Questions Every EB-5 Investor Should Ask

Capital Stack

1. Where does the EB-5 capital sit in the capital stack relative to senior debt, mezzanine debt, preferred equity, and common equity?
2. Who else has a lien on the project’s assets, and in what order of priority?
3. Is any portion of the senior debt held by an affiliate of the sponsor or developer?
4. Is bridge financing being used? If so, when must it be refinanced, and what happens if EB-5 capital does not arrive in time?
5. What is the loan-to-value (LTV) and loan-to-cost (LTC) ratio at closing? At stabilization? In a downside case?

Intercreditor and Subordination Terms

1. May we review the full intercreditor agreement, not a summary?
2. What standstill periods apply to the EB-5 NCE’s remedies after a JCE default?
3. Under what circumstances can the senior lender block payments to the NCE? For how long?
4. Does the NCE have a right to cure senior defaults? With what funds, and under what conditions?
5. Does the NCE have any right to purchase the senior debt at par if it goes into default?
6. Whose consent is required to amend the senior loan documents, release collateral, or extend maturity?
7. What rights does the NCE waive in a JCE bankruptcy — including adequate protection, plan voting, and separate class treatment?

Negative Covenants (Can the Stack Be Changed After I Invest?)

1. What negative covenants prevent the manager from incurring additional senior debt after my subscription?
2. What restrictions apply to the manager’s ability to grant new liens on the collateral?
3. What restrictions apply to amendments of the senior loan documents that could worsen EB-5 investors’ position?
4. What restrictions apply to distributions to the sponsor or developer before EB-5 investors are repaid?
5. Which negative covenants can the manager waive unilaterally? Which require investor consent? At what threshold?

Lease and Pre-Sale Review

1. For each “signed lease” relied on, may we review the full lease and all amendments?
2. Does any lease contain termination rights, exculpation provisions, or contingencies that allow the tenant to exit?
3. Is the named tenant entity the operating business or a thinly capitalized affiliate?
4. Has the parent company guaranteed the lease? If so, may we review the guarantee?
5. Are there tenant estoppel certificates and SNDAs in place?
6. For pre-sold residential or condo units: are the contracts binding sale agreements or refundable deposit agreements?
7. What are the buyers’ cancellation rights and triggers? Under what conditions can deposits be recovered?
8. Where are the deposits held, and on what terms?

Environmental

1. Has a current Phase I Environmental Site Assessment (ASTM E1527) been performed? May we review it?
2. Were any Recognized Environmental Conditions (RECs) identified? If so, has a Phase II ESA been performed?
3. Is any remediation planned or required? What is the estimated cost, and who is responsible for it?
4. Is the site within a federal or state voluntary cleanup program?
5. Are there any wetlands, endangered species, or critical habitat issues affecting the site?
6. Has environmental insurance been obtained? What does it cover and exclude?

Sponsor and Completion Guarantees

1. Who is the named guarantor on every guarantee? Is it a special-purpose entity, an affiliate, or the developer’s ultimate parent?
2. May we review the audited financial statements of the named guarantor entity?
3. Is the guarantee a full payment guarantee or a non-recourse guarantee with carve-outs?
4. What specific events trigger liability under any non-recourse carve-out (“bad-boy”) guarantee?
5. Where is the guarantor incorporated and where are its assets located? Which court has jurisdiction over a claim?
6. Are there performance and payment bonds from the general contractor?
7. What is the construction contingency reserve, and who controls it?

Conflicts of Interest

1. What are the relationships among the regional center, the NCE manager, the JCE, the developer, and any senior or mezzanine lender?
2. Are any of these parties under common ownership, common control, or sharing principals?
3. What fees does the sponsor or its affiliates receive from the project — development, construction, management, refinancing, asset management, disposition?
4. Are there any related-party transactions disclosed in the PPM? Are there others not disclosed?
5. What is the compensation structure for any broker-dealer or migration agent involved in the offering?
6. Has the regional center confirmed in writing that its counsel does not represent the investors?

Track Record and Authority

1. How many prior EB-5 projects has this regional center sponsored?
2. What are the I-526 / I-526E and I-829 approval rates for those projects?
3. What is the capital repayment history? How many prior investors have received their capital back, and on what timeline?
4. Are there any prior or pending investor disputes, SEC actions, or litigation involving the regional center, NCE manager, or developer?
5. What is the developer’s track record on comparable non-EB-5 projects of similar size and asset class?

Immigration

1. Has Form I-956F been filed for this specific project? What is its status?
2. Is the regional center in current good standing under Form I-956G?
3. How are the projected jobs being calculated, and what cushion exists above the 10-jobs-per-investor minimum?
4. What is the projected timing of job creation, and how does it align with the sustainment period and my I-829 filing window?
5. Is the project located in a Targeted Employment Area (TEA)? May we review the TEA analysis?
6. What is the escrow structure for my subscription funds?