial, infrastructure, mixed use and so on.
In order for a local business to become a recognized Regional Center, they have to first send their applications to the USCIS and wait for their approval. For them to be approved, they need to present two important requirements: (1) the current business plan of the soon-to-be regional center with regards to promoting the local economy of the region where they plan to do the business and (2) how the business will be able to generate the required 10 full-time jobs through submitting various business plans, economic reports and job creation models.
At present, there are around 865 approved Regional Centers all over the country that have around 500 active EB-5 projects available in the market. Strictly, no two projects are the same and just like any kind of investment, these also have their own risk.,, Business risks can be measured on three levels: low-risk, medium-risk and high-risk. It is important for these investors to evaluate the degree of risk that they’re getting into before they start putting their money in these business projects.
Aside from this, investors should also take into account that most of these Regional Center business projects have a low or no-return on investment (ROI). Simply put, an investor might only receive 1% ROI or even 0.5% return after a few months of operation. It is a fact that the higher the ROI, the higher the risk, however, these low ROI generally doesn’t mean that the business is low-risk, so it is still vital for all EB-5 Visa investors to sit down and think about the whole operation of the prospective business and ask for sound advice from business experts and legal counsel.
There are a couple of factors that investors must look into when it comes to choosing the right Regional Center Investment for them. First, they should get sound advice from trusted financial or investment advisors. Remember that you’re going to put in at least $500,000 and that’s a lot of hard-earned money, especially if you don’t understand the risk that you’re getting into or perhaps you decided to invest an entire $1,000,000 that will run for the next 5 to 6 years.
Talking to a licensed investment banker will help you get an idea before making a huge investment decision. It is crucial for investors to gain adequate knowledge and maintain due-diligence when it comes to financial investments, immigration and business regulations. Other than this, potential investors should also start talking to an immigration lawyer that will guide them when it comes to all legal matters concerning immigration.
Secondly, investors should look into the current and previous track records of the Regional Center. They should check the number of successful business projects they’ve handled over the years since they’ve started their operations and how many I-526 and I-829 approvals they already have. In addition, it is also important to know whether how many of these actual business projects they’ve handled had already gained ROI for its investors.
EB-5 Investors should keep in mind that it is not the Regional Center that’s going to return their investment, but rather, it’s the business developer, who’s the actual borrower of the $500,000 or $1,000,000 investment along with the funds collected from the other investors. They will be the ones who will sign the contract loan agreement stating that they will return, for example, $10 million or $20 million in 5 to 6 years of operation, to 40 different EB-5 Investors. This means that while the potential investors are looking into the business track records of the Regional Center, they should also do the same due-diligence when it comes to the developers. They should be able to confirm that these developers have the capacity to return the capital which they borrowed and have concrete plans as to how they’re planning to achieve it. Potential investors should also validate the developer’s previous business projects and what other endeavors have they done through the EB-5 program.
Now that we understand the role of the Regional Center and developers, what now is the position of the EB-5 investors with regards to the other lenders of the same project? Here’s an illustration: Let’s take a $100 million business project as an example. In this project, around 20 million came from the developer themselves, while they got $50 million from a bank loan. The remaining $30 million will now be taken from 60 different EB-5 Investors. Since the biggest amount in the capital came from the bank, they have the primary right to foreclose the project if in case, something went wrong. Of course, this depends on the terms of the bank loan, but definitely, they are the first ones who’ll be getting their money back through a collateral agreement. Afterwards, all the remaining asset will be divided among the 60 EB-5 investors. So this is also something that potential investors should consider when deciding where to invest their money. Doing a financial analysis of the developer’s business project beforehand can give you this information.
Thirdly, investors should be able to strictly comply with various business regulations imposed in the country. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are the two agencies that oversee capital raising in the U.S. At present, these two are taking a closer look at the EB-5 program.
In fact, a growing number of Regional Centers in the entire country are now being compliant with the securities laws in the U.S and are asking several securities broker-dealers to help them raise enough capital for this endeavor. But of course, there are still a couple of Regional Centers who do not believe in complying with the regulations imposed by the SEC and FINRA because they believe they belong to exempt securities.
What does this mean for potential investors? If you’re going to risk $500,000 for the next 5 to 6 years, it is highly advisable to choose a developer and or borrower, as well as Regional Center, that strictly complies with all the business laws and regulations in the United States and are not operating under “gray areas” within the law.
The fourth factor to consider is the relationship between the Regional Center and the developer or borrower. Because of the growing demand for EB-5 applications, a lot of developers are rushing to becoming Regional Centers themselves, which, as a matter of fact, presents a great conflict when it comes to fact-checking and credibility. It is still much preferable to have separate entities when it comes to Regional Centers and developers so they can filter the good ones from the bad.
And last but not the least, every potential investor should particularly keep their eye on the Job Creation model of the business project. They should remember that in order for them to attain their temporary Green Card, they should be able to provide proof of the actual 10 full-time jobs that were created by the business. It’s vital to analyze and evaluate whether the model is realistic, simple and attainable. Fortunately, there are what we call “pre-approved business projects“ available in the market. These projects have been previously approved even before investors would file I-526, since their developers have already finished submitting all the essential documents and reports to the USCIS.
It is a given that investing $500,000 in a business project for the next 5 to 6 years involves a huge risk. “At-Risk Investments” are the kind of investment where there is either a risk of loss or a chance to profit. As the name implies, this involves high risks with high returns and several business projects like these are available in the market today. As we have learned previously, there are three degrees of business risk: low-risk, medium-risk and high-risk. The investor must be familiar with the degree of risk that they are willing to take before putting in their hard-earned money.
While the investors have the freedom to decide what kind of business project they will venture into, the EB-5 program requires its investors to put their money in “At-Risk Investments”. This means if an interested investor would state that the investment or business project in their EB-5 investment is risk-free, or there isn’t any risk at all, then they are clearly distorting the facts.
Realistically speaking, there is no such thing as a zero risk investment because, like all other business endeavors, the EB-5 projects or investments need to be categorized as “At-Risk” investments in order for them to qualify under the EB-5 Visa program.