Why Develop Through an EB-5 Regional Center?
An increasing number of developers have begun to rely on the EB-5 program to raise capital for their projects. Of the two investment models available (direct investment and regional center investment), the regional center is more frequently employed because it offers a broader view of economic impact, leading to higher job creation numbers and a larger amount of EB-5 capital from more investors.
Once the decision is made to raise capital through a regional center, the developer must choose whether to rent/affiliate with a regional center or to form a new regional center.
Choosing Whether to Rent or Form a Regional Center
As with any business endeavor, the two most important concerns for any developer exploring the option of setting up a new EB-5 regional center are time and money.
To obtain approval as a regional center from U.S. Citizenship and Immigration Services (USCIS), it’s necessary to submit form I-924, the Application for Regional Center. Developers must decide whether they’re prepared to wait through the typical processing time. Not only does it often take months to compile the legal and financial documentation that accompanies the application, the petitioner may wait over a year to receive USCIS approval.
Regarding the financial aspect of forming a regional center, the cost of filing Form I-924 is $6,230. The more substantial costs stem from the aforementioned meticulous documentation,which requires assistance from economists, business plan writers, attorneys, and other experts.These costs can be an obstacle for some developers.
A developer can avoid both of these constraints, but still take advantage of a regional center’s amenities, by affiliating with a regional center.
Developers who have chosen to rent a regional center will need to perform thorough due diligence on regional centers that are candidates for their project and make sure the terms are clear before signing on the dotted line.
Finding a Regional Center for Your Project
A simple way to determine whether a specific regional center is a good fit for your project is to request a copy of its USCIS designation letter, which lists the regional center’s USCIS-approved geographic scope and its industries of focus.
Click here to see the geographic areas covered by each of the 15 USCIS-approved EB5 Affiliate Network regional centers.
Due DiligenceIs Key to Success
After finding an appropriate regional center for the project, the developer should exhaustively research the center to ensure it’s reputable, professionally operated, properly insured, and has a history of successfully completed projects.
Regional centers risk losing USCIS designation if they fail to comply with the numerous state and federal laws that regulate them. Developers should ask how they maintain compliance and confirm their I-924 approval is up to date.
For both investors and project developers, it’s ideal to partner with a regional center whose interests are closely aligned with their own. In an optimal arrangement, the regional center also sponsors its own EB-5 projects and is motivated to maintain USCIS compliance because failing to do so would throw a wrench in both its own projects and those of its affiliates. Regional centers that function merely as “rent-a-centers” are less driven to ensure success, and those who have suffered I-526 or I-829 application denials should be asked for an explanation.
Here are some key considerations for developers performing due diligence:
- Is the regional center currently designated by USCIS (I-924 approved)?
- Are the owners/operators qualified and experienced?
- Is there any current or pending litigation against the regional center?
- What kinds of projects does the regional center offer, and have they been successful?
- How does the regional center ensure compliance while sponsoring projects?
When the developer has settled on a qualified regional center, the next step is to gain a clear understanding of the terms of affiliation.
Contract Terms to Consider
Cost – Developers who rent a regional center are typically seeking to minimize costs and maximize profit. Substantial upfront fees or regional center equity in the project can render it unprofitable.The best way to proceed is to perform a thorough cost-benefit analysis and obtain answers to these questions:
- What is the cost of renting the regional center?
- Are there upfront fees?
- Is there a fee per EB-5 investor?
- Does the regional center require equity in the project?
- Does the regional center require a certain amount of job cushion?
Obligations– Developers need to understand the division of responsibility before they sign the rental contract, including asking these questions:
- Will the regional center manage the funding?
- Who should handle the necessary documentation for the project?
Oversight– Developers should seek information about the regional center’s level of oversight since it’s an indicator of its dedication to compliance.
Competition– Developers should learn about the regional center’s other sponsored projects in its geographic coverage area. Two similar projects in the same area may be competitors.
Indemnification– Developers should make sure they’re protected from past liability in the language of the rental agreement.
Signing the EB-5 Regional Center Rental Contract
The rental agreement is commonly structured as a licensing or sponsorship agreement. Developers should verify that their interests are served and that the agreement clearly conveys the terms to which they’ve agreed.A contract will be drafted and signed after both parties have given their approval. Such a contract with a USCIS-approved EB-5 regional center can make all the difference for developers pursuing efficient funding and completion of an EB-5 project.
If you’re considering EB-5 regional center affiliation and you’d like to learn more, contact EB5 Economist at (800) 775-1988