EB-5 Project Due Diligence: A Practical Guide for Prospective Investors

Reviewed by the Davies & Associates EB-5 Practice Group
with combined experience in U.S. immigration, securities, transactional, and compliance matters.
Last reviewed: May 2026.

The EB-5 Immigrant Investor Program asks an investor to commit at least USD 800,000 of capital to a U.S. enterprise in pursuit of two distinct outcomes: a Green Card for the investor’s family, and the eventual return of the invested capital. Due diligence is the disciplined process of testing whether a project can plausibly deliver both. The mistake most often made by EB-5 investors is to focus on the wrong category of risk — and to rely on the wrong professionals to identify it. For the broader context in which this analysis sits, start with our main EB-5 Visa Guide.

The Two Categories of EB-5 Risk

Every EB-5 project carries two fundamentally different risks. They are not variations of the same thing. A project can be strong on one dimension while being deeply flawed on the other. Investors who blur the distinction are the ones most likely to be disappointed.

Green Card risk is what most EB-5 marketing material addresses, and it is what most immigration attorneys are trained to evaluate. Money-back risk receives far less attention, even though it is where most EB-5 investors actually lose.

Who Actually Loses Money in EB-5?

Most failed EB-5 investments do not fail because the immigration paperwork was defective. They fail because the underlying transaction was poorly structured, undercapitalized, environmentally impaired, overleveraged, dependent on weak contracts, or exposed to risks the investor never understood.

The investors who suffer the largest losses are often not unsophisticated people. Many are successful business owners, physicians, executives, or international families who assumed the existence of a regional center, a large law firm, or a recognizable developer meant someone had already protected their interests.

In many cases, nobody had.

“In sophisticated private placements, investors do not rely on the issuer’s counsel to protect them. EB-5 should be no different.”

Money-Back Risk Has Two Sub-Categories

The risk of not getting your money back is not a single risk. It has two distinct sources, and they require different kinds of analysis by different kinds of professionals.

Type 1 — Structural Risk

Structural risk arises from the legal architecture of the project: the way contracts, leases, loan documents, security agreements, guarantees, and entity structures are drafted. These risks are inherently legal in nature and generally have no connection to immigration law. They live in the fine print of the operating agreement, the loan agreement between the New Commercial Enterprise (NCE) and the Job Creating Entity (JCE), the intercreditor agreement, the lease, and the guarantee documents.

Type 2 — Financial Risk

Financial risk concerns whether the financial model itself works: do projected revenues cover debt service, can the project refinance and repay EB-5 capital, and are the assumptions about occupancy, pricing, and costs reasonable. EB-5 projects are typically designed so that a surface-level financial analysis does not raise questions. The numbers are built to look reasonable.

Why Structural Risk Is Routinely Overlooked

Sophisticated investors do not commit eight-figure sums to private real estate or operating projects without retaining specialized investor’s counsel. This counsel reads every material contract, identifies drafting weaknesses, models how the documents would behave in distress scenarios, and negotiates revisions before money moves.

In EB-5, this layer is frequently missing. Investors typically engage an immigration attorney whose role is to prepare and file the I-526E petition and document the lawful source of funds. Immigration attorneys are experts in their field. They are not, however, trained to perform investor-side legal due diligence, and most do not have securities, real estate finance, or commercial leasing experience. The scope of the engagement does not cover it. For a focused discussion of how to pick the right immigration counsel for the EB-5 side of the engagement, see our Guide to Selecting an EB-5 Lawyer.

What Sophisticated Institutional Investors Do Before Wiring Capital

A useful reference point for any EB-5 investor is to ask what an institutional limited partner — a pension fund, family office, insurance company, or sovereign wealth fund — would do before committing the same amount of capital to a similar private real estate project. Institutional process is not magic. It is a set of independent reviews that protect the investor rather than facilitate the offering.

