The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.
In advising regional centers and EB-5 project developers, I often find myself providing advice something like this: “that’s perfectly legal under EB-5 law, but it will never sell.” Even though my clients are hiring me for EB-5 legal advice, I feel that I am doing less than a complete job if I don’t provide the benefit of the marketing knowledge that I have gained over the years. As I advise my clients, it does nobody any good to prepare an approvable regional center application or project template if no investors will be interested in investing.
In my experience, the investor’s primary interest is that the investment project will result not only in getting the conditional permanent residence but most importantly the permanent green card. Of secondary importance is the likelihood of getting the principal amount of the investment back in a defined period of time. Of far lesser importance is any return on the investment.
Especially in the China market, where most investors are working with agents, many of them have developed a level of sophistication regarding EB-5 legal issues. A project that meets the bare minimum legal requirements may have little chance in the marketplace. Projects relying on challenged economic methodologies (tenant occupancy or visitor spending as examples) may have difficulty finding investors. Investors like to see a “job cushion” (job projection in excess of the amount required for the number of investors) – the more, the better. Some EB-5 professionals – immigration lawyers, economists, business plan writers, securities lawyers – have reputations in investor communities that add credibility to the projects.
Although it may not be first priority, investors generally do want to know that they have a reasonable chance of getting their investment returned in a defined period of time. This is the reason that the loan model has become more popular than the equity model. Loan models with a 5 or 6 year term of the loan have better success in the marketplace than loans of a longer term. It is for this reason that investors generally prefer to be in first position among creditors.
Having the investment money placed in escrow pending the approval of the I-526 petition adds a level of security to the investor. However, it also adds a lengthy period – approximately 8 months – to the date when the developer will receive the EB-5 capital. As a result, various hybrids have developed, including “early release” (money sits in escrow until a certain number of I-526 petitions have been approved and is then released to the project) and “holdback” (an amount remains in escrow to cover the possibility of 10% or 20% I-526 petition denials and the remainder of the money goes directly to the project). These hybrid escrow arrangements have met some resistance in the investor marketplace and are generally considered only if the project is otherwise viewed as very desirable.
Other factors also play into marketing success. Investors generally do not like to see a project where EB 5 makes up virtually the entire capital stack. Investors like to know that the developer has some “skin in the game”. Related to that is the reputation of the developer and/or the regional center. A regional center with many successful projects (especially condition removals) or a developer with a very high level reputation and many successful development projects is clearly a plus. The administrative fee charged to the investor – often in a range between $35,000 and $60,000 – can be an issue to some investors. Finally, various subjective factors play a role. For example, investment projects in certain cities are more popular than those in other cities. Investment projects in certain industries may be favored by certain investors, while others may prefer other industries.
Technically, a client who retains an immigration lawyer to provide EB-5 immigration legal services is not contracting for marketing advice. However, in my experience, the two are so interrelated that, by necessity and as a matter of client service, sharing my accumulated knowledge of the EB-5 investor marketplace becomes a critical part of my advice to clients.