How to evaluate an EB-5 project before investing

Start with the core documents: the business plan, market research, financial projections and the economic impact report (the analysis estimating how many jobs the project will create). Use them to answer basic questions: what the project builds or operates, who its customers are, how it earns revenue, and what evidence supports demand.

• Test assumptions on occupancy, sales prices, construction costs and revenue against comparable projects in the same local market.
• Ask whether the project could still succeed if construction costs rise, sales or leasing are slower than projected, or interest rates stay high.
• For regional center investments, confirm that the project application (Form I-956F) has been filed before relying on it.

Immigration filings are not a substitute for financial due diligence. A project can satisfy immigration requirements on paper and still perform poorly as an investment.

The developer (sometimes called the sponsor) is responsible for delivering the project. Review its history with projects of comparable size and complexity, not just its overall portfolio.

• Completed projects and whether they were delivered on time and on budget.
• Any budget overruns, loan defaults, litigation or bankruptcies.
• Relationships with lenders and earlier investors, including references you can contact.
• Independent verification of the developer's claims, rather than reliance on marketing materials.

A sources-and-uses statement shows where all of the project's money comes from and how it will be spent. Review it alongside the construction budget, land costs, permits, professional fees, contingency reserves and financing costs.

• How much of the total funding is already secured, and how much is still being raised?
• Is there a commitment from the senior lender (the bank or other lender with first repayment priority)?
• Could the project be finished if costs rise beyond the contingency?

If construction is already under way

• Independent construction reports, such as those from a third-party inspector.
• Contractor agreements and building permits.
• Photographs or site inspections showing actual progress.
• Updated schedules compared with the original plan, with explanations for any delays.

The capital structure (or capital stack) is the mix of financing behind the project, for example developer equity, senior bank debt, mezzanine debt (junior financing ranked behind senior loans) and EB-5 capital. The order of repayment determines who absorbs losses first. A project financed mainly by senior secured debt may leave EB-5 investors exposed if the project's value falls below what is owed to the senior lender. See the EB-5 capital stack.

• Is EB-5 capital a loan or equity?
• What collateral, if any, secures it, and how does it rank against other financing?
• Are there related-party transactions, fees, guarantees or conflicts of interest?

Ask how, and from what money, investors are expected to be repaid. Review the proposed repayment date, the source of repayment funds, the loan maturity, refinancing assumptions, collateral and projected cash flow.

• If repayment depends on refinancing, what alternatives exist if a new loan is unavailable or more expensive?
• If repayment depends on a sale, do comparable sales support the assumed price?

1. 01

   Step 1: Business plan and projections

   Reviewed the business plan and financial projections, and tested the key assumptions.

2. 02

   Step 2: Developer background

   Verified the developer's background and completed projects independently.

3. 03

   Step 3: Budget and funding

   Examined the budget, construction progress and funding commitments, including senior financing.

4. 04

   Step 4: Capital structure

   Understood the capital structure, collateral and repayment priority.

5. 05

   Step 5: Offering documents

   Reviewed the PPM and subscription documents in full.

6. 06

   Step 6: Immigration filings

   Checked the regional center's designation and the project's I-956F filing status. See regional center due diligence.

7. 07

   Step 7: Jobs and immigration risk

   Assessed the job-creation assumptions and the immigration risks specific to your situation.

8. 08

   Step 8: Independent review

   Obtained independent legal and financial review from professionals not connected to the offering.

• Use the detailed project due diligence questions when requesting information from a sponsor.
• Read regional center due diligence, the EB-5 capital stack and EB-5 exit strategy and repayment.
• Browse structured project information on EB-5 projects, keeping in mind that listings are not endorsements.
• Ask a qualified U.S. immigration attorney and a licensed securities professional, both independent of the offering, to review the documents. You can request a consultation to be connected with qualified professionals.