What an EB-5 project is: 7 criteria for choosing a safe and reputable EB-5 project

Choosing the right EB-5 project determines two important outcomes for investors: the chance of obtaining a United States green card and the chance of recovering the investment. A poor-quality EB-5 project can cost an investor both permanent resident status and the USD 800,000 put in. This article analyses what an EB-5 project is, the types of project on the market, and sets out 7 specific assessment criteria so investors can screen the risks for themselves before deciding.

What is an EB-5 project?

An EB-5 project is a New Commercial Enterprise (NCE) in the United States established or structured to receive investment capital from foreign investors under theVisa EB-5.

Under the official rules of theEB-5 Immigrant Investor programme run by USCIS, each investor invests a minimum of USD 800,000 in a project (where it lies in a targeted employment area) or USD 1,050,000 (for a project outside a TEA), and in return is considered for a 2-year conditional green card for the investor together with a spouse andunmarried children under 21.

The core condition for an EB-5 investor to have the conditions removed and receive a permanent green card is that the project must create or preserve at least 10 full-time jobs for United States workers per investment unit. This means that where a project raises capital from 50 investors, it must create at least 500 jobs. The jobs counted comprise direct, indirect and induced employment — depending on the project model and the economic analysis method.

An important point investors need to understand clearly: an EB-5 project is not a high-return investment like property or shares. The main aim of EB-5 investment is to obtain a lawful United States green card, with financial return a secondary consideration. Most EB-5 projects pay only a nominal 0.25% to 1% a year, and the investor’s main expectation is repayment of the capital in full after a holding period of around 5 to 7 years.

The types of EB-5 project on the market

There are two basic kinds of EB-5 project on the market: direct investment projects and projects through a Regional Center. Each has a different operating mechanism and level of risk.

Direct investment EB-5 projects

A direct investment project requires the investor to establish or acquire a commercial enterprise in the United States and to run and manage the business directly. This model requires the investor to create 10 direct jobs, meaning the investor’s own business must employ 10 full-time staff issued with a W-2. Indirect and induced jobs do not count in the direct investment model.

The advantage of the direct investment model is that the investor controls the business and can take the full profits from its operations. However, the risk is also very high because maintaining 10 full-time employees throughout the 2-year conditional period is a major challenge, particularly for small or newly established businesses. In addition, the investor must take part directly in managing the business — something not everyone has the expertise or the time to do.

EB-5 projects through a Regional Center

Most EB-5 investors today choose the Regional Center model — a regional centre designated byUnited States Citizenship and Immigration Services (USCIS)to sponsor EB-5 projects in a specific geographical area. In this model, the Regional Center acts as fund manager, pooling capital from several EB-5 investors and putting it into real economic development projects such as hotels, resorts, commercial buildings, infrastructure or other kinds of commercial property.

The greatest advantage of the Regional Center model is that the investor need not run a business, and may count direct, indirect and induced jobs through RIMS II or IMPLAN economic analysis. This makes it easier for large projects to meet thejob creationrequirement. On USCIS data, around 95% of EB-5 investors today go through a Regional Center rather than investing directly.

7 criteria for choosing a safe and reputable EB-5 project

Although investing through a Regional Center is regarded as safer than direct investment, investors must still screen each project carefully before deciding. Below are the 7 assessment criteria international EB-5 specialists commonly use.

1. The project has USCIS I-956F approval

Under the EB-5 Reform and Integrity Act 2022 (RIA), every EB-5 project through a Regional Center must file Form I-956F with USCIS for approval before taking capital from investors. Form I-956F demonstrates that the project fully complies with the EB-5 programme requirements, comprising the legal structure, business plan, economic analysis and capacity to create the required number of jobs.

A project with USCIS approvalI-956Fis of great value to investors because their ownI-526Eapplication will then be processed faster and with a higher approval rate. Investors should ask to see a copy of the I-956F approval letter from USCIS — including the approval date, the case number and the name of the sponsoring Regional Center. Where a project has no I-956F, the investor is betting entirely on the project being approved in future — a considerable risk to weigh.

2. Located in a targeted employment area (TEA)

TEA status directly affects the investment level and the chance of receiving a visa sooner. A project located in anEB-5 targeted employment area (TEA)requires only USD 800,000 instead of USD 1,050,000. At the same time, TEA projects have their own reserved visa quotas under the RIA — specifically 20% for rural areas, 10% for high unemployment areas and 2% for infrastructure.

The details of the reserved visa mechanism and the differences between the three kinds of TEA are analysed in the articleTEA areas in EB-5: reserved visas, rural TEA and high unemployment TEA.

Investors should ask to see the TEA Letter from an independent economic analysis firm — usually companies such as Vermilion Consulting, Impact DataSource or other reputable economic analysis firms. The TEA letter must be valid at the time the I-526E is filed and must show the project area meets the unemployment threshold — usually 150% of the national average.

3. A sound project capital structure

A project’s capital structure reveals a great deal about the level of risk the EB-5 investor bears. A project where EB-5 capital makes up too high a share — for example more than 40% of total project capital — means the project depends too heavily on money from foreign investors. Where not enough EB-5 capital is raised, the project may not be able to proceed and investors who have already paid will find their money frozen.

