Why EB5?

For commercial developers, EB-5 financing is an attractive source of capital – especially since developments ideally suited for EB-5, like hotels, have difficulty finding non-recourse construction financing using traditional capital sources.

EB5 lenders have ability to provide non-recourse capital and, depending on the project, this can take the form of a senior loan, mezzanine loan, preferred equity, or joint venture equity.

While all asset classes are eligible for EB-5 financing, certain property types generate more jobs, and therefore support a larger EB-5 allocation in the capital stack.


What are the general project parameters?

Every project is unique. Most are located in a Targeted Employment Area allowing investors to come in with the reduced amount of $500,000. While there is no one set of rules that will apply to all projects, the following general parameters can help you determine whether EB-5 financing might suit your project. The more conditions met, the better.

  • Developer equity contribution of at least 25% of total cost
  • Complete projected capital stack at the start of fundraising
  • Clear 5- to 7-year exit strategy for EB-5 investors
  • Proven track record of similar successful developments
  • Experienced project team – general contractor, architect, etc.
  • Proven market demand with strong submarket fundamentals
  • Zoning/entitlement approvals in place
  • Groundbreaking projected within 8-12 months
  • Strong government support and/or participation (can range from letters of support to actual financing, grants, or land contribution)


What are the Developers responsibilities?

As a developer for a project funded by EB-5 capital, you should understand EB-5 basic and the various milestones in an EB-5 investor’s visa application. The visa timeline will dictate the execution of your project duties and allow you to properly schedule project deadlines and meet all of your responsibilities as an EB-5 developer.


Are developers responsible for any aspects of the immigration process for individual investors?

No. Typically the regional center, the investors, and the investors’ attorneys handle all matters pertaining to the immigration process.


Should the developer contribute equity into their own project?

Yes. EB-5 investors generally won’t subscribe if the developer hasn’t put its own capital at a higher risk than theirs. If the developers has skin in the game, the EB-5 investors will feel more comfortable taking a risk as well, especially considering that their capital must remain “at risk” throughout their entire immigration process.


What is a Targeted Employment Area (TEA)?

A TEA is a geographical area that is considered rural or has an unemployment rate of at least 1.5 times the national average. When EB-5 Visa applicants invest in a TEA, they can put forward $500,000 rather than $1,000,000. Individual states determine the precise boundaries of a TEA.


What determines if a project is in a TEA?

The process of determining whether your project is in a TEA will involve state and local government in most jurisdictions and can take 30 days or more. Typically requests are submitted to a state’s department of economic opportunity, or some such similar organization appointed by the state’s governor to make that determination. Many states publish lists of rural areas (which are automatically TEAs) and census tracts that meet the threshold of 1.5 the national average of unemployment. Many allow aggregation of contiguous census tracts. Also note that an area which is already certified as a TEA can become un-certified if its unemployment rates change. Economists and statisticians with expertise in the EB-5 field often assist with obtaining TEA certification.


Does my project have to be located in a TEA?

There is no requirement that a project utilizing EB-5 capital must be located in a Targeted Employment Area. However, foreign investors generally prefer a $500,000 investment over a $1 million investment. Thus, a development project which is not located in a TEA might find it hard to attract EB-5 investors at the $1,000,000 level.


Do we need to affiliate with a Regional Center in order to raise funds?

Developers are not required to affiliate with a regional center. There is a direct EB-5 investment program as well, that requires investors/developers to create 10 identifiable positions within 2 ½ years. The direct investment program is suitable for smaller projects. But most developers seeking to raise EB-5 funds do affiliated to take advantage of the relaxed job creation requirements. In the regional center context, developers can count direct, indirect and induced employment opportunities, in meeting the ten jobs per investor requirement. Another advantage includes the ability to have a particular project within the regional center be pre-approved by USCIS. Regional center certification also provides an aura of legitimacy or endorsement that may help in marketing to foreign investors.


Should we create our own regional center?

There are advantages and disadvantages to setting up your own regional center.

Advantages include:

  • Regional center operations can be profitable in and of themselves
  • Developers do not need to pay to affiliate with a regional center
  • Developers do not need to share control of the project with an unaffiliated regional center


Disadvantages include:

  • Regional center certification may take a lengthy period of time – four months to one year is not unusual
  • Regional center certification may entail a significant expense, including hiring an economist, hiring a business plan writer, hiring an attorney and other expenses.
  • Regional center certification is not the same as approval of any particular regional center project.
  • Regional center certification is no longer a small, privileged group.  More than 600 regional centers have now been certified.

Many regional centers have not been able to attract any investors.  Newer regional centers find it difficult to compete in their marketing efforts with long-existing regional centers with a track record of many immigration approvals, some with both I-526 and I-829 approvals.

Regional centers have ongoing administrative and filing requirements with USCIS in order to avoid de-certification.


Are there any limitations on the types of projects that can be funded by EB-5 investment capital?

No. There are no limitations in the law regarding the types of projects that can be funded by EB-5 capital. However, keep in mind that regardless of the nature of the project that you are funding with EB-5 capital, it must create 10 new full-time U.S. jobs within two years of each foreign investor’s admission into the United States as a conditional permanent resident.

