EB-5 Due DiligenceAn EB-5 Due Diligence is the evaluation and assessment of an EB-5 business prior to committing an investment to fund the project. An EB5 Due Diligence guides investors in choosing the right EB5 investment that suits their goals for immigration and returns on capital. An EB-5 Project is a new or existing U.S. business that results from the investment of foreign nationals seeking to qualify for the EB-5 Visa Program. The EB-5 Visa is an immigrant visa that enables foreign investors and their dependents to obtain permanent residence in the United States. 

EB5 Due Diligence involves the review of multiple aspects of an EB5 Project including the business developer, the management team, the financial activities, and compliance with the EB5 Program. Documents such as an economic impact analysis, business plan, and records of EB-5 petitions are examined in an EB-5 Due Diligence to determine if the EB-5 Project meets the minimum investment and job creation requirements of the EB 5 Visa.

What is EB-5 Due Diligence?

EB-5 Due Diligence is the process of evaluating a potential EB-5 investment before signing a contract. Conducting EB-5 Due Diligence enables EB5 investors to be fully informed about the risks and gains involved in a specific EB5 investment. An EB-5 Due Diligence helps foreign investors determine the suitability of a potential business venture to achieve their goal to obtain permanent residence and return on investment. 

What are the Types of EB-5 Due Diligence?

There are different aspects that must be reviewed prior to investing in an EB-5 Project. EB-5 Due Diligence should cover the business, management, financial, economic impact, and job-creating capacity of the EB-5 investment. Below are the important types of Due Diligence conducted when choosing the right EB 5 Project. 

EB5 Due Diligence on the Business Developer

A thorough research on the EB 5 company developer should be included in your EB 5 Due Diligence. EB5 Due Diligence on the business developer involves recording the name, state of incorporation, description, and registration of the company, its subsidiaries, and affiliate entities. An investigation of the company’s management should be conducted which includes their educational background, EB-5 experience, and credit history. Review the competitors and their market size and share for the past 2 years in comparison to the business developer you are evaluating.

EB5 Due Diligence on the Management of the EB5 Project

Due Diligence on the management of the EB-5 Project includes the review of stock ownership and the 5 largest shareholders in the company. Get to know the organizational structure of the EB-5 Project and review the resumes of the executives, managers, and key employees. Examine the executive summary of any management agreements between the relevant companies and any other entities to determine if the terms are in accordance with the disclosures made in the offering documents.

EB5 Due Diligence on the Financials of the EB5 Project

You should be given access to the audited financial statements, copies of Internal Revenue Service (IRS) tax returns, a list of major assets, forecasted income statements, balance sheets, and cash flow projections. Discuss with the EB5 Project business developers any off-balance sheet liabilities/assets or potential write-offs. You should ask how long the anticipated EB-5 funds are projected to last. The business developer should be able to answer if the EB5 funds are enough to complete the EB5 project. There should be a plan prepared in case the EB-5 Project needs additional funding in the future. 

EB5 Due Diligence on the Business Entity

EB5 Due Diligence on the business entity involves reviewing the business plan, market feasibility studies, and market statistics. You should see the architectural plans, construction schedules and costs, land purchase contracts, and lease contracts. Visit the business developer’s office and the EB-5 Project site. You should be able to observe the EB5 Project property, the surrounding properties, the neighborhood, and the environment. 

EB-5 Regional Center Due Diligence for Investors

A regional center is a private or public economic unit that pools EB-5 investments to promote economic growth in the United States. You should obtain a copy of a signed letter from the U.S. Citizenship and Immigration Services (USCIS) approving the regional center of your choice. EB-5 Regional Center Due Diligence for Investors includes assessing the regional center’s experience in funding, developing, and operating prior EB-5 Projects. Review the total number of approved I-526 (Immigrant Petition by Standalone Investor) and I-829 (Petition by Investor to Remove Conditions on Permanent Resident Status) overall and per project. 

EB5 Due Diligence Compliance Review

The EB-5 Project should meet the requirements of the EB-5 Visa Program. The total jobs created should satisfy or exceed the minimum requirement of 10 full-time jobs for U.S. workers. Investors for a targeted employment area (TEA) should have an EB5 Project in a rural area or region with high unemployment. The economic impact analysis should detail the timeline of the EB-5 Project, the expected revenues, and construction expenditures that will not negatively affect the job creation requirements. Your Due Diligence for Economic Impact Studies should reveal whether the data from the economic analysis is consistent with the data from the project’s documents. 

EB5 Due Diligence on Conflicts of Interest

The identified conflicts of interest during the EB-5 Due Diligence should be fully disclosed in the offering documents. Here are pertinent questions asked to determine conflicts of interest.