An ideal capital structure usually has EB-5 capital below 30% of the total, with the remainder coming from the developer’s own equity and commercial bank borrowing. A high equity share shows the developer has a real financial commitment to the project and is willing to take the first loss where something goes wrong. Commercial bank borrowing is also a good sign, because banks lend only after independently assessing the project’s viability.

4. An experienced developer and development team

The developer’s track record is an important indicator of whether the project will be completed on time and on budget. Investors should check the following about the developer:

• Years in the industry and the number of projects completed
• The total value of the projects developed
• Any history of failed, bankrupt or litigated projects
• The ownership structure and current financial position
• Standing in the property or hotel industry in the project’s market

The major developers in New York City, Los Angeles and Miami usually have a public record through large commercial property transactions that can be checked. Likewise, the project’s General Contractor should be screened for experience of building similar works. A contractor that has never built a 30-storey hotel carries a very high risk of delay and budget overrun.

5. The Regional Center’s track record

The Regional Center sponsoring a project is the fund manager and is responsible for EB-5 compliance. A reputable Regional Center will show the following indicators:

• Years in operation since USCIS designation
• The number of EB-5 projects successfully completed
• The number of investors approved on I-526/I-526E and I-829
• The record of repaying capital on time on previous projects
• No history of USCIS terminating its designation or imposing sanctions

Investors can look up the list of USCIS-approved Regional Centers and the list of terminated Regional Centers directly on the official USCIS website. Where a Regional Center has only 1 or 2 projects and was established within the past 2 years, the operational risk is considerable and investors need to be cautious.

The full criteria for assessing a Regional Center are set out in detail in the articleWhat an EB-5 Regional Center is: criteria for choosing a Regional Center.

6. A job analysis with a safety margin

The requirement to create 10 jobs per investment unit is the mandatory condition for an investor to receive a permanent green card through theI-829. The project therefore needs to create considerably more jobs than the minimum required — usually called the safety margin. Where a project creates exactly 500 jobs for 50 investors, even a small change in the analysis method could leave some investors without enough jobs to remove the conditions.

Quality EB-5 projects usually have a safety margin of at least 2 times — meaning they create double the jobs required. Some large projects have a margin of 3 to 4 times, protecting every investor even under a strict audit. Investors should ask to see the economic analysis report from an independent firm (usually Vermilion Consulting, Impact DataSource, or Evans, Carroll & Associates) and check the specific safety margin.

7. A clear and feasible exit strategy

Last but not least, the project must have a specific exit strategy for repaying the USD 800,000 to investors. The common exit strategies comprise:

• Refinancing the building once operations have stabilised
• Selling the asset to an institutional investor
• Recovering the loan from the JCE through operating cash flow

The exit strategy needs to rest on realistic, verifiable financial assumptions. For example, where the strategy is refinancing at 60% LTV on the stabilised asset value, an independent valuation report (usually by HVS, CBRE or JLL) must confirm that expected value is reasonable. The expected repayment timeline should be clear — usually 3 to 7 years after the project is completed.

The common risks in EB-5 investment and how to avoid them

A detailed article onthe risk of losing capital in an EB-5 investment.

Even having applied the 7 criteria above, investors still need to recognise the potential risks that may arise while the project operates.

The risk of the project not being completed on time

Delay is the most common problem in the United States construction industry, particularly for projects in the centre of major cities where there are many constraints on permits, planning and infrastructure. A delayed project may hold up job creation and affect the investor’s ability to remove the conditions. To reduce this risk, investors should favour projects close to completion or already open and operating — at which point construction risk has been removed entirely.

The risk of capital being frozen

Where a project fails to raise enough EB-5 capital to proceed, investors who have already paid may find their money frozen in an escrow account or within the NCE structure with no clear way out. Investors should read the Subscription Agreement and the Escrow Agreement carefully to understand the conditions for releasing the capital and for repayment where the project does not proceed.

The risk of the Regional Center’s designation being terminated

USCIS has the power to terminate a Regional Center’s designation where it finds a breach of the rules. When a Regional Center is terminated, investors who have invested in its projects may lose EB-5 status and have to find a way to transfer to another Regional Center or withdraw their capital. To reduce this risk, investors should choose a Regional Center with a long operating history and no signs of regulatory breach.

Summary

Choosing an EB-5 project is an important financial and immigration decision affecting the future of the investor’s whole family. No EB-5 project is entirely risk-free, but investors can reduce the risk considerably by applying the 7 assessment criteria: I-956F approved, located in a TEA, a sound capital structure, an experienced developer, a reputable Regional Center, a safe job margin and a feasible exit strategy.

Alongside the technical criteria, investors should also seek advice from an EB-5 specialist immigration lawyer and an investment specialist experienced in project screening. Reading and understanding an entire PPM (Private Placement Memorandum) running to hundreds of pages is not realistic for most investors, and a professional adviser can help avoid many hidden traps in the decision-making process.

Once the right project has been chosen, the next step is preparing the source of funds documentation — one of the most complex stages for Vietnamese investors, set out in detail in the articleProving the source of EB-5 funds (SOF) and the path of funds (POF) for Vietnamese investors.