Investors know that the right project structure is essential to
immigration success, and now evaluate:
Escrow use and structure.
In the past, simply using an escrow for subscription funds may
have been enough to reassure investors.
But as early-release escrows have become commonplace,
investors now look for structures that retain a portion of
investor funds in escrow to repay investors if their I-526 petition is denied after funds have been released into the project.
Moreover, if the holdback structure is not in compliance with
immigration requirements, I-526 or I-829 petitions associated
with the project risk being denied.
Capital stack interdependencies.
All projects need to have a firm capital stack in place. Some
have not yet identified a senior lender, or must meet additional
conditions before identified sources of funds are committed. For
investors, confirming that the project has the financial resources
to be completed is critical to making an investment decision.
In these cases investors look for alignment between EB-5
escrow terms and senior loan requirements. If there is a clear
reason EB-5 capital must be released from escrow before the
senior loan is required to meet any thresholds, it’s important to
carefully track the use of those funds.
Construction draw schedule and controls.
After the release of funds from escrow, projects should have
third party controls in place to monitor the movement of
funds and ensure capital is released to legitimate job creating
expenditures outlined in the project’s offering documents.
For the immigration process to be successful, the project
must document that funds have been deployed in accordance
with the job creation plan approved for the project.
Investors are becoming more and more aware that without
these controls, funds are vulnerable to mismanagement or
misuse, particularly if the job creating project and New
Commercial Enterprise are controlled by the same entities.
It’s important to have easy-to-identify safeguards against
misuse of funds built into a project throughout the EB-5
process to appeal to potential investors.
These safeguards include:
Funds security.
The right solution both protects against mismanagement of
funds and meets immigration requirements. While a subscription escrow, third party controls, and ongoing transparency
protect investors against improper use of funds, all should be
informed by the right immigration compliance expertise to
help ensure the immigration process is successful.
Immigration reporting capability.
Automated tracking and reporting helps reassure investors that
their issuer has the information necessary for investors to successfully achieve unconditional permanent residency. Working
with an immigration attorney experienced in EB-5 provides
additional assurance that a project’s tracking and reporting will
support successful I-526 and I-829 filing for its investors.
“Automated tracking and reporting
helps reassure investors that their
issuer has the information necessary
to help investors successfully achieve
unconditional permanent residency.”
Third party administration.
To determine the viability of a project’s escrow structure, investors look for projects working with an established EB-5 escrow
and fund administrator. An escrow and fund administrator
not only helps the issuer work with the escrow agent to ensure
the right escrow structure, but also tracks and maintains a
comprehensive audit trail of the flow of funds in a manner that
is compliant with USCIS requirements.
Investment transparency.
To be sure funds are managed correctly, investors look for an
EB-5 solution that provides real-time account information
to investors and issuers, allowing visibility into the location
and use of funds. Projects which provide investors with the
ability to track the flow of funds from escrow into job creation
and ultimately back after the I-829 provide the investor an
additional level of confidence in the project’s viability.
Investor repayment and exit strategy.
With lengthening I-526 and I-829 processing times and a visa
availability cutoff date in place for investors born in mainland
China, it’s important to have clear plans for investor repayment,
including measures to keep invested funds compliant with EB-5
requirements until green card conditions are removed. Use of a
third party EB-5 fund administrator helps ensure funds remain
in compliance throughout the project lifecycle. In projects
us ing the debt model, it is also critical to make sure there are
third party controls in place to safeguard against misuse of
funds particularly if the same parties control both the New
Commercial Enterprise and the Job Creating Entity.
Use of a third party administrator throughout the EB-5
project’s lifecycle ensures funds are properly managed, protects
issuers against allegation of fraud, simplifies financial administration, and reassures investors that their investment is secure.
Project Issuers should also consider engaging in a
Compliance Review. The objective of this review would be to
uncover potential areas of exposure, and make recommendations on how they could be addressed.
The typical process for an audit review would include:
Training of regional center or project staff on what
documents and information to retain.
Ensuring compliance requires a working knowledge of what
kinds of documents and information need to be kept, and how
to organize and present them. An investor’s I-829 approval
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