By Marta Lillo
Webinar panelists recently discussed the crucial filters EB-5 investors should apply when selecting a project to back their EB-5 application. The EB-5 webinar panel included immigration attorney and FINRA representative Irina Rostova, securities attorney Shae Armstrong, and Kyle Walker, the co-founder and CEO of Green Card Fund.
The EB-5 panelists highlighted the importance of carefully reviewing the project’s documents and structure, as well as the financial stability and reputation of the project developer. They also cautioned against choosing projects only because they have faster processing times, especially if the project is in a rural area and carries significant risk. Instead, they advised investors to select reputable regional centers with a proven track record of successful projects.
“I understand that the rural projects are getting faster processing, but it’s not necessarily worth it to save a few months of processing time if you’re going to take on additional risks on the project side,” said Rostova. “So, if you found an amazing, financially solid rural project, it’s one thing. But if you’re leaning towards a less financially stable project for faster processing time, that would be a bad decision.”
Rostova said that EB-5 applicants must refrain from taking on additional risks on the project side for faster processing. In addition, they should not prioritize less financially stable rural projects solely on the promise of shorter investment periods.
The panelists also emphasized the importance of a balanced capital structure, combining loans and equity. They also stressed the need for independent oversight by the regional centers to ensure that the EB-5 project is managed effectively and transparently.
Careful assessment of the EB-5 project nature is paramount
When selecting an EB-5 project, Walker emphasized thoroughly assessing the underlying collateral and location.
“From the investment side, my focus is always on what’s the underlying collateral. Or, you know, if you’re in operating businesses, what type of credit enhancements, what type of corporate guarantees, what type of balance sheet support are there to create viable pathways to repayment,” he said.
The panelists also agreed that commercial real estate is the usual choice for EB-5 due to its predictability. “There’s a real bricks and mortar asset available there,” said Shae Armstrong. However, despite this expected consistency, the securities attorney cautioned that EB-5 investors must conduct thorough due diligence on the principal behind a real estate project. “Look at the principal and then go to the property type, and then become more granular in your due diligence. Look at what the collateral is, the loan docs, the offering. That’s where the really detailed due diligence begins.”
They also underlined the importance of understanding the EB-5 project’s location. Even though rural projects offer advantages due to expedited processing after the set-aside categories introduced by the EB-5 Reform and Integrity Act (RIA) in 2022, the panelists advised against assuming a one-size-fits-all approach.
What EB-5 investors should focus on when selecting a project
They also pointed out that it is important to make sure all the project entitlement procedures are met, and ensure that the project timeline is advanced. They also advised scrutinizing rural areas’ economic viability and ensuring projects are under construction.
“The way we try to reduce that risk is we to look at projects that are practically ready. They either already broke ground and they’re under construction, or they are already doing their preliminary construction work, so they are ready to begin construction,” Rostova said.
Regarding entitlements, the experts emphasized the need for project readiness, including controlling the site and having preliminary documents in place. For Armstrong, the entitlement of a project is ready “when the capital stack has been formalized and the entitlement process is finished, the local municipalities have approved the project, and it maybe even have your construction permit. And we’re ready to push start.”
Finally, Walker highlighted the importance of understanding start dates and conditions, cautioning against assuming shorter investment periods mean safer projects. “The most common start date for an EB-5 project is usually when all the EB-5 capital has been deployed, that funding commitment has been met. That kind of starts and sets out day one,” he concluded.
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