EB-5 Investment Risk: What a Project 90% Built Means for Your Green Card and Your Capital
May 17, 2024 · EB-5 · 9 min read
Most EB-5 projects raise capital from investors when construction is just beginning, or while the project is still on paper. An EB-5 project that is already close to completion is therefore a rare proposition.
Choosing the right project is one of the decisive steps in managing EB-5 investment risk — the risk to your EB-5 petition and the risk to your capital. Most EB-5 projects raise capital from investors when construction is just beginning, or while the project is still on paper — which is why a project already close to completion is a rare proposition.
EB-5 investment has drawn growing interest from investors worldwide, who find that the EB-5 route fits their needs and objectives. The U.S. government also attaches weight to the program for the economic benefits it has delivered to the country and its people. On industry estimates, over more than 30 years since the program was created in 1990, it has attracted more than US$50 billion and created more than 1.35 million jobs.
That interest has brought a large number of regional centers and EB-5 projects to market, each promoted on its own terms. Faced with competing claims, investors can find it genuinely difficult to compare one project against another.
Putting the petition and the capital first
Under the program rules, EB-5 capital must be placed at risk and remain at risk; the program does not allow the return of that capital to be guaranteed. In practice, most projects today raise EB-5 capital at the outset in order to build and develop the project. Construction takes about 2–3 years on average, and the capital is typically returned about 4–5 years after the investment is made — a commercial expectation rather than a term of the program, and separate from the statutory requirement that the investment be expected to remain invested for at least 2 years. That is a long horizon, and risks that are difficult to control can emerge over it.
For most EB-5 investors the overriding objective is U.S. residency for the whole family, so the petition has to come first. A sound EB-5 project must be capable of creating the jobs the program requires — at least 10 full-time positions for qualifying employees per investor. At the filing stage a project need only demonstrate the potential to create those jobs through an economic model and business plan, which is enough for investors to be considered for a conditional green card valid for 2 years. What matters thereafter is whether the project is actually delivered, so that the jobs are in fact created. That is what the investor and family must evidence, after those 2 years of conditional residence and alongside the requirement to have sustained the investment, in order to obtain a U.S. green card without conditions.
Second, investors will want their capital returned. An EB-5 project that holds to its construction schedule and creates the required jobs also supports the value of the asset and, in turn, the prospects for repayment. Experienced regional centers and developers may also put collateral in place to support the EB-5 capital, or provide a payment guarantee for the project. Features of this kind are intended to manage risk; they do not remove it, and they do not change the requirement that the capital stay at risk.
Across the investment period — currently 4–5 years on average — risks can arise that affect construction progress and the ability to complete the project at all. Investors should weigh these carefully and work with experienced, established advisors in order to select a suitable project from the outset.
The Whisky Hotel: an EB-5 project reported 90% built in May 2024
IMM Group presents the Whisky Hotel EB-5 project, which in May 2024 was nearing completion and was then expected to begin operating in late 2024. IMM Group’s view is that a project at that stage carries a different risk profile from one still at the planning stage, on both the immigration petition and the invested capital. Investors should confirm the project’s current construction and operating status, and whether it is still accepting EB-5 subscriptions, before acting on this article.
Whisky Hotel is a 7-floor, 132-room luxury boutique hotel on the Hollywood Walk of Fame in California. The regional center sponsoring the project holds a USCIS approval of Form I-956F, Application for Approval of an Investment in a Commercial Enterprise, the project filing used under the EB-5 program. An I-956F approval lets investors in the project file Form I-526E; it is not an endorsement of the project or of the investment by USCIS, and it does not determine the outcome of any individual investor’s petition. The project is also one of the few EB-5 projects that qualifies as a Targeted Employment Area (TEA) while sitting in central Hollywood, close to the Walk of Fame and other well-known landmarks.
As at the date of this article in May 2024, the project sponsor reported construction more than 90% complete: the window glazing had been installed in full, and the top-floor lounge and rooftop bar had been finished.
On the project sponsor’s figures at that stage of construction, the project accounted for 637 jobs, equivalent to 31.8 jobs per EB-5 investor, against the 200 jobs required for the 20 investors participating. For a regional center project, job numbers of this kind come from an economic model rather than a payroll count. A surplus on that model is supporting evidence toward the job creation condition that each investor must satisfy when filing Form I-829 to remove the conditions on the green card.
With construction reported more than 90% complete, the sponsor’s position was that the project’s value at that point already exceeded the combined bank debt and EB-5 capital. The EB-5 capital, which accounts for 27% of the capital stack — approximately US$16.1 million — is, on the sponsor’s description, secured against ownership interests in the hotel together with a further property belonging to the developer. The project also carries senior bank financing, and the materials reviewed for this article do not state where the EB-5 security ranks against that debt.
The hotel also sits in Los Angeles, host city for the 2028 Olympics and a host city for the 2026 World Cup — 2 of the largest events in the world — which the sponsor cites in support of the hotel’s commercial prospects. On that basis the sponsor presents refinancing or a sale of the project as the route to repaying the EB-5 capital at maturity; neither a repayment date nor an outcome can be assured.
The Whisky Hotel therefore speaks to the 2 priorities that matter most when selecting an EB-5 project: the evidence the project can offer for the petition, and how its structure addresses risk to the capital. It is an option worth examining as part of a considered EB-5 plan for your family. As U.S. law requires, EB-5 capital must remain at risk throughout, and neither a green card nor the return of capital can be guaranteed.
If you are considering a U.S. green card through the EB-5 Immigrant Investor Program, contact IMM Group or leave your details below. Our experienced advisors will provide detailed guidance and help assess the prospects of your case. We will keep your personal data confidential and use the information you provide only to advise on your family’s case.
IMM Group
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