Regional Center Investments
Now that we have covered what a Direct EB 5 investment is, it is now time to understand Regional Center Investment. So what is a Regional Center?
A Regional Center is commonly a private company that acts as a fund manager or benefactor of an EB-5 project. Note that apart from private companies, there are also several state-owned and operated regional centers that funds an EB-5 project. The EB-5 Regional Center takes part in the promotion of economic growth, through job creation and capital investment into the U.S. economy. It also involved in raising capitals of EB-5 development projects like infrastructure, manufacturing, residential, commercial or mixed use. If you chose to become a Regional Center, the business entity needs to apply to the USCIS for Regional Center approval and has to show the following:
From the most recent count, there are about 865 Regional Centers in the country and in any given day, these 865 centers will have about 500 active EB-5 projects in the market. There are no two projects that are the same and each one handles its own degree of risk, may it be low risk, medium risk or high risk projects. Risk degree is classified by investors by taking into account factors that go through each project. Mostly, among the current Regional Center projects that an investor will encounter, tend to have low or zero return on investment (ROI). An example of low or no return investment is like putting 1% investment and getting 0.5% return. There are also investments that bring up to 5%-6% returns but investor needs to be mindful that the higher the returns, the bigger the risk. Although it also doesn’t necessarily follow that the lower the return, the lower the risk. Investors just need to make sure that as an EB-5 visa investor, the should only be engaging with legal business and financial professionals to help them make a completely informed decision when it comes to Regional Center Investment. Here are some of the factors that each investor should take into consideration when selecting a Regional Center Investment:
These factors are not the only ones an investor should consider when deciding the Regional Center Investment but there’s a lot more, although these are the most important ones. Remember that at the end of the day, the investor will be putting either $500,00 or $1,000,000 investment and it is not the Regional Center that will be providing the returns, instead it will be the developers who are the ones borrowing the money along with funds from any other investors. With the loan agreement, the EB-5 investors are willing to take the risk that they will only get returns in 5-6 years. Aside from looking at the Regional Center track record, an EB-5 investor should also be looking at the developers or the borrowers to see if they really have the capacity to return the capital and how are they going to do this by the time that it is due. The investor should also look at the kinds of projects these developers have run in the past either through the EB-5 program or not. It is also good to know the EB-5 investors position compared to the other lenders of the project. For example, in a $100M project, if the developer shelled out $20M and there is a $50M construction loan from the bank, the remaining $30M would have come from the 60 EB-5 investors. If something bad happens, the bank most probably have positioned it in a way that the bank would have the first right to foreclose into the project. Depending on the terms of the loan, the bank would be the ones in the position to get some of their money back if there’s enough collateral. The EB-5 investors, who are second in position will get the remaining unless there is none left. This is another consideration that EB-5 investors should make and look at together with the financial viability of the project and doing a bit of financial analysis. Another consideration worth taking by EB 5 investors is the U.S. regulatory compliance wherein there are two agencies that oversee a lot of capital raising. These two agencies are SEC or Securities and Exchange Commission and FINRA which is the Financial Industry Regulatory Authority. These two agencies increases their involvement by taking a very close look at the EB-5 program. There’s also quite a few Regional Centers in the country now that are embracing the fact that SEC and FINRA checking on compliance with security laws of the U.S. This means that they are now encouraging securities broker-deals in the U.S. which helps in raising this kind of capital. While there are Regional Centers accepting this, there are still those that do not think complying with SEC and FINRA matters because they are what you call exempt securities. Since the investor is risking their $500,000 for the next 5-6 years, they need to make sure that the developer, which is also the borrower as well as the Regional center is compliant with the U.S. laws and are not just operating in the gray areas of the law. One more factor worth looking at is the relationship between the Regional Center and the developer or borrower. It is normal to have developers who are rushing their way to becoming a Regional Center which is not advisable as they tend to not be ready with the task. Since this practice is already ongoing, there are now, good developers and not so good ones. Last but certainly not the least among the long list of considerations is an investor should closely study the Job Creation model for the project. The goal of the investment is to get a temporary green card until their permanent ones are released. The most important area that has to be met is to be able to create the required number of jobs, therefore, validation of the model is definitely necessary. Should this happen, there is now a so-called pre-approved project in the market. In these pre-approved projects, the developer, which is the borrower or the Regional Center have submitted their documents such as the business plan and the economist report to the USCIS even before the investors have filed for their I-526 on that projects and to be approved, there has to be an agreed sense of job creation. Learn more about this investment type here. At-Risk InvestmentMost of the time, there is a confusion to what really is being termed as an “At-Risk” investment, and to EB-5 investors who chooses Regional Center Investment, it would be the idea of risking their $500,000 for the next 5-6 years. The main risk is the possible loss or chance of gain with this investment and depending on the several projects available in the market, these risks may range from being low to high depending on how it is being seen. An example would be a project that promises high return which are most of the time being tagged as high risk for an investor to take. EB5 law requires that your investment be “At-Risk.” So, if anyone states that their EB-5 investment is a risk-free investment or a risk-free project, or that a 100% of the risk has been eliminated, they are just misrepresenting the facts as there is no such thing as a risk-free investment under EB-5. In order to qualify for this program, the investment really needs to be .
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