Although an EB-5 investor is not required to use a USCIS-approved regional center as an investment intermediary, most investors do. Although it is possible to establish your own regional center, most investors use already established third-party regional centers. Investing in a third-party regional center is attractive to investors whose primary purpose in seeking EB-5 status is immigration, not the investment itself.
Advantages of Selecting a Regional Center
The advantages of using a third-party regional center include:
- Your responsibilities for day-to-day management of the investment project is greatly reduced, although you will have voting rights on certain matters;
- You can count indirect jobs and induced jobs towards the USCIS requirement that your investment generates at least 10 full-time jobs;
- The regional center can help you with some of your immigration paperwork;
- Regional center investments tend to be safe, although rates of return are far from spectacular;
- Regional centers offer a wide variety of investment choices; and
- You don’t have to spend as much time setting up a business as you would if you established your own commercial enterprise.
Evaluating a Regional Center
Although all regional centers that offer EB-5 benefits have been approved by the USCIS (nearly 800 in total), not all regional centers are the same. In other words, some are better than others, and it pays to research a particular regional center before selecting it as your investment vehicle. Following are some of the most important considerations.
Termination
Make sure the regional center you are considering has not been terminated by the USCIS. The USCIS frequently terminates substandard regional centers.
I-829 Approval Rate
After filing Form I-526, you will receive a “green card” that is valid for only two years. If you wish to obtain true permanent residence, you will have to file Form I-829 two years later, and the USCIS will have to approve it.
The USCIS will evaluate the performance of your investment during those two years, particularly in terms of the number of jobs created, and it will approve or deny your I-829 application on that basis.
When making its decision, the USCIS will rely heavily on information provided by the regional center. It is for this reason that you need to find out the I-829 approval rate of the particular regional center you are considering investing in. If the rejection rate is high, the center may have a problem generating jobs through EB-5 investments.
Is the Regional Center Located in a TEA?
A TEA, or Targeted Employment Area, is a rural area or an area that has been designated by the government as an area of high unemployment. If you invest in a TEA, the minimum investment is only $900,000, only half of the $1.8 million required for investment outside of a TEA.
If you prefer to invest the lower amount, your regional center project will have to be located inside of a USCIS-designated TEA. Confirm this is the case before you invest.
Handling of Investment Funds
The regional center you select should offer a written guarantee that they will return your investment funds if the USCIS denies your I-526 petition, and they should place your investment in escrow pending USCIS approval of your I-526.
The USCIS will accept your investment as having already been made if it has been placed in an escrow account by a regional center.
Transparency
Every dime of your investment must be “at risk” for you to qualify for EB-5 status — which means that theoretically you could lose it all (most investors don’t). Even if your primary purpose in seeking EB-5 status is immigration rather than profits, you still don’t want to waste your money.
The regional center should explain clearly, using written documentation that is binding on the center:
- The details of how your money will be managed;
- Your legal obligations;
- Your financial obligations;
- The costs of administration; and
- All other expenses.
Have your immigration attorney check over this documentation before you invest.
Rate of Return (ROI)
Rates of return on investment in a regional center are typically low — sometimes as low as two or three percent per year, or even lower. Rates of return in TEA projects tend to be particularly low, due to the lack of vibrancy in the economies in which such projects are located. Compare regional centers with each other in terms of ROI.
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).
Overview
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.
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.