A Regional Center that works with an experienced third-party fund administrator can provide investors with the transparency they need to feel comfortable in their choice of investment project.
At JTC and CanAm Enterprises’ January 2025 webinar, the topic was EB-5 Investor Due Diligence: Finding the Right Project for Immigration Success. The event featured a panel of experts who had all contributed to our white paper on the subject. While the panelists came from different corners of the industry, there were shared sentiments on many topics, like just how big of a decision investors face when selecting a Regional Center and investment project, and how daunting the due diligence process can seem.
“We know that there is a lot out there in terms of EB-5 101 and checklists that, to be honest, tend to sometimes oversimplify what can be a very important investment decision and really a decision for planning your lives,” said Christine Chen, Chief Operating Officer at CanAm Enterprises and moderator for the event. “Our goal as a group, knowing that our EB-5 investors are sophisticated and savvy, is to elevate the discussion to that level.”
“How is one investor supposed to even dive into all these documents?” asked Irina Rostova, Founding Partner at EB-5 Support. “Many of them don’t speak English well enough; they don’t understand the legal requirements. They’re not professional investors.”
The panelists agreed that investors need all the help they can get, including competent legal advice and a thorough understanding of EB-5 from both an immigration perspective and an investing perspective. One thing investors might not realize is the importance of quality service providers – not just their own, but their Regional Center’s.
“You want a Regional Center that, in turn, is working with best of breed service providers, meaning top-notch immigration counsel, securities counsel, economists, fund administrator, etc.” said Sebastian Stubbe, Managing Director & CEO of Pine State Regional Center. Understanding the role of a fund administrator can help investors feel more confident in their choice of Regional Center and investment project.
What exactly is a fund administrator in EB-5?
As the panelists noted, EB-5 investors are at a disadvantage because of things like language barriers and a lack of knowledge about the regions or industries where EB-5 projects are happening. In the past, this led to some cases of fraud within the program.
“EB-5, as an industry, didn’t really have a lot of required regulation,” said JTC Head of Specialty Administration & General Counsel USA Jill Jones.
The EB-5 Reform and Integrity Act of 2022 (RIA) introduced new integrity measures to cut down on fraud and provide protections for investors who put their capital into these projects in good faith.
One of the RIA’s requirements was the mandatory use of a third-party fund administrator. While the term “fund administration” may not be familiar to those who aren’t in the investing world, fund admins are a common way for different types of funds (hedge, private equity, debt, real estate, and others) to outsource certain functions. Though some processes are similar to traditional funds, EB-5 fund administrators are required to perform tasks specific to the program.
“Typical private equity fund administrators might not have the technology or the knowledge of the immigration components that they need to be keeping in those books,” said Jones.
It’s possible for Regional Centers to forego fund administration if they perform annual audits, and some investors may not like the idea of involving a third party, especially if the cost of this fund administrator is passed on to them. Regional Centers may opt to perform an annual audit instead in order to move faster and cut down on costs.
“One of the challenges fund administrators have is a reputation of slowing things down or getting in the way,” said Jones. “And to that, I say, make sure that you’re choosing someone who’s experienced and they know what to look for. That really does cut down on the timing.”
If the choice of whether to go with a budget bare-bones fund admin solution (or none at all) rests with the Regional Center, should investors care? The reality is that, whether or not a project uses a third-party fund administrator can greatly affect investors, which is why EB-5 investors should understand how a good fund administration solution can improve their experience as they seek to fulfill their immigration requirements.
How fund administration aligns with EB-5 investor goals
There are three major requirements of an EB-5 petition:
- An investment of at least $1,050,000 ($800,000 if in a reserved category) must be put at risk.
- The investment must be sustained for at least two years from the time the funds are made available to the job-creating entity (JCE).
- The investment must be used to create at least ten full-time jobs.
The “at risk” component is important because it means you can’t simply give money to a developer who leaves it in the bank for two years and then returns it to you – there has to be the possibility for loss or gain.
“Any guarantees between the NCE and the investors are obviously not allowed,” said Walter S. Gindin, General Counsel, CanAm Enterprises.
The possibility of losing your invested capital is why investors need to evaluate EB-5 projects as investments in addition to their ability to meet other EB-5 requirements.
“You need to have a real investment that has to create jobs,” said Suzanne Lazicki, President of Lucid Professional Writing. “And so you want to think separately, is this a real investment? Is this really going to create jobs?’”
While budget fund administrators may fulfill the minimum requirements set forth by the RIA, we at JTC go beyond the minimum and offer additional services that can help protect an investor’s funds. EB-5 investors often have to make multiple transfers of funds from different sources abroad, dealing with currency exchange and remittance restrictions. Where is that money going to be held? And if the project is unable to go forward, how can you get your money back?
JTC can act as both escrow agent and escrow administrator, working with our network of banks to deposit investor funds until they are ready to be deployed to the project. Our flexible banking solution offers full FDIC insurance protection, so there’s no danger of funds being lost due to an issue at the bank. That’s one way projects that work with JTC are different – we get involved early on in the process so investors can feel secure as they make a major commitment.
Once the invested capital is made available to the JCE, it must remain at risk for at least two years. But as the panelists explained, that doesn’t necessarily mean that you’ll get your money back after two years.
“Law and policy set a minimum acceptable time, but no maximum,” said Lazicki. “A real investment that creates jobs is probably going to be using the money longer than two years in order to do that.”
