Chapter 2: Will I Get My Money Back?
© James C Wolf Apr 2021 (updated June 2021)
In the past several years I have traveled to dozens of cities in China, India, and Europe talking to many people curious about EB-5. These investors ask two basic questions: “Will my Green Card be approved?” and “Will I get my money back?”
The USCIS has approved more than 800 EB-5 Regional Centers. Many have succeeded, many are inactive, and some have failed spectacularly. With so many complex EB-5 offerings out there, how can an investor possibly find a satisfactory answer to these questions?
EB-5 Due Diligence provides the answer. These articles are designed to help the Investor understand EB-5 Due Diligence before making the investment decision.
Overall, EB-5 approval rate is high
The investor should take some reassurance from the overall EB-5 approval rate. For the past several years, the approval rate for all I-526s (initial green card petition) is around 80%[1] and for I-829s (green card renewal), the approval rate is more than 90%.[2] Before agreeing to invest, the investor should understand the EB-5 program requirements, in order to assess the risks of each specific EB-5 project.
“Will I get my money back?”
This is really an investment question. While 90% of EB-5 green cards are renewed by the USCIS, there are no publicly available data on EB-5 investment returns. Of course, every EB-5 project offers a nominal rate of return and a lovely exit strategy. Nonetheless, I advise the investor to carefully consider the following:
- What is the worst-case scenario for the project?
- How likely is it to occur?
- What is the residual value of the investment if the worst-case scenario occurs?
All EB-5 offering documents should include a Private Placement Memorandum (“PPM”), which details all risks of the project. Typically, the PPM will list dozens of risks, without any ranking or valuation. Therefore, I advise investors to ask project principals to provide written answers to questions (1), (2) and (3).
There is wide variation in Regional Center (RC) offerings: In some projects EB-5 investors have first priority claims to the assets of the project; in other projects EB-5 investors are in last position. In some cases, project organizers take 30% equity in the project with no cash investment; in other cases, the project principals take no equity at all.
Many projects spend the EB-5 money before the project is fully capitalized; some projects spend EB-5 funds after the project is fully capitalized. Most projects offer an investment that has no public market for resale (limited partnership units). Some offer an investment with a ready capital market such as a direct title to land. Many RCs provide only an annual report of project income and expenses. Other RCs provide real-time, online access to all project income and expenses.
I also advise the investor to pick the project with a simple and clearly understandable exit strategy. In the exit plan, the fewer contingencies the better; the fewer moving parts the better; the fewer third parties the better.
In sum, investors have many choices among the EB-5 regional centers. Applying a consistent analytical framework to the many EB-5 offerings can help the investor feel confident of (A) getting the green card and (B) getting the money back.
EB-5 Due Diligence for Investors
We give client-centered advice, representing only one side in each EB-5 matter, without conflicts of interest or bias.
We leverage professional experience as an EB-5 attorney, EB-5 regional center operator, EB-5 Issuer, and EB-5 project developer, for benefit of each type of stakeholder.
For further information on EB-5 Due Diligence for Investors, see other chapters in this series.
Schedule a call today with James Wolf, the experienced EB-5 investment attorney, to discuss EB-5 Due Diligence for Investors and your potential EB-5 investment. To set an appointment, click here.