Regional Center Due Diligence, What You Should Know
EB-5 investors want to know two things when conducting regional center due diligence:1) What regional center due diligence do they need to do to get their green card, and
2) What due diligence do they need to do to get their investment returned if their I-526 is not approved.
The information provided below is not only relevant to the regional center context, but also applies to direct EB-5 investments in new commercial enterprises. Investors should be aware of the SEC's alert about investment scams that exploit the Immigrant Investor Program. (Click to read.)
8 Questions to consider when conducting due diligence:
- Is the Regional Center designated by the USCIS?
To make sure that the regional center of your choice is designated by the USCIS:
- Check the USCIS website
- Look over the regional center's website
- Review public records
- And ask your immigration attorney for further information and advice.
It's important to make sure the regional center you're interested in is approved, otherwise you're I-526 petition can't be filed until it is approved. This is problematic because some regional centers may market to investors before they are officially approved by the USCIS. Additionally, remember that just because the regional center has approved designation, doesn't mean that your project is automatically approved by the USCIS.
- What is the regional centers rate of success?
Take the time to look into the regional centers track record and success rate. If the regional center has a history of failed or incomplete projects be weary. At the same time, just because a regional center has a good history of successful projects, that does not mean it can't guarantee a future success. All projects involve risk.
- What is the history of the regional center?
How many years has the regional center been in business? Has it been operational for over a decade? Or is it a brand new regional center? Does that make a difference? That may depend on the developers of the regional center. If a brand new regional center's project developers have decades of experience then they may be just as credible as a regional center that has been in operation for a long time. Look into how many projects a regional center has sponsored and like #2, look into their rate of success. Look into their reputations. What are the developer's experience and background like? Should you be concerned?
Are they continually and actively working on projects? If the regional center has not worked on any projects for a few years, it is worthwhile to look into the reasons why. (This is important for any EB-5 investor working with third parties.)
- Who are the people consulting the regional center's developer?
With a little bit of research, investors should be able to find the experience of the developer's team: immigration counsel, securities council, economists, and other consultants. Just like you should want to know the reputation of the project developer, it's important to know who is advising him or her. What does their business plan look like?
- Are you working on a pre-approved project?
Find out if the project has been pre-approved by the USCIS. This is for investors who are filing their I-526 after the first project investor has filed months prior. If the project was pre-approved, this makes it look very good.
- Which methods of releasing EB-5 funds into their projects are you most comfortable with?
Depending on the type of project investors invest either $500,000 or $1 million. If a project is set to be developed in a targeted area of unemployment (TEA) then the minimum funds required are only $500,000. These funds must then be released into their projects.
Most investors prefer that the investment funds remain in escrow until their I-526 petition is approved, but this slows down the project. Escrow can take anywhere from 12-16 months before the funds are made available to the projects.This presents an obvious problem for developers looking to use the capital contributions more quickly. As a result, many developers have created new types of release mechanisms that are quicker and therefore benefit them greatly. Be wary, though, as these may be risky.
- If the investor's I-526 petition is denied, what happens to their funds?
Developers, in most cases, return the full capital investment contribution and some of the administrative fee. The administrative fee, a hefty $45,000-$50,000 is paid on top of the investment. But this return of investment cannot be 100% guaranteed. The investor's contribution must remain "at risk". Anytime there is a written promise of a guarantee like this, it is a red flag. It is beneficial, however, to get a financial professional to conduct a business risk analysis on the project and consider proposing an exit strategy in the event the project is a success.
- What does the proposed job creation look like?
Does the project predict that they will create more than the 10 required jobs? As one of the main 3 requirements of fulfilling the EB-5 program, 10 full-time permanent jobs must be created. If there is no job cushion here, it may be problematic. It's also critical to look at the timeline for creation of these jobs. Will they be created within the 2.5 years the investor has following the I-526 petition approval?
Every investor is different when it comes to how much risk they can handle, but every investor must conduct their own regional center due diligence.
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