Additionally, although there are no limitations in the law regarding the types of projects that can be funded by EB-5 funds, it is important to note that USCIS generally holds that a developer cannot count jobs created by its tenants towards the EB-5 job creation requirements. For example, if the developer leases space in a shopping center or an office space in an office building, the jobs created by those tenants hiring employees would not count towards satisfying the EB-5 job creation requirements


What is an escrow account?

An escrow account is a third party bank account in the United States that holds onto the investor’s money until certain terms of an escrow agreement have been satisfied. Escrow accounts are not required by USCIS, but this is the most common way for EB-5 capital to be committed to a project.


When will the EB-5 capital be available for my project to use?

Once EB-5 investors transfer their funds, the funds typically remain in escrow for a period of time. The escrow agreement will describe when the EB-5 investment funds will be released to your project. You can choose not to use escrow at all, and just transfer the funds directly as soon as the investment is made. Or the funds might be escrowed only until you accept the investor’s subscription agreement. Or you can release some of the funds immediately, and then the rest upon I-526 approval. Or your project can decide to hold the full $500,000 until the I-526 is approved. Escrow terms will vary based on the approach you take. Keep in mind that most developers guarantee a return of funds in the event an investor’s petition is denied.


What types of documents do we have to prepare?

You will need to prepare a private placement or offering memorandum. The offering memorandum explains the goals of your project, the investment terms, and the risks involved with the investment. The private placement memorandum will basically be a complete summary of the partnership or operating agreement, the subscription agreement, and the escrow agreement (if applicable). The offering memorandum, coupled with the aforementioned documents, are known as the “offering documents.” The offering documents can also include supporting documents such as a business plan, economist report, TEA-designation letter, etc.

You will also need partnership or operating agreement. The type of partnership or operating agreement your project uses will depend on how the EB-5 investment is structured. For example, you might need a Limited Partnership Agreement, or you might need a Limited Liability Company (LLC) agreement. These agreements outline the investor’s relationship to the business, provide a list of all project stakeholders’ obligations, rights, and responsibilities, and address a number of legal considerations for EB-5 new commercial enterprises.


What is a subscription agreement?

The subscription agreement is a documented agreement between the project and the EB-5 investor to sell ownership interests to the investor, and to have the investor pay for those interests.


What are the requirements to return the EB5 Investor’s their $500,000 investment once my project is complete?

Remember that an EB-5 investor’s funds must remain at risk during their entire application process. Accordingly, there can be no guarantee that their investment will be returned. However, foreign investors will be looking for financially strong projects which are expected to be successful in terms of job creation, and which have a high likelihood of resulting in the return of their original investment. Thus, an EB-5 project is not required to ultimately return the investors’ funds, but this return will be expected if your project is successful. Not doing so could affect your ability to attract EB-5 investors for future development projects.


When can developers repay the EB5 funds?

EB-5 funds cannot be repaid until the investor obtains a permanent green card. This typically occurs 38 to 42 months from the closing of the investment. Once an EB-5 investor has subscribed to your project, invested the required amount, and their I-526 petition has been approved by USCIS, they become a conditional U.S. resident upon approval of consular processing or their I-485 petition. At this point, the investor only has a temporary green card valid for two years. At the end of two years they will file an Petition by Entrepreneur to Remove Conditions to prove that their investment created or preserved 10 U.S. jobs. The investors will be relying in the developer to provide the information necessary to meet the I-829 filing requirements.

Accomplishing this requires careful administration of EB-5 funds from the start of the subscription process, always keeping the investor’s I-829 filing date in sight. Developers must keep accurate records throughout the entire process to ensure that all papers are in order come time for filing the I-829. Submitting a late petition could jeopardize the investor’s green card. Proper fund administration enables you to track operational costs and maintain financial documents that are essential to corroborating evidence required by the I-829 petition.

The I-829 petition requests a tremendous amount of evidence form the developer. Examples of acceptable documentation for these respective requirements include: entity formation documents, federal income tax returns, and certificates of good standing; audited financial statements and copies of the executed subscription agreement; bank statements, receipts showing funds applied to the project, and investment statements to investors; tax returns or Form I-9, and monthly bank statements showing payroll for the project. As the developer, it is your responsibility to the EB-5 investor to ensure that these fairly simple documents are available and have been carefully maintained—a long-term process accomplished by collaborating with various EB-5 professionals. An ideal starting point is at the escrow agreement: if the escrow account is structured, controlled, and managed properly, subsequent documentation—such as tracking the deployment of funds into the project according to the business plan—will likely be more comprehensive. Recently, many developers have chosen to hire third-party EB-5 fund administrators, as this provides an extra level of security for the investor.

Once the I-829 has been approved, and the investor obtains U.S. permanent residency, your next responsibility is to actually return their funds. This should have already been projected, but not guaranteed, in your original business plan: investors expect their initial capital to be returned, but the funds must remain in compliance with “at risk” EB-5 requirements for the two-year conditional residency period. Investments generally work through the loan model, with the capital transferred to your project as a loan from a new commercial enterprise (NCE) to a job-creating enterprise (JCE). The “at risk” stipulations are thus met, but the investor is allowed higher-priority interest in the business than equity alone. However, since the EB-5 investor technically has not loaned the capital to the JCE, but rather, the NCE has performed that action, developers (JCEs) sometimes seek to repay the loan to the NCE before all I-829 forms have been approved. USCIS has opined that this is acceptable only if the NCE redeploys the capital Otherwise, EB-5 investors investment is still at risk.

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