Many people wrongly assume that the EB-5 Regional Center program is only feasible for real estate developments. While it is true that the majority of Regional Center projects have been real estate developments, the program has also been successfully used to raise EB-5 capital for projects in diverse industries such as biotech, manufacturing, clean energy, and franchises. This article examines the various ways, outside of the real-estate-development context, that an EB-5 Regional Center can be structured. The EB-5 Visa category allows a foreign investor to become a permanent resident in the United States if they invest either $500,000 or $1,000,000 and meet other requirements. A Regional Center is an entity approved by USCIS that is established to develop a commercial enterprise using EB-5 capital.
The EB-5 Regional Center can also be structured to function as a holding company or a mutual fund, enabling the deployment of funds across many projects and even the reinvestment of funds from one project to another. These structures are typically used by those in the financial services industry. As discussed below, the only issue to keep in mind is the ability to track job creation to each investor. Notwithstanding that, there is virtually no limitations on the structure of the Regional Center and the industry or project it is used for.
At the outset, no matter what structure is used, the basic requirements of a Regional Center and EB-5 Investment must be met (e.g., 500K or $1MM minimum per investor, 10 jobs per investor, etc.) The benefit of using a Regional Center is the ability to meet the jobs requirement through not only direct (i.e., W-2) jobs, but also indirect and induced jobs, using an econometric forecast analysis. This allows a prospective Regional Center flexibility in meeting that requirement.
In terms of structuring the Regional Center, it can be structured several ways. First, it is possible to structure the Regional Center as a holding company, where the business plan would provide for investments in multiple job-creating businesses over time. That structure would be allowed under current USCIS regulations and would also allow the commercial enterprise (the holding company) to move money from one job-creating business to another. The key here is the business plan submitted to USCIS – it must sufficiently detail the proposed multiple investment activities and specifically provide for investments in multiple job-creating businesses over time. The business plan must also demonstrate that the requisite jobs will be created through the succession of capital investments through the holding company.
Second, in the EB-5 Regional Center context, a “fund of funds” (mutual fund) model may be feasible where the EB-5 money is invested and disbursed across a number of projects. In that structure, the business plan and documentation must be able to adequately track each individual EB-5 investor’s capital investment into the commercial enterprise (the fund) and then into the job-creating investment projects. This is necessary because USCIS must be able to make a determination as to whether each alien’s investment was sustained and to determine the allocation of jobs among the multiple EB-5 investors.
Finally, a private equity strategy is also an acceptable fund structure, but, again, USCIS advises that the level of complexity needs to be well documented to include easily recognizable job creation estimates.
In any of these models, it is important to note that the start-up expenses incurred in establishing a holding company or mutual fund that will not create jobs but will rather invest in other entities that will create jobs for U.S. workers cannot be counted in determining whether the investor has made the minimum investment. However, as with the case with any Regional Center structure, administrative fees that may be charged to each investor, which are in addition of the minimum investment, may be used to recoup start-up expenses and operating costs. These fees typically range from 35,000 to 65,000.
These are just a few of the different ways a Regional Center could be structured in order to make it feasible for use in various, non-real estate, industries. The level of complexity is only limited by the project’s ability to track job creation to each investor throughout the period required by USCIS.
The EB-5 Regional Center program is a very attractive option to raise capital after, of course, determining the feasibility of the underlying project. Past regional centers have raised anywhere from $1,000,000 to almost $300,000,000 in EB-5 Funds.
Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice. The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.
Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Division as well as the Islamic Finance Committee of the American Bar Association’s International Law Section. Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years. Wassem currently focuses his practice on Corporate Law and International Business Transactions. For more information, please visit the About Us page or request more information on our Contact Us page.