On Nov 04 2014 by H. Ronald Klasko

Investor Due Diligence Set of Questions

  1. If there is a minimum number of EB-5 investors required, have all of those investors been obtained or are they likely to be obtained? Does the developer have a plan to acquire additional funding if all the necessary EB-5 investors are not located so that the project can go forward with fewer than the minimum number of EB-5 investors?
  2. Is the regional center approved for the geographical area for the investment project (or a contiguous area)?
  3. Has the developer contributed a substantial amount of its own funds to the project?
  4. Are there any third party financing sources that are a part of the capital stack? If so, have they already been obtained? Do they depend on government awards or approval, i.e. grants or tax incentive financing, and has approval been obtained?
  5. Is there an approved exemplar I-526 petition for the project? Have any investors’ I-526 petitions already been approved? Denied? Have there been any RFEs on the project?
  6. Does the Regional Center or project developer have any history of I-829 condition removal approvals? Denials?
  7. If the investment amount is $500,000 based upon a high unemployment area, is there a currently valid State TEA Designation letter? Does the unemployment rate exceed the requirement by a reasonable margin, so there is less of a risk that a change in unemployment rate could change the TEA status of the project?
  8. If the job creation is based upon construction lasting more than two years, is the construction timeline estimate reasonable and in accordance with industry standards?
  9. If the job creation is based in part on construction jobs, are the construction expenditures reasonable and in accordance with industry standards?
  10. Is there any guarantee of return of money or acquisition of property? If so, the investment may not qualify under the “at risk” requirement.
  11. Is there a significant amount of “job cushion?” In the event that the project falls short of expectations, it is best if a significant number of jobs in excess of those required for the number of investors in the project is projected.
  12. If the project will be commencing before the EB-5 investment money is available, will EB-5 money be replacing bridge debt or equity? If so, the bridge being replaced must have been temporary debt or equity.
  13. Does the project rely for job creation on jobs created from tenants? If so, under prevailing USCIS policies, the standards for approval are difficult to meet.
  14. Does the project rely in part for job creation on expenditures by guests in a hotel or similar accommodations? If so, the USCIS standards are difficult to meet.
  15. Are all projected jobs anticipated to occur within two and one-half years of the approval of the investor’s EB-5 petition? USCIS standards require this.
  16. Are the inputs into the economic report transparent such that it is clear what needs to happen for the indirect and induced jobs to be created?
  17. Are all or part of the investor’s funds maintained in an escrow account until the investor’s I-526 petition is approved? Until the project is approved? For example, when other investors are approved, it means that the project is approved.
  18. If funds are released to the project immediately, is there a reserve or guarantee from the project developer if the funds are released and the investor’s petition is not approved?
  19. Is the exit strategy for the investment clear? If the investor’s money will be used as a loan to the project developer, is there sufficient collateral for the loan? Note that loan model projects usually have clearer exit strategies.
  20. Will you be one of the first investors in the project? If so, it may be favorable for purposes of job allocation but may be unfavorable if sufficient numbers of investors are not attracted to the project in order for the project to go forward.
  21. Will you be one of the last investors in the project? This may be unfavorable if there is a shortage of jobs.
  22. Does the Regional Center provide regular reporting of the status of the investment to the investors, and at what intervals?
  23. Is the business plan credible? If the business plan is not credible, it may never be implemented; and USCIS may not approve the project.
  24. What is the reputation of the developer of the project? Is there any negative past history of the principals? Do the principals have any experience with the EB-5 program?
  25. Were the investment project documents prepared by an experienced team of EB-5 professionals, including immigration lawyer, economist, business plan writer and securities lawyer?
  26. Is there some level of independence or conflict avoidance between the regional center, the investment company and the project developer?
  27. How many investors in any project of the regional center received a return of their investment principal? In how many projects have investors lost money?