In 2017, the EB-5 Reform Act was extended multiple times, maintaining the original investment amount. However, several proposals at that time mentioned increasing the investment amount. In the EB-5 industry, once the investment amount is raised, given that investors' investments are still at risk, they may incur greater losses. Therefore, more well-structured EB-5 projects are needed.
Is it important to choose a reputable large developer?
Scale may not be crucial, but experience is very important. Choosing an experienced developer is more critical. When considering risks, investors will want to see a developer's operational capability in their market—this can represent financial capability, but more importantly, it signifies experience.
Investors also need to understand that developing projects takes a significant amount of time. EB-5 investment is inexpensive, but financing is slow. While waiting for EB-5 financing, developers may need to bridge the gap or seek alternative funding sources.
What aspects should be considered when choosing a developer?
Providing funding for new developers is generally very difficult. Investors should choose developers who have previously succeeded in projects similar to the current financing project. They should select developers who are familiar with local contractors. They should choose developers who have completed projects of similar scale, can effectively coordinate with professionals from various industries in the market, and are satisfied with costs after project completion.
What position does EB-5 investment hold in the capital structure?
Some developers may wish to use EB-5 funds as part of equity. Developers may refer to it as mezzanine debt, but if EB-5 funds account for 90% to 98% of the funds needed by the developer, then it carries equity risk. Developers have an instinctive awareness to squeeze the position of EB-5 funds within the capital structure. However, compared to EB-5 occupying 65% to 80% of the capital structure as mezzanine financing, the effect of EB-5 occupying 8%, which means occupying 90% to 98% of the capital structure, is entirely different.
If developers use EB-5 financing as equity rather than mezzanine loans, the risk of loss for investors is greater: if there are losses, EB-5 investors will be the first victims.
Many EB-5 investors prefer that EB-5 funds occupy only a small portion of the capital structure. They do not view it as financing but focus solely on EB-5. These investors are more concerned about whether the project can be completed and whether it can create job opportunities to obtain a green card. Therefore, they believe that if EB-5 funds only account for 8%, the likelihood of the project obtaining full financing and completion is greater.