  • Are any of the persons affiliated with the business developer also own or control the issuer entity or regional center?
  • Are any of the control persons affiliated with another entity that is in business with the company?
  • Are there any familial relationships among the officers or directors in the organizational structure of the offering company?
  • Have any of the control persons borrowed money from the company or had their loans guaranteed by the company?

Miscellaneous EB5 Due Diligence

Other components of EB5 Due Diligence include company memberships in organizations, studies and analyses of the company, articles of incorporation and by-laws of the company, and minutes of meetings of the board of directors and shareholders. Obtain the details of accounting firms, advertising agencies, and other professional organizations that have represented the company in the past 3 years. Review the schedule of all present insurance coverage for the EB5 Project. 

What Documents Should be Reviewed in an EB-5 Due Diligence?

Here is a list of documents that should be available for review by the EB-5 investor when conducting Due Diligence.

  • EB5 Project documents
      • Loan agreements, commitment letters, and/or term sheets from banks and other institutional lenders.
      • Equity agreements, commitment letters, and/or term sheets from the business developer and other institutional or equity investors.
      • Bridge capital agreements, commitment letters, and/or terms sheets from banks, institutional lenders/investors, and other bridge capital sources.
      • Offering documents, business plan, and other solicitation documents.
      • Brochures and other marketing materials of the business developer to collate funding from EB5 investors. 
      • Permits, licenses, purchase and lease contracts, operating agreements, and construction schedules. 
  • Financial documents
      • Financial statements, income statements, balance sheets, IRS tax returns, and itemized operating expenses.
      • List of banking and credit relationships of the company and its subsidiaries.
      • Schedule of all contracts or understanding related to a payment equal to 5% or more of the company’s revenue.
      • List of 5 major customers and documented revenue concentration issues.
  • Management documents
      • Organizational chart, resumes, bios, and employment contracts.
      • Summary of management contracts, indemnification contracts, pension or profit-sharing plans, and management compensation. 
  • Regional center documents
      • Copies of regional center reports sent to government agencies.
      • Copies of I-924, Application for Regional Center Designation Under the Immigrant Investor Program.
      • Escrow agreement and documents.
      • Tracking of immigration-related milestones such as I-526 and I-829 submissions, approvals, and denials. 
  • Compliance review documents
      • Targeted employment area (TEA) certification letter.
      • Economic impact analysis on job creation, EB5 project timeline, and revenues.
  • Miscellaneous documents 
    • Summary of material correspondences with federal or state regulatory agencies.
    • Copies of any prospectus or private placement memoranda (PPM).
    • Summaries of agreements to pay finders or broker’s fees.
    • All other documents deemed by the company as essential to its operation or proposed acquisition.

What is an EB-5 Project?

An EB-5 Project is the product of the investment of foreign applicants for the EB-5 Visa Program. The EB5 Visa is an immigrant investor program that enables foreign investors to obtain permanent residence in the United States. The EB5 Project has to generate at least 10 full-time jobs for U.S. workers. 

An EB5 Project can be a regional center investment or a direct investment. A direct EB5 Project is an investment that creates a new business, the purchasing of a business, or an investment in an existing business that does not involve a regional center. The jobs that are directly created from the direct EB5 Project are counted towards the job creation requirement of the EB-5 Visa. 

What are the Top EB-5 Projects to Invest in?

 The top EB-5 investment projects are in real estate, hotel construction, and the restaurant industry. An EB5 Project in real estate has a consistent and high market demand with the potential for a return on investment. An EB 5 Project in hotel construction creates numerous jobs to enable investors to meet the minimum job creation requirement. An EB 5 Project in the restaurant industry is usually projected to open within a year of construction and eliminates problems with delayed cash flow.

What are the Requirements for an EB5 Project Investment?

These are the primary requirements that need to be met when investing in an EB5 Project.

  • A minimum “at risk” investment in a TEA or non-TEA project.
  • Legal sources of funds such as income, business profits, loans, inheritance, or gifts.
  • Full-time job creation for at least 10 qualified U.S. workers. 

Documents must be provided to prove the investment and capacity for job creation in a U.S. business. Documents acquired from your EB-5 Due Diligence such as the business plan, TEA certification letter, and copies of company agreements with other entities are essential in completing your EB5 Requirements.

How Much Do I Need to Invest in an EB-5 Project?

The minimum investment on an EB 5 Project is dependent on whether the project is in a TEA or a non-TEA. The minimum capital for a TEA is $800,000. The required EB5 Investment Amount in a non-TEA project is $1,050,000.