Potential EB-5 investors often approach regional centers with an extensive list of questions. While it is important that investors perform due diligence on the regional centers they are working with, they should not forget to ask questions of or regarding the EB-5 project sponsor.
While the investor will work closely with regional center during their immigration process, in most cases the actual project that the investor is entrusting their immigration dreams with is not being developed by the regional center, but rather a separate company – typically a real estate development firm.
This firm, which will likely be the managing entity of the Job Creating Enterprise (JCE), will play a key role in the success or failure of the EB-5 project. What questions should potential investors ask an EB-5 project sponsor?
What is Your Experience?
Major commercial real estate projects are complex processes even before you throw EB-5 into the mix. It might seem obvious, but EB-5 investors will want to invest in a project that has experienced project sponsor.
A firm that has completed numerous successful commercial real estate projects is more likely to complete a project successfully than an inexperienced developer. An experienced developer will understand how to navigate the permitting process, know which contractors to use, know how to guide a project through economic ups-and-downs and has a plan to deal with any project shortfalls.
Simply put, an inexperienced project sponsor is a risky proposition in EB-5.
How Does the Project Sponsor Plan to Manage Unexpected Expenses?
Major commercial real estate projects are notorious for unexpected costs. So how will the project sponsor handle things if the piping for a building must be redone or if the cost of steel and other materials needed for the project goes up 30% during the course of construction?
If a project sponsor does not have a comprehensive answer to those or related questions, the project could face delays or grind to halt if unexpected costs arise. An experienced developer has dealt with these issues before and is more likely to have a plan in place to quickly address unexpected costs.
Some project sponsors may even set aside funds during the course of construction to cover such expenses.
What is the Exit Strategy?
The project sponsor is not only responsible for developing the project, but they are also responsible for the repayment of the EB-5 loan. For commercial real estate projects this often occurs through a refinance or sale of the property.
Like the actual construction of the project, experience often matters when it comes to the exit strategy to repay the EB-5 loan. An experienced project sponsor is more likely to have existing relationships with financial institutions that they have already used to refinance previous projects.
Similarly, if a sale is the exit strategy, an experienced project sponsor is likely to have preexisting relationships with buyers and may be in a better position to effectuate a timely sale.