Investors can elect to go with a project that promises to return their capital as quickly as possible, or go with a more traditional investment with a 4-7 year timeline; it all depends on what level of risk you’re willing to tolerate. For the investor’s EB-5 petition, what matters is being able to prove that the investment was indeed sustained for two years.
“The thing that I would be saying is, when is my money going to be spent?” said Joey Barnett, Partner at WR Immigration. Until the money is deployed to the JCE, the sustainment period can’t begin. This is another reason why having a fund administrator like JTC can be helpful for investors – since we can act as cosignatory on all movement of funds from the new commercial enterprise (NCE) to the JCE, we can provide the necessary proof of when the funds were made available and when they were spent during the course of the project.
“The program is all about jobs,” said Gindin. “Spending has to occur in order for the jobs to be created. If the project is not moving forward or will be unable to create the requisite jobs, investors will have to find another project that can fulfill their requirements, and every day they wait prolongs the time until they can achieve permanent residency.”
“Jobs that are counted in the Regional Center context, generally, they’re calculated based on development expenditures, particularly construction expenditures, and then operating revenue. So those are the inputs that go into the job model that spit out a certain number of jobs,” said Lazicki.
With large-scale projects involving many EB-5 investors, a lot of jobs have to be created, and a fund administrator like JTC can help investors know their current status. We monitor project progress and can provide updated job creation numbers through our secure online portal, which gives investors 24/7 access to information about their investments.
By allowing investors secure access to this information, JTC provides transparency and reassurance that the project is progressing properly in accordance with the offering documents. As cosignatory, we can ensure funds are released to the JCE when they are supposed to be, and not sent anywhere else. And by keeping records in accordance with the RIA, this information can be made available to investors when they need it.
Fund administration can help investors feel secure in the knowledge that their money is being handled and spent properly. But projects don’t always go to plan, and that’s when those that work with a reputable fund administrator have a major leg up.
What can go wrong in EB-5 projects
Even with a competent Regional Center and experienced fund administrator, unexpected issues can arise. One of these issues is that the project is unable to secure enough financing, and is therefore unable to be finished.
“It seems that by far the most common reason for project-related denials ends up being that the project just never got started,” said Lazicki. “If it can’t get going, it’s not going to have the expenditures and the revenue that lead to job creation.”
If the project is not moving forward, or will be unable to create the requisite jobs, investors will have to find another project that can fulfill their requirements, and every day they wait, prolongs the time until they can achieve permanent residency. If the project works with JTC’s escrow and banking solution, we can help the investors get their capital back so it can be redeployed into a new project.
“The predominant job risk is that the project just doesn’t get off the ground and/or never finishes,” said Stubbe. “But there’s also job risk in a project changing.”
It may be that the project gets off the ground, but unforeseen circumstances (like, say, a global pandemic) change the project timeline or its ability to create jobs.
“Over the past few years, we’ve seen cost of goods go up, cost of labor go up. And when you are filing an immigration petition before a project even starts, you’re giving it your best guess, but there are socioeconomic factors that come into play, and you have to be able to work around them,” said Jones.
“What’s going to stop them from making changes during the life of the project that USCIS is going to consider material?” added Rostova. “We wanted to build a five-star resort, but it doesn’t make sense anymore to build the five-star resort. We’re switching to a three-star hotel. We’re going to make more money. This is a great business decision. All investors should be happy. The problem is, you just cut down on service jobs, materials, and expenses, and that’s going to impact the job creation, affect our investors.”
This type of situation – a material change in the project – is a time when fund administration shows its value. If the developers aren’t communicating properly with investors, they might not realize this is happening or how it affects them, and a yearly audit won’t catch issues until it’s too late to do anything about it. But a fund administrator will be able to update the job creation projections and get that information to investors.
This is also true in a foreclosure situation. If the project goes bankrupt, how can investors get their money back if they don’t know where it is? And how can they use the already-created jobs as part of their EB-5 petitions if they don’t have that data? A fund administrator can provide investors with a better means of communication if something goes wrong with the developer.
Obviously, these instances are not the best-case scenario. But unforeseen problems can occur, and it’s good to be aware of them. If your preferred project doesn’t retain a third-party fund administrator like JTC, you won’t get these advantages.
How fund administration helps both Regional Centers and investors
Overall, the most important thing a fund administrator does is to offer third-party oversight. The only way you can be sure your investment is being used properly to create the requisite jobs is by having the guardrails to prevent funds from being mismanaged. A fund administrator can co-sign on movement of funds, keep records in accordance with the RIA, and catch errors as they happen.
That’s why the panelists at our webinar spoke highly of projects that use third-party fund administration. But not all fund administrators are the same. At JTC, we do so much more, offering security for your invested funds before they’re deployed to the project and full transparency through our 24/7 online portal.
We also offer audit services for Regional Centers. According to the RIA, each Regional Center must be audited by U.S. Citizenship and Immigration Services (USCIS) at least once every five years. If a Regional Center fails this audit, investor petitions could be affected, which is why it’s crucial they pass. That’s why JTC helps Regional Centers with audit preparation.
“Show me when the money was spent, show me when the jobs were created,” said Jones. “You need to understand what the money was intended to be spent on and ensure that that’s where it goes.”
Selecting a Regional Center and investment project is a major choice for EB-5 investors. By choosing a project that works with JTC, you’ll receive the benefit of our may years of experience in helping immigrant investors achieve their dreams in the U.S. through successful investments in EB-5.
To learn more about the investor due diligence process, read the full white paper.
