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The Importance of Financial Due Diligence Before Investment in an EB-5 Project

If you are looking for ways to immigrate to the United States, you have probably explored a variety of possible ways to make that a reality. And if you have money to invest, you might be interested in looking at some of the companies who are actively looking for international investments leading to EB-5 immigrant visas and permanent residency in the U.S.

It is in your best interest to do conduct thorough due diligence before investing in a project offering permanent residence under the U.S. immigrant investment program. The due diligence required before making an EB-5 investment can be viewed as consisting of the analysis of two types of risk - immigration risk and financial risk. In this post, we will address briefly that types of issues that should be analyzed prior to investing in an EB-5 enterprise.

What does financial due diligence entail?

Focusing on the financial side, some of the things anyone considering an investment in an EB-5 project should analyze include:

  • Deal Documents: Document to review include the private placement memorandum, operating agreement or limited partnership agreement, escrow agreement, subscription agreement, business plan, significant third-party service contracts, market feasibility studies, appraisals, loan and equity commitment letters from non-EB-5 capital sources, site control documents, construction cash schedules and revenue and expenses.
  • Investor Protections: For construction projects, you should ask if the managers negotiated a maximum price contract and if there is a contractor completion guaranteed. Is there an escrow agreement? What are the terms for release of funds from escrow? Are there provisions for 3rd party financial oversight similar to bank administration of construction loans?
  • Ownership and distribution of shares. Do the founders of the company hold a major equity position in the project so that they share in the financial risk? Do the top managers have a vested interest in the performance of the company?
  • Background of Project Managers. For the people that have access to investor funds, you should perform background checks, looking at their employment history, past litigation, bankruptcies, regulatory violations, sanctions or criminal proceedings. The background check is a private investigation into someone's life and it should be performed by a reputable firm.
  • Prior Projects. You should investigate how the company's previous projects have performed over time. While past performance is not a guarantee of future success, past failures could indicate increased risk.

In the EB-5 context, successfully attaining your immigration goals depends, in a large part, on the success of the project company in implementing its business plan. Therefore, a careful investor will want to do everything possible to make a wise investment decision.

The Law Offices of Robert P. Gaffney can offer guidance throughout the immigration process. However, since we are NOT financial advisors, we encourage our clients to work with licensed financial advisors familiar with EB-5 projects in conducting due diligence prior to making their investments. Reach out to our offices for assistance in finding a financial professional who knows the EB-5 landscape.

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