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Certain types of projects tend to be more marketable than others; however, it is usually not based upon the industry classification. An EB-5 project will generally be more marketable if the project can clearly show that the required number of jobs are expected to be created through verifiable calculations, if the operators or developers of the project have an established brand and history of financial and business success, and if the EB-5 project has a clear and compliant exit strategy.
Loan model
Loan models are particularly attractive to the foreign investor. In such a model, the new commercial enterprise( NCE), which is the fund LLC, is able to accept the investors’ funds as an investment. The fund LLC will then loan the funds to the job creating entity( JCE) to create the required jobs. The SEC and USCIS regulations clearly state that there can be no redemption agreements or guarantee to return any part of the principal investment made to the investor. However, in a loan model the JCE can guarantee the repayment of the loan amount to the NCE. The loan can be collateralized by the assets( land and buildings) of the JCE; hence, if the loan is not paid back, the NCE can bring legal action against the JCE either for the repayment of the loan or for sale of the collateralized assets to repay the loan. The NCE, owned by the investors, will now have a repaid fund, and the investors can sell their interest in the NCE at fair market value. In this instance, the project will be more marketable if the investors are in the first position for repayment of the loan.
Documented job creation
EB-5 projects will not be marketable to investors unless the project can show reasonable projections that the required number of jobs will be created, either by the business plan and / or the economic report. Along this line, the project will become even more marketable by demonstrating that more jobs than required will be created. If, at the I-829 stage, USCIS determines that not enough jobs were created, then the foreign national investor will not obtain approval to remove conditions on their permanent residency. Demonstrating that more jobs than are required will be created is a clear safety net or back up for the investor, in case of changing economic conditions.
Step one: combination of compliance and marketability
It is the primary goal of the project developers— mouse two— to obtain EB-5 investment funding for the project. However, the project developers must let themselves be guided by the brokers or intermediaries sourcing the investors— mouse three— before they receive funds. The brokers and intermediaries usually know the market for the investors they are dealing with and know what clauses need to be inserted in the EB-5 compliant documentation to make it easy to sell the project. The general conditions for marketability, as established above, are a good place to start, but brokers and intermediaries are key players in helping to determine what makes a project marketable to a specific group of investors. Brokers and intermediaries can help the players understand that, oftentimes, compliance is marketable.
Step two: funding before I-526 approval
The time delay between the filing and the approval of the investor’ s I-526 petition is significant and consequential; this is one major factor that has a profound effect on the financial and business viability of the EB-5 project.
Traditionally, EB-5 projects marketed to investors utilized a full escrow model, stating that investors’ funds would be transferred to the project for use upon the approval of the I-526 petitions. Now, because of the long time delays in adjudicating I-526 petitions, it is detrimental for the EB-5 project to wait this long before using the investors’ funds. 2
Therefore, the EB-5 project principals must again rely on the brokers and intermediaries to explain to the investors that EB-5 funds will often be used, at least in part, at the time of filing the I-526 petition, rather than at the time of I-526 approval. The investors will usually agree to allow the EB-5 project to commit their investments funds at the time of the filing of the I-526 petition if the developers and / or operators of the project have a brand name and a successful financial and business history. In addition, investors are more likely to agree to this condition if the project can clearly show that they have financial reserves committed to the project, and hence will have the financial means to quickly repay the investor if their I-526 petition is denied.
Such a release schedule has become the norm in the industry, and investors are generally agreeing to these terms. In fact, USCIS requires the EB-5 investor to have invested, or be in the process of investing, the funds at the time of filing the I-526 petition.
Step three: avoiding denials and return of funds
The three blind mice are now convinced they have an EB-5 compliant project that is also marketable to investors. That is, the professional team members believe the documentation will be approved by USCIS, the brokers and intermediaries believe that the project is marketable to investors, and the project developers believe that they will receive investments for the project. But the journey is not over yet!
In order to make the EB-5 project marketable, there is usually a stipulation that funds will be returned to the investor within a set period of time if the I-526 petition is denied. Therefore, it is paramount that the professional team, the project developers, and the brokers and intermediaries work together to ensure that the I-526 petition will be approved by USCIS.
In the EB-5 Regional Center context, the I-526 petition consists of three parts: the regional center approval documentation, the EB-5 compliant project documentation, and the authenti-
2
For a detailed discussion of escrow in EB-5, see Evolving Escrow: Navigating Delayed USCIS Processing Times on page.
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