EB5 Investors Magazine Volume 3 Issue 3 | Page 99

of having an institutional lender involved in the process is they will likely want to have oversight over the funds as soon as they are released to the NCE. They may even require that the funds are transferred to an account held by a title company or at their financial institution until the draws are processed and funds are ready to be leant to the JCE. local news articles for information about the project. If your client is ready to move forward with a project, it may be worth a site visit. Steer clear of groups that deter stakeholders from site visits. With today’s technology, many groups also provide a live web-cam of the project as it unfolds. This can be a great source of real time data without the travel expense. Completion Guarantee Disbursement Agreement Most EB-5 transactions are real estate construction based. Multi-party construction projects have a disbursing agreement in place at closing that documents how each party in the deal must verify, approve, and authorize expenditures before disbursement. This agreement should indicate how loan proceeds, EB-5 funds, and investor equity are disbursed throughout the construction period. Typically, the lender, owner, developer, NCE, general contractor and title company are all parties to the agreement. Most third party lenders require a personal completion guarantee from the developer, ownership group, or general contractor that the project will be completed regardless of final costs. This completion guarantee gives comfort that the project will be completed and the JCE will open for business creating (hopefully) all of the jobs needed to meet the 10 job per investor requirement. ADVISORS Accounting Title Company The title company ensures there are no liens, claims, or ownership disputes on the property other than the liens placed by the first mortgage lender. In order to monitor this, the title company requires all expenditures to be funded through a title company. This third party procedure carefully documents expenditures and ensures that no funds are misappropriated by the owner, developer, sub-contractor and general contractor during this stage of the process. The title company receives a lien waiver from each contractor, confirming payment for work performed and waiving the right to put a lien on the property. Construction Review An institutional lender will often also require a third party review architect to verify the monthly construction draws from commencement through completion. The review architect will audit charges for non-allowable costs and prevent failure to deliver items within the contracted scope. If the review detects possible sources of fraud, the institutional lender should not fund until they have resolved all material issues. Government Tax Credits or Grants If the federal, state or local government has funds in the structure, they are likely conducting an audit to verify expenditures. In addition, most institutional investors in tax credits require audited cost certificates or a third party audit verifying that project funds were spent on qualified project expenditures. In a tax credit investment, the developer typically personally guarantees that the funds were spent on the project, creating tangible accountability. Visual Confirmation Visual confirmation is the easiest detection measure. Research Identify which third party accounting firm the fund manager has hired and the main account manager. A third party review of the financial performance of the fund manager will help to reveal mismanagement and internal controls deficiencies. Attorney Avoid inherent conflicts of interest by always using a third party attorney that is not related to the manager, regional center, or the project, for all due diligence and related legal services. Select a Regional Center Fund Manager who uses an experienced attorney for their I-829 template. If the NCE Fund Manager is using the cheapest option or hasn’t given any thought to counsel, they likely have given limited consideration to immigration compliance. Due diligence should include a close examination of the attorney’s track record, since a good attorney will not have knowingly taken on a bad project. Final Thought While you may think you have considered all possible factors which would confirm a solid investment make sure you revisit all of the due diligence. The importance of thoughtful review cannot be overstated. ★ Robert Kraft is Chairman, President, and CEO of FirstPathway Partners, a firm managing investment funds within the EB-5 Regional Center Program. Kraft is an active member of the IIUSA President’s Advisory Council and serves on numerous Boards, including IIUSA, Metropolitan Milwaukee Association of Commerce World Trade Association, and Co-Chair of the China Council. Kraft has been involved in the EB-5 industry since 2006. He has been featured on television, radio, and in newspapers internationally. Robert Kraft WWW.EB5INVESTORS.COM 97