Foreign investors have an important choice to make when it comes to selecting an EB-5 investment opportunity. The 5 primary investment choices are:
- EB-5 Immigrant Investment Regional Center (RC)
- Direct investment in the relocation or expansion of their own existing foreign business;
- Direct investment in the creation of a new start-up business of their own concept;
- Direct investment in a new U.S. business; or
- Direct investment in an existing, “troubled” U.S. business
The following factors–in priority order–should be weighed in the decision about which of the above types of investment to make:
How many direct, permanent, full-time jobs will be created by the company or project?
The ability of the investor and his/her family to remove the conditions from their visas, remain in the U.S., and naturalize as citizens (if desired) is completely dependent upon the satisfaction of the EB-5 program’s employment requirements. While RCs have the pre-approved luxury of counting indirect and induced job creation to facilitate satisfying the requirements, those jobs are computed based on the number of direct jobs that the commercial enterprise is forecast to create. Therefore, the key to arriving at a successful total jobs number is an abundance of direct jobs—without which, there are no jobs to which to apply the multipliers.
Direct EB-5 investment—in choices B-E above—requires that all qualifying jobs be direct employees of the commercial enterprise. In the case of B and C, jobs held by the investor, a spouse, and any other family members will not count toward the required 10 full-time jobs per investor. Job creation gets much harder to achieve and to sustain in a direct investment if the project requires more than 10 investors. If a project or a company does not have at least a 10 percent “cushion” of extra projected jobs, or if there is any doubt that the jobs will be created, the investor should stay well away from the project or company.
What is the likelihood the investor will get his/her money back? Investors will likely be concerned about the perceived safety of their invested principal—as all investors are—and they will want to evaluate the efficacy of the business. However this evaluation should be of secondary importance to job creation simply because if the jobs aren’t created, then the time and money of the investor will have been wasted anyway.
How much managerial control is the investor comfortable either having, or not having?
Control is a double-edged sword. Generally speaking, the more managerial control that an investor has, the greater the risk they must absorb. If an investor is comfortable with risk—perhaps because they are extremely familiar with the invested industry—then direct investment will likely be attractive, because the investor will have significant input into deciding how his/her investment is deployed.
If on the other hand, the investor is completely unfamiliar with the industry and must rely on the managers of the project or company as industry experts, then that investor may be attracted to a regional center investment–where he/she might have very little managerial influence, but where the risk will be shared with more knowledgeable domestic partners and many other EB-5 investors.
How confident will the investor be about starting and operating a business in a new place with new rules and seasoned competitors? EB-5 investors contemplating relocating or launching a business of their own in the U.S. should consider carefully how difficult it may be to enter a new market with perhaps limited language skills, no local partner or supply-chain relationships, and limited understanding of business in a new country. Seasoned entrepreneurs with international experience may face these challenges with confidence, while others may prefer to invest in RCs or existing U.S. enterprises.
How attractive is the potential return on the investment (ROI)? Investors may be surprised to see this criterion prioritized fifth. EB-5 investors should remember that the attraction of creating these investment opportunities from the U.S. perspective is that the commercial enterprise can leverage the permanent resident visa and preferred return of principal to enhance the value of the opportunity in the investors’ eyes, and decrease what it costs the company to attract and deploy invested capital. Therefore, investors should consider the value of permanent residency in the U.S. and in some cases, the premium value of preferred distributions when evaluation EB-5 opportunities. There will be few opportunities with large projected ROIs. However, as the EB-5 landscape has become more competitive, RCs, projects, and companies have had to offer higher returns to differentiate their offerings.