An EB-5 regional center is an organization designated by the US Citizenship and Immigration Services (USCIS) to absorb investments by EB-5 investors seeking permanent residence in the United States through investment. Investing in a regional center is one of two ways that an investor can gain permanent residence in the US through the EB-5 investment program (the other way is through direct investment in a new commercial enterprise).
At present the USCIS has designated nearly 800 regional centers throughout the US. Most of these regional centers are located in Targeted Employment Areas (TEAs), which are rural areas or areas of high unemployment that could benefit most from investment. The regional center will distribute the investor’s capital in a manner determined by the center itself, while the investor’s role is restricted to something like a limited partner’s role.
The purpose of regional centers is (i) to create jobs in the local economy and (ii) to make it easier for EB-5 investors to qualify for permanent residence and to profit from their investment. Regional centers can be public or private entities. Since the EB-5 program requires the investment to create 10 full-time jobs, a regional center will assist the investor by creating jobs indirectly through the investment process.
The regional center will establish an investment fund for the various EB-5 investors that have selected it, and these investors then purchase equity in the investment fund. At that point, the fund will purchase equity in a project (a hotel construction project, for example) or loan funds to the project.
The project can use its equity or loan funds to create jobs indirectly — by hiring new employees, for example. These jobs will be credited to the investors job-creation requirement for EB-5 immigration purposes. An “induced job”, created in the community at large when employees of the project spend their income in the community, also counts toward the 10-job requirement.
Although these investments are typically conservative, there is no guaranteed return on investment, and the investment could fail. Indeed, a failsafe investment would not qualify the investor for EB-5 immigration status, since all invested capital must be “at risk.”
Pros and Cons of a Regional Center Investment
Following are some of the major advantages and disadvantages of investing in a regional center as opposed to investing in a new commercial enterprise:
Since most regional centers are located within Targeted Employment Areas (TEAs), and since the minimum investment into a TEA of only $900,000 is much lower than the minimum investment into a non-TEA of $1.8 million, using a regional center can assist investors who wish to limit the amount of their investment without going through the trouble of locating a TEA and proving to the USCIS that it qualifies as one.
An investor can meet the EB-5 10-job requirement through indirect jobs and induced jobs rather than by directly hiring 10 new employees.
Regional centers have access to pooled capital and rich experience in the investment areas of their expertise, which can be invaluable to an investor who lacks financial resources or intimate familiarity with the US market.
Regional center investors are passive investors, which means that you will not be burdened with the day-to-day decisions of the business, although you will have voting rights on major management decisions.Of course, depending on your goals, you may or may not consider this a positive factor. Many investors find this setup ideal, however.
Most regional centers are located within TEAs, and TEAs tend to be economically weak areas (which is exactly why they are targeted for investment). This means that economic risk could be higher and return on investment could be lower that an investment into an economically stronger area. If you are willing to invest the $1.8 million minimum into a non-TEA project, you might prefer direct investment over investing in a regional center.
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