Welcome back to our special series on Southeast Regional Center, LLC (“SRC”).  In this article, we will pick up on the conversation started in Part 1, which is all about exploring our “Winning Formula” for EB-5 investment success.  This is Part 2, so please be sure to click here and read Part 1 in case you missed the previous article. 

In Part 1, we covered three very important aspects of how we select projects to sponsor as a Regional Center.  Those three aspects include an analysis of the project’s location, its industry, and the company (or “Developer”) that is ultimately responsible for the project’s financial success. 

In Part 2, we will focus on two more aspects – immigration risk and financial risk.  Specifically, this article is about the method we use to determine if a project has features that will lessen (or amplify!) the risk EB-5 investors face related their immigration process and their investment capital.  

As in the previous article, we will provide concrete examples of how our most recent project with Ajin USA was designed to address both of these critical risks.  In doing so, we can demonstrate how to apply these investment principles to maximize the chances of success when making the final EB-5 project selection.

Immigration Risk

A primary feature of the EB-5 Immigrant Investor Program is that 10 jobs must be created or preserved per investment to generate the green card(s) sought by EB-5 investors and their families.

The USCIS has a specific method for counting jobs that qualify investors for the green card that involves complicated tables and “multipliers” that statisticians developed for all major industry categories.  The details of that methodology are both unique and unfamiliar to many outside of the industry, which means any potential project must be vetted by a specialized economist with experience and familiarity with job-counting methodologies accepted by USCIS. 

At SRC, we spend the time and resources to hire specialized economists in the early stages of project evaluation.  We do not waste our investors’ time on a project unless we have a credible and objectively verifiable preliminary estimate on job creation.  Furthermore, we seek out projects that exhibit, or have the potential for, two very important characteristics regarding job creation:

1. Large Amount:  As previously mentioned, a project must show that it can create or preserve at least 10 jobs per investor, and that these jobs qualify under the EB-5 Program’s rules.  Because economic conditions and project-specific conditions are inherently unpredictable, the best EB-5 projects have an over-abundance of available jobs that investors may rely upon for green card qualification.  Some in the industry use rules-of-thumb, such as a minimum threshold of 14 or 15 potential jobs per investor.  This is called creating a “buffer” – the larger the buffer, the more likely the project would be able to meet the EB-5 job creation requirement. 

• Our latest project, the Joon Georgia, Inc. factory in Bulloch County, Georgia, was evaluated by a specialized economist that found the project would create and/or preserve 2,175 total qualified jobs overall.  The economist we hired to perform this analysis is Kim Atteberry, the former Chief Economist for USCIS who helped build some of the internal processes at the USCIS during her time there.

• Given the size of the investment, our investors need the project to produce only 990 jobs.  This means that there is a healthy “buffer” according to the report from the specialized economist. 

• Healthy Mix of “Direct”, “Indirect” and “Induced” Jobs.  As mentioned, the USCIS has a special set of rules related to counting and qualifying jobs for the EB-5 Program.  Specifically, the agency classifies qualified jobs as “direct”, “Indirect” or “induced”:

Direct Jobs: These are the actual identifiable jobs for qualified workers employed by the Project into which the EB-5 investor has invested his or her capital. Direct jobs must be established as a result of the EB-5 investment and should be clearly identifiable and documented.  For example, if an EB-5 investor funds a manufacturing plant, the direct jobs would include the factory workers, managers, and administrative personnel employed by the plant.

Indirect Jobs: These jobs are those held outside of the Project but are created as a result of the EB-5 investment. Indirect jobs are usually calculated through economic models and are based on the economic impact of the EB-5 investment on the community surrounding the Project. For example, if the EB-5 investment leads to the construction of a new factory, indirect jobs might include suppliers for the factory or construction jobs created to build the factory. Indirect jobs count towards the job creation requirement of the EB-5 program, but only for investments made through a Regional Center such as SRC.

Induced Jobs: These are jobs created in the broader community as a result of income being spent by employees of the Project funded by the EB-5 investment. For example, if new factory jobs (direct jobs) lead to the factory workers spending more at local restaurants and stores, the new jobs created at those restaurants and stores as a result of the increased spending would be considered induced jobs. Like indirect jobs, induced jobs are typically calculated using economic models and are only counted towards the job creation requirement in Regional Center projects.

The distinction among these job types is crucial for EB-5 investors, particularly when it comes to meeting the job creation requirements of the EB-5 program. For example, many investors are unaware that a project that is constructed in less than two years has different rules than a project that takes more than two years to construct. 

For a project that takes less than two years to construct, only 75% of the jobs an investor relies upon for their application can be “indirect”.  If a project takes more than two years to construct, that threshold goes up to 90%. 

• For example, the economist for the Joon Georgia, Inc. factory estimated a 16-month construction period for the facility. 

• Because of the buffer described earlier, there is a low chance that the 75% limit on “induced” jobs will be reached.   

The best mix of “direct”, “indirect” and “induced” jobs will ultimately depend on the unique circumstances of each Project.  The point is that the best projects create situations where investors can minimize the need to rely too heavily on any specific job category by creating a “buffer within the buffer”.  A large number of qualified jobs is step #1.  A diversified mixture of qualified job categories, specific to the circumstances at hand, is step #2.

Financial Risk

Mitigation of financial risk is a core component of a potential project’s merits.  If the project loses the investor’s financial capital, there are very important, very unfortunate consequences which may arise.  

1. Projects that lose the investment capital for EB-5 investors and do not provide a green card may harm investors twice-over.  Of course, no one wants to lose money.  But EB-5 investors who lose their investment capital may also be involved in a project that fails to produce the required jobs for their green card.  If so, those investors face not only pure financial loss, but may also have difficulty accumulating the necessary financial resources to try the EB-5 process again. In this case, the investor may lose not only dollars, but precious time, in their quest for citizenship.

Even if a project does produce a green card despite ultimately losing the investor’s money, then that investor may arrive in the US with far less capital than they expected or needed to start the life they envisioned.  Every investor has a dream of their new life in the United States, and the realization of that dream often requires strong financial resources.  Whether an investor wants to start a new business, expand a previously successful business, fund a child’s education, or simply retire with some level of comfort, their “nest egg” will play an important role.  There are many ways to manage or mitigate the financial risk that will be specific to the given project’s circumstances.  

• At SRC, we believe Developers have an opportunity to make projects safer in many scenarios.  A very common way they may do so is to “pledge” or “back” the investment with additional forms of “security”.

• This can take many forms.  Investors may be granted some sort of interest in the buildings or land involved in the project, or the project’s equipment.  Our latest project, the Joon Georgia, Inc. factory in Bulloch County, Georgia, provides both of those types of guarantees.

• The stakeholders behind Joon Georgia Inc (which include Ajin USA but also the Korean parent company Ajin Industrial, its CEO and various subsidiaries) also crafted a mixture of corporate and personal guarantees which state that under certain conditions, the project will pay back the capital it originally received from the special-purpose entity (the “New Commercial Enterprise”) that funded the project.

More to Come

There is much more to say about the ways immigration and financial risk can be addressed across projects of all types.  Much more will come in later Chapters.  For now, we hope you have enjoyed Chapter 3 of our story, and thank you for your interest as always!

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The information provided here is not investment, tax or legal advice. You should consult with a licensed professional for advice concerning your specific situation. 

This article is educational and informational, and items including policy, program structures, financial models, feasibility studies, and other documentation may change without notification. 

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