Return of investment criteria
Could you please comment on the return of the investment mechanism when we pick a project and invest through a Regional Center? We hear many divergent opinions on this. We would like to understand how it works in terms that are simple to understand.
I am glad that you asked this question as just about all of our clients ask us this. When you make an eb5 investment through a Regional Center, you are purchasing a private placement in the form of equity. In other words, you are purchasing shares in a newly created entity (NCE). The NCE lends the funds it collects from all the investors including you to another legal entity called job-creating entity (JCE). The loan from the NCE to the JCE has a tenor, otherwise known as maturity. The JCE typically has a couple of (two or three) one year extension rights when the loan is due. They would use this right if the project owner is not yet in a position to pay back the loan due to delays in construction, sales or procurement of permanent financing. In most transactions, however once the senior loan, ahead in priority of payments to the loan made by the NCE to the JCE, is paid off the JCE would be ready to pay off the loan. The key is to understand that the NCE does not have any legal obligation to return the principal back to the EB5 investors. That said, we are not aware of any case whereby the funds have been ready to be returned to the investors and the NCE has decided to hold the funds longer than necessary despite the EB5 investor being ready to receive the said funds. Of course, in case the EB5 investor’s I-829 has not been adjudicated yet and their return of principal would jeopardize their entire EB5 application, the NCE could either hold on to their funds or on their behalf reinvests the funds in another project until the I-829 is adjudicated.
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