Foreign investors are flocking to EB-5 visas like bees to honey. Just be careful not to get stung. EB5 visas are not for everyone. They are restricted to qualified foreign investors with high net worth and/or robust annual income. Generally the program is utilized by wealthy retirees and parents who want to secure their children’s future. An EB-5 investors’ goals are typically two-fold: 1) recapture their capital investment and 2) get their green card. To have success, however, the investor must proceed with caution and conduct careful due diligence when selecting the appropriate EB5 investment vehicle.
The EB-5 program has two subcategories: the traditional EB-5 program and the regional center program. The traditional program involves investing $1,000,000 into a business, actively managing it, and creating ten direct jobs. In contrast, the EB-5 regional center program allows developers to pool foreign investor funds into a limited partnership and invest its capital into qualifying projects approved by USCIS. As the investments are almost always within a high unemployment or rural area, the investment amount is $500,000 and indirect job creation is permitted. Due to the lower investment amount and the relaxed job creation requirement, it is understandable that during FY 2011, 90-95 percent of foreign investors utilized the regional center as opposed to the traditional program.
Over the past several years, there has been exponential growth in the number of regional centers created in the United States. In 2008 there were less than 20 nationwide. Today there are 22 approved in Florida alone. Nationwide, there are currently 173 approved regional centers operating in 40 states. IIUSA, the national trade association of EB-5 Regional Centers, estimates that the program will account for over $1.25 billion in foreign direct investment and more than 25,000 jobs created or saved in FY 2011. EB-5 capital is responsible for creating infrastructure, building hotels, office buildings, shopping centers, schools, assisted living facilities, hospitals, and so much more.
What is also encouraging is USCIS’ renewed commitment to improving the program. USCIS Director Alejandro Mayorkas and California Service Center Director Rosemary Melville have recently implemented a series of reforms designed to streamline the adjudicatory process and provide more transparency and consistency in their approach.
This should be welcome news to investors, who risk their hard-earned dollars, and need assurances that USCIS will not change rules in mid-stream. Investing in the right regional center typically means recouping your investment with a modest rate of return. Just as important, a successful result means residence in the United States for the investor, his/her spouse, and their children under 21. Statistically, when compared to other immigrant visa categories, the EB-5 category has an extremely high success rate with 93 percent of I-829 petitions being successful thus far in FY 2011.
Selecting a regional center, however, can be a daunting task. Frequently, foreign investors do not know where to turn for advice. Most experienced immigration lawyers steer clear of selecting regional centers for their clients. For good reason, they are not trained as investment advisors, and are not broker/dealers. A small industry of EB-5 consultants has arisen in order to provide, hopefully, objective advice in comparing regional centers. Commonly they will produce a packet comparing several regional centers relative strengths and weaknesses, ultimately making a recommendation to a prospective investor. Regional Centers will also offer their current projects to qualified investors. USCIS lists all of the approved regional centers, but buyer beware. The question remains — Before taking a dive into the turbulent sea of EB5, how should a foreign investor evaluate a qualifying EB5 regional center project. Here are a few suggestions:
- Choose experience: While excellent past performance is no guarantee of future success, it certainly is a strong indicator. There are less than a dozen regional centers that have I-829 approvals. USCIS does not presently have statistics on the track records of each regional center, but they will next year. Until then, request from the regional center their statistics on approval rates. A substantial record of I-526 and I-829 approvals is one of the best indications of success.
- Velocity: What is the capacity of the regional center to expeditiously market and sell its investment units? How many investors is it attracting on a monthly basis? In which countries is it active and having success? Too frequently investors are stuck languishing in projects where the developers can’t break escrow because they have not been able to attract sufficient investors. Be wary of overly ambitious projects if there is no track record of raising funds expeditiously.
- Management Team: Your investment is at great risk if the management team is unable to bring the project to fruition. What is the general partner’s experience in managing multi-million dollar projects? What projects has the partner successfully completed in the past? Ensure that the Regional Center has a familiarity with the EB5 program and understands its responsibility to complete the project and create the requisite jobs.
- Job creation: Evaluate the methodology for creating jobs. Hopefully, the developer takes a conservative approach in estimating indirect and induced jobs. How many direct jobs will likely be created? The central focus needs to be on whether the economic methodology used to make these job forecasts is reasonable.
- Is the Regional Center invested: Does the developer have skin in the game? Is the regional center’s success tied to the investor and the performance of the asset? Often times they are not, but they should be. If a loan-based model, ensure the project is sufficiently collateralized and that the investor’s interest is not subordinated to a massive bank loan. Above all, seek qualified help to evaluate the investment.
The EB-5 program continues to gain momentum and popularity. For an investor to have a good result it requires due diligence on the investor’s part, as well as the combination of a skilled immigration lawyer and an experienced regional center. When all goes well, this is a win-win. The regional center gets sought-after capital to complete a project, the foreign investor gets a green card for himself and his family, and most importantly, struggling economies in high unemployment areas are infused with cash and jobs, stimulating local economies throughout the United States.
Roger Bernstein is a Florida Bar-Certified immigration lawyer specializing in EB-5 regional center cases. He is a founding Partner of Florida’s largest immigration law firm - Bernstein Osberg-Braun, Caco & Solow and a Partner in American Life Investments, LLC, a USCIS-designated Regional Center in Miami-Dade County, Florida.
By Roger Bernstein
Caco & Solow
11900 Biscayne Blvd., Suite 700
Miami, FL 33181
South Florida Legal Guide 2012 Edition