The choice of investment project to apply for an EB-5 visa is critical for the applicant to meet the mandatory EB-5 requirements and get a green card. One of the main criteria is creating a minimum of 10 full-time jobs within two years of investing, known as the sustainment period.
Immigration attorney Yuliya Yeremiyenko-Campos says EB-5 investors often wonder what kind of business qualifies as an EB-5 project. The answer is that it can be ”any lawful for-profit business capable of generating at least ten jobs per EB-5 investor.”
The industry consensus is that investors must evaluate a project’s nature, type, profitability, viability, and capital structure before selecting it. Indeed, many are interested in profit and growth when investing such large amounts of money: $800,000 in a Targeted Employment Area (TEA) and $1.05 million everywhere else in the U.S.
However, EB-5 requirements transcend these factors.
Type and nature influence profit and risk, but not the success of an EB-5 application
The nature and type of the project pertain more to the investment style and profitability preferences of the EB-5 investor than to the U.S. Citizenship and Immigration Services (USCIS).
Large-scale construction projects in the hospitality, commercial, and residential sectors are more common as they tend to meet the EB-5 requirements more easily, as they create predictable jobs, and last for a two-year period.
Debbie Klis, a corporate attorney at Rimon P.C. law firm, says: “The irony is that Congress created the EB-5 program to create jobs for regular companies. It was never envisioned that real estate investment would represent most EB-5 investments. In practice, EB-5 investors prefer to invest in a project that has or will have hard assets that can secure their investment.”
However, whether non-real estate projects work as EB-5 projects is a question that often arises. Klis explains there are issues associated with these types of projects utilizing EB-5 funds for working capital, “which means the risk is higher that the company could burn through the EB-5 investment and not achieve the operational and revenue projections of their business plan.”
She adds this ”could lead to no or insufficient job creation, which means that the EB-5 investors will lack the job creation to support their permanent green card and/or will not receive a return on their investment or a return of their investment, which risk is greater if the company is pre-revenue [has not yet started generating any income from its operations].”
For those investors seeking growth and profit in their investment, Klis suggests they wait to raise funds until the company is no longer pre-revenue to show proof of concept.
This would help them overcome concerns over the additional investment risks of funding working capital. “Further, we recommend that the projects offer a higher preferred return rate and/or a share in the waterfall distributions to the EB-5 investors in view of the higher risk they are assuming,” she adds.
Also, the structure and management style of the project, whether it is a regional center-sponsored project or a direct business investment, significantly influence the funding and timeline to meet the mandatory requirements. While regional center projects offer a passive investment alternative, direct business investments allow investors to actively engage in project management, affecting job creation, success, and failure rates.
“There are many successful direct EB-5 projects involved in all kinds of lawful business across the United States,” says Yeremiyenko-Campos. “In the regional center context, most of the projects involve commercial or residential real estate development and leasing. In fact, real estate development projects appear to be more appealing to EB-5 investors. Real estate has a tangible value, which offers some level of assurance that the investor is more likely to get at least some part of the money back in case the project fails. Thus, most EB-5 regional center investors go with real estate projects.”
Yeremiyenko-Campos adds that other types of regional center projects, such as restaurants, have been traditionally less popular with foreign investors. “However, the EB-5 Reform and Integrity Act of 2022 introduced additional set-aside categories for the EB-5 visa program: rural and infrastructure projects. This may shift the focus of the regional centers to promote projects other than real estate, and likely, new types of EB-5 regional center projects (tech startups, manufacturing, infrastructure development) will gain popularity,” she concludes.
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