As I am regularly asked whether our product is approved as an EB-5 program, and because we at Carlton James have spent some time looking at different regional centers for purchase or joint ventures, I wanted to discuss EB-5 in this week’s blog. The official stand point on what an EB-5 program is, according to the United States Citizenship and Immigration Services (USCIS), is as follows:
U.S. Citizen Immigration Services is a government division that administers the EB-5 Program. Under this program, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they:
1. Make the necessary investment in a commercial enterprise in the United States, this is as little as $500k; and
2. Plan to create or preserve 10 permanent full-time jobs for qualified U.S. workers.
This program is known as EB-5 for the name of the employment-based fifth preference visa that participants receive.
Congress created the EB-5 Program in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. In 1992, Congress created the Immigrant Investor Program, also known as the Regional Center Program. This sets aside EB-5 visas for participants who invest in commercial enterprises associated with regional centers approved by USCIS based on proposals for promoting economic growth.
The long and the short of it is that EB-5 gives investors the opportunity to obtain a green card for themselves and their families to live, go to school, and work in the U.S. as citizens.
These programs can be invested in for as little as $500k. They do however come with some strict guidelines that the projects/companies that work with EB-5 should make investors aware of. For example, the investor must be invested for the whole period it takes to obtain the green card, which can take 5-7 years. The money must be at some risk and usually invested into companies or areas that require assistance or regeneration. The return to the investor is usually very low – a rate of 0.5% - 1% is normal.
These programs are not designed to make the investor money although I believe they should be. If they were designed correctly, you would attract a greater income for the country and help the economy.
The main issue with EB-5 is that the procedure for investing at $500k is conducted through regional centers. These centers have usually been set up by companies wishing to fund their own development projects or to work as an investment house for several small projects.
After spending time looking at a number of these centers (I am generalising for the purpose of this blog as the research is only limited to what I have actually seen personally) and speaking with brokers we deal with in China I conclude that these programs are some of the riskiest investments I have seen. One regional center paid their CEO over $600k from day one, before the center had even started to invest the money into projects. All in all, between the small team of that particular regional center the costs were close to $1.5m in the first year alone. This made me feel very uncomfortable. The investment also comes with fees for the investor over and above what we at Carlton James would see as palatable.
The worry for our Chinese brokers is that their clients could essentially lose everything with no recourse to the regional center. As the money invested needs to be at risk there is very little that investor can do if their funds are lost.
The above risks need to be mitigated somehow, because what you can receive investing in an EB-5 program can be great. If you are looking for U.S. citizenship this is a great way to obtain it.
First, you must investigate the regional center you are investing through. Is it one project the money will be spent on or multiple? Do they have a track record as a regional center? This is one of those times that the actual company themselves must have a track record, not just the primary individuals.
What are you getting for your money (I would advise to aim for shares in a U.S. company) and what clauses are there for transfer of assets from that company?
The main thing I would do is mitigate the capital risk. What I mean by this is if you have $1m USD, you could use $500k for EB-5 and invest the remaining $500k into a diverse portfolio of products that make up the balance over the 5-7 years. For instance, if you are able to obtain 17% per year on the remaining $500k, you would make $85k per year. Within six years you will have your full $1m back just in time for the maturity of your EB-5 program and the immigration process.
Like every investment out there EB-5 has its place. But you must conduct your due diligence. Be mindful of the agenda of others. Everyone must win in a product for the product to be hailed an economic and moral success.
To learn more about Carlton James and our investment strategy, please email us at firstname.lastname@example.org.
Simon Calton is Co-Founder and Chief Executive Officer of Carlton James (www.carltonjamesgroup.com), an investment firm that specializes in hospitality, property and technology.