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independent source. Many investors first approached immigration attorneys, whom they view as a more independent source
of information. Unfortunately, most immigration attorneys
are not trained as investment experts. Also importantly, an
attorney would have to be registered as an Investment Adviser
in order to give investment advice for a fee.
The service that an independent Registered Investment
Adviser (“RIA”) provides can serve the cautious EB-5 investor’s
need for objective advice. Ideally the RIA should not be affiliated with a Broker-Dealer or a Regional Center. Otherwise,
the RIA will need to disclose any conflicts of interest, because
such interests may lead an RIA to steer the clients to his or her
own deals.
To formally begin advising an investor, a RIA would sign
a fee agreement with the client which specifies the amount
of fees and scope of services. Ideally a RIA offers “one-stop”
services that walk the investor through the process. The
primary service – and the main draw for investors – is a
detailed due-diligence report that evaluates immigration and
investment risks.
The Due Diligence Report
Usually, a due diligence analyst who has industry experience in
commercial real estate development and investment banking
manages the due diligence process. The report should not
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just summarize the business plan, but it should also provide
in-depth analysis and verification of key facts such as feasibility
of capital sources (including EB-5 capital itself ), a developer’s
true “cash” equity contribution prior to and after EB-5 raise,
site control, entitlement risk, job creation, TEA compliance,
and the “at-risk” and sustained investment requirements of
USCIS regulation. Project completion risk is closely examined
because it is a major factor in investors’ potential loss of both
green card and invested capital.
The due diligence report elaborates on disclosures about
ownership structure and asset valuation to ensure a good
alignment of interest and to mitigate investment risks (loss
of capital) for the investor. The analysis reviews assumptions,
methodologie s, and conclusions of the appraisal report, and it
provides a second opinion on market feasibility and property
valuation. In the end, the report highlights the strengths and
weaknesses and lists out major risk factors such as a lack of
other capital sources or insufficient capacity of the associated
regional center.
Benefits to EB-5 Investor
The main advantage to an investor of working with a RIA is
independence and accountability. Given language barriers,
complexity, and the long investment cycle, EB-5 investors
are subject to escalated investment and immigration risks.1 As
EB5 INVESTORS MAGAZINE