e) Is there an I-526 denial guarantee? If so, is that only
triggered due to project-related denial or does the
guarantee extend to cover denials due to source of
funds related issues that do not involve any fraud or
misrepresentation?
f) How crucial is the EB-5 raise for the project? If all of
the contemplated EB-5 is not raised, does the project still
have enough funding to complete the construction?
g) Is there a building completion guarantee? If so, who is
the provider of such a guarantee?
h) Is there a corporate guarantee that the loan, if any,
extended by the new commercial enterprise (NCE) to the
job-creating enterprise (JCE) is guaranteed by a deep
pocket? If so, who is the guarantor? Is it a shell company,
the developer or a third party?
i) Has the project started? When is it expected to be
completed? How realistic are the exit strategies given
the type, location, and size of the project?
j) Are there any conflict of interest issues? Is the
regional center an affiliate of the developer or a separate
independent entity? Once the NCE is paid off by the JCE,
will the investor get their capital back assuming that all
the immigration-related requirements are met?
k) Another criteria investors should be very careful about
is “dilution risk.” Typically, while the senior loan is in
place, no dilution through additional borrowing would
be allowed. However, the documents could be written in
such a way that once the senior loan is repaid, before the
EB-5 investors are repaid, the developer could borrow
additional funds ahead of the EB-5 investors. That could
worsen the original LTV applicable to the EB-5.
l) Is the equity invested by the developer above or below
the EB-5 in the waterfall?
m) What sort of redeployment strategy is in place:
a dive r sif ie d por t folio or anothe r single p roje c t
investment? Once the required jobs are created by
the time of redeployment, investors might prefer a
diversified portfolio as the redeployment option as
opposed to another single project.
n) Other than the basic LTV ratios, investors should look
at the following ratios:
I. Committed equity as a percentage of total project
cost: The higher this number, the more committed
the developer.
II. S enior loans ahead of EB - 5 plus EB - 5 as a
percentage of forward appraisal of the completed
project: The lower this number is, the better, as it is
an indication that there will be plenty of collateral
leftover after repayment of non-equity obligations
including the EB-5.
III. EB-5 as a percentage of forward appraisal of the
completed project after repayment of the senior
loans ahead of EB-5: A lower ratio is better as it is an
indication that there will be plenty of collateral left
over to pay off the EB-5 loan after repayment of non-
equity obligations.
20
EB5 INVESTORS M AGAZINE
o) The number of EB-5 projects the regional center has
been previously involved in is also an important number.
This statistic underlines the experience of the regional
center in managing EB-5 projects.
p) Statistics on previous number of I-526 approvals,
conditional green cards issued, I-829’s filed, I-829’s
approved and number of investors who are actually
paid back their capital are all very helpful. However, the
composition of the investor base of the specific regional
center is vital information not to unjustly penalize them
for having a huge number of approved I-526 applications
with comparatively few conditional green cards obtained,
I-829’s filed and approved. This could be due to their
investor base being heavily skewed towards mainland
China-born investors who are currently experiencing
unprecedented retrogression periods.
CATEGORY C: TIMING OF THE CAPITAL REPAYMENT
This topic has gained enormous attention in recent years.
Up until a few years ago, when the project was completed
and the JCE had returned the funds to the NCE, the funds
would either be disbursed to the investor or would be kept
in an account such as an escrow account of the regional
center waiting to be disbursed to the investor. In recent