In the past year I have traveled to more than a dozen cities in China, talking to many potential EB-5 investors. Basically these investors have only two simple questions: (1) “Will my Green Card be approved?” and (2) “Will I get my money back?”
The USCIS has approved more than 400 EB-5 Regional Centers and some have failed spectacularly. With so many complex EB-5 offerings out there, how can a potential investor possibly find a satisfactory answer to these questions? I advise investors as follows.
First, the investor should take some reassurance from the overall EB-5 approval rate. For the past several years, the approval rate for all I-526s (initial green card petition) is more than 80% and for I-829s (green card renewal), the approval rate is more than 90%. That said, the investor should understand the EB-5 program requirements, in order to assess the risks.
(1) “Will my Green Card be approved?”
This is an immigration question. If the requirements of the USCIS are met, then the Green Card will be approved (initial Green Card and permanent Green Card two years later). The basic requirements for green card approval under the EB-5 program are Money and Jobs. The Money requirement will be met if the investor shows the source of EB-5 funds and that the EB-5 funds are spent on the project as described in the I-526. The Jobs requirement will be met if the EB-5 Regional Center uses the economic model described in the I-526 which demonstrates that at least 10 full-time jobs per EB-5 investor were created through the project.
It is no secret why the USCIS may deny an EB-5 green card: it publishes all decisions of the Administrative Appeals Office (AAO) relating to I-526 and I-829 denials. These decisions show the biggest risk of green card denial for a Regional Center EB-5 case comes from inadequate job creation: either the project managers did not spend the money as promised or the economic model was defective. To avoid these risks, we advise that the investor should focus on projects that provide the investor with transparency for project expenditures and that use economic models specifically endorsed by the USCIS. The RIMS II and IMPLAN economic models are favorably cited by the USCIS for EB-5 Regional Center job estimation. In fact, trends show that more EB-5 Regional Centers use the RIMS II and IMPLAN models than any other.
(2) “Will I get my money back?”
This is an investment question – while 90% of EB-5 green cards are renewed by the USCIS, there are no publicly available data to answer this question. Of course, every EB-5 project offers a nominal rate of return and a lovely exit strategy. Nonetheless, I advise the investor to carefully consider the following:
(A) What is the worst case scenario?
(B) How likely is it to occur?
(C) What is the residual value of the investment if the worst case scenario occurs?
All EB-5 offerings should include a Private Placement Memorandum (“PPM”), which details all risks of the project. Typically, the PPM will list dozens of risks, without any ranking or valuation. Therefore, I advise investors to ask project principals to provide answers to (A), (B) and (C).
There is wide variation in Regional Center (RC) offerings: Some regional centers EB-5 give investors priority in claiming the assets of the project; many RCs put EB-5 investors in last position. Many RCs take 30% equity in a project with no investment, while some RCs take no equity at all. Many RCs spend the EB-5 money before the project is fully capitalized; some RCs only spend EB-5 funds when the project is fully capitalized. Most RCs offer an investment that has no public market for resale (limited partnership units). Some offer an investment with a ready capital market such as a direct title to land. Many RCs provide only an annual report of project income and expenses. Other RCs provide real-time, online access to all project income and expenses.
I also advise the investor to pick the project with a simple and clearly understandable exit strategy. In the exit plan, the fewer contingencies the better; the fewer moving parts the better; the fewer third parties the better.
In sum, investors have many choices among the EB-5 regional centers. Applying a consistent analytical framework to the many EB-5 offerings can help the investor feel confident of (A) getting the green card and (B) getting the money back. A useful framework for evaluating regional centers can be found here.
James C. Wolf is a certified expert in immigration and nationality law by the State Bar of California and has been providing immigration services to major corporations since the late 1980′s. He is a graduate of Georgetown University School of Foreign Service and the University of California School of Law at Davis. The American Immigration Lawyers Association has designated James Wolf as an attorney mentor. In this capacity, he advises other immigration attorneys across the United States about complex business immigration issues. In addition, he has served as an immigration law trainer and presenter at various seminars and speaking engagements.