• Is there a forward appraisal report for the property,
reflecting its future expected value?
Now, let’s elaborate on the four basic categories mentioned
above.
CATEGORY A: JOB CREATION
This is the most basic EB-5 project requirement. Every
investor needs to create or get credit for 10 new full-time
positions that his investments will create. The jobs do not
need to be created after the investment is made. In fact, in
many projects these jobs start to be created way before the
investor wires his funds to the escrow agent for the project.
Before the EB-5 investors are solicited, typically, the
developer secures a “bridge loan” that stands in between
the senior loan and the equity. Once the senior loan, the
bridge loan and the equity are secured, the developer
becomes confident that he will be able to complete the
project even if no EB-5 funds are raised. In most cases, as
long as an application to U.S. Citizenship and Immigration
Services (USCIS) for EB-5 funding intent is made before the
bridge loan funding is secured, the jobs that are created can
still accrue towards the EB-5 investors’ obligation to create
jobs. That said, if the project has essentially concluded,
and EB-5 capital is simply going to replace debt in which
the jobs are already created through
non-EB-5 capital, and that does not
make a compelling argument that
jobs were created as a result of the
investment. It is important to make
sure that a reputable third par ty
conducts an economic analysis.
Some of the statistical methods
used to estimate job creation
include RIMS II and IMPL AN.
developer and the regional center for paying back previous
investors in previous projects.
A developer who has paid back other investors can
demonstrate that they not only finish their projects but
at the same time can either sell or refinance them to
execute an exit strategy and pay off their creditors. From
the developer standpoint, they could have a tremendous
track record of paying back their creditors, but this might
not trickle down to the EB-5 investors in their projects. This
will happen primarily if their typical investors come from
countries that experience retrogression, and are therefore
more subject to redeployment risk than investors from
other countries. As such, a lack of robust repayment history
should not necessarily be used against a developer. The
same could be true for the regional center. Unless they
too have marketed to investors from other countries, they
will have the same issue. There are a handful of regional
centers who have been around for quite a long time and
therefore can demonstrate a robust “payback” history.
While this certainly is one of the desirable characteristics,
other aspects should also be considered.
All of these are criteria that make projects, developers and/
or regional centers safer than others thereby increasing
the chances of return of capital investment. One word of
caution: Naturally, these categories
are not necessarily mutually
exclusive. Therefore, there will be
intrinsic double counting of certain
important features. While it is very
difficult to correct for this with our
rather simplistic scoring system,
it could perhaps be dealt with by
subjectively adjusting the assigned
weights given to each feature within
each category. The same kind of
subjec tive adjustment could be
performed to each category if the
categories themselves are found to
be overlapping.
"One criterion that is
becoming increasingly
popular in deciding
whether a project will be
successful from a job-
creation standpoint is
whether or not the project
already has an I-924
exemplar approval. "
O n e c r i te r io n tha t is b e c o min g
increasingly popular in deciding
whether a project will be successful
from a job-creation standpoint is
whether or not the project already
has an I-924 exemplar approval.
It is impor tant to note, however,
that the fac t that a projec t has
I-924 exemplar approval does not
provide any absolute assurance
to the investors that the jobs will be created. All the
I -924 exemplar approval means is that if the project
ends up spending funds equal to or greater than the
one indicated in the budget in their business plan, and
they are successful in completing the project, then the
construction jobs that were estimated to be created in the
economic report will be deemed to have been created.
CATEGORY B: RETURN OF CAPITAL INVESTMENT /
CAPITAL PRESERVATION
This part of the due diligence process has to do with looking
at the financials, track record, and a whole host of other
factors concerning the developer, regional center, and the
actual project. The best indicator of whether the capital will
be paid back would be statistics on the experience of the
What other criteria can give EB-5
investors an idea of what to look for
when picking a project from a return
of capital investment standpoint?
a) Does the developer have a standalone rating from a
reputable international credit rating agency? If so, how
strong is the rating?
b) Is the developer known in the marketplace? How long
have they been in the real estate development business?
What is the total square footage developed? Any known
insolvencies, bankruptcies?
c) Does the developer have a well - known CEO or
founder who could be relied on in times of crisis? If so,
would his future departure be a significant concern?
In other words, is there a strong key man risk with the
developer?
d) Is there a senior lender in the project? If so, how
reputable is the lender?
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