• Independent legal counsel retained by the investor, not the issuer. The counsel reads every transaction document, identifies drafting weaknesses, and negotiates revisions before money is committed.
• Independent environmental review. A Phase I ESA commissioned by the investor, or accepted from the seller only after the report can be reissued naming the investor as a recipient. A Phase II ESA is ordered without hesitation if any Recognized Environmental Condition is identified.
• Intercreditor and subordination review. The full intercreditor agreement is read in detail — not a summary — and standstill periods, payment blockage, consent rights, and bankruptcy waivers are negotiated where necessary.
• Guarantor financial analysis. Audited financials of the named guarantor entity are required and analyzed. A guarantee from a thinly capitalized affiliate is treated as a substantially weaker form of credit support than a guarantee from the ultimate parent.
• Third-party underwriting. An independent appraisal, market study, and (for operating businesses) operator due diligence are commissioned from firms not affiliated with the sponsor.
• Downside scenario modeling. The financial projections are stress-tested against meaningful adverse cases — lower occupancy, higher costs, delayed stabilization, refinancing failure — not just the base case the sponsor prefers.
• Conflicts disclosure and negotiation. All related-party transactions, fees paid to sponsor affiliates, and common control arrangements are disclosed in writing, and governance provisions are negotiated to constrain them where appropriate.

Most of what institutional investors do can be done by an EB-5 investor too. Some elements scale down to the EB-5 investment size (independent counsel, environmental review, intercreditor review, guarantor financials); others are typically beyond reach (negotiating bespoke governance terms with a regional center). The point is not that an EB-5 investor must match institutional diligence in every respect. It is that the gap between what most EB-5 investors actually do and what sophisticated capital does is unusually wide, and the consequences of that gap fall entirely on the investor.

How Institutional Investors Read a PPM

A useful way to absorb the institutional mindset is to look at how a sophisticated investor actually reads a Private Placement Memorandum. The process is almost the opposite of how most retail investors approach it.

• What they largely ignore: the marketing-driven sections at the front of the PPM — project renderings, sponsor biographies presented in promotional form, high-level descriptions of the investment thesis, and summary tables of key terms. These sections are designed to sell. They are read for context, not relied on for analysis.
• What they focus on: the risk factors (read for what they reveal, not as disclosure boilerplate), the “Use of Proceeds” and sources-and-uses reconciliation, the conflicts-of-interest section, the fee schedule paid to sponsor affiliates, the description of the loan or equity terms between the NCE and the JCE, and any defined terms that flag unusual provisions in the underlying agreements.
• What they compare against the actual documents: every material statement in the PPM is cross-checked against the operating agreement, loan agreement, intercreditor agreement, leases, and guarantees that the PPM purports to summarize. A PPM that describes a “30-year lease” is verified against the lease itself. A PPM that describes EB-5 capital as “subordinated to senior debt” is verified against the intercreditor agreement. Where the PPM and the underlying document diverge, the underlying document controls.
• Why summaries are dangerous: a PPM is, by its nature, a summary written by the issuer. Summaries omit detail, smooth over unfavorable provisions, and present a version of the deal that is internally consistent but not necessarily complete. A sophisticated investor treats the PPM as a guide to which documents matter, not as a reliable substitute for reading them. The investor who relies on the PPM summary alone is relying on the issuer’s representation of its own offering.

A Concrete Example: The Warehouse

The distinction between structural risk and financial risk is best understood through a simple example.

Who Does What in EB-5 Due Diligence — and Who Do They Represent?

Before reviewing the cast of professionals involved in an EB-5 project, one distinction is worth stating directly. Much of the diligence performed in EB-5 offerings is issuer-side diligence designed to support the offering itself. Investor-side diligence is different: its purpose is not to facilitate the transaction, but to test whether the investor should proceed at all. Confusing one for the other is the single most consequential mistake an EB-5 investor can make.

EB-5 projects typically involve several sophisticated parties, each performing a different piece of what investors loosely call “due diligence.” These roles are not interchangeable. The table below identifies who does what, whom each professional represents, and — just as importantly — what each of them usually does not do.

The most important question is not only “What does this professional review?” but “Who is this professional working for?” In EB-5, several sophisticated parties may touch the same project, but their duties are not interchangeable. The investor’s immigration lawyer protects the immigration filing. The investor’s deal counsel protects the investor’s position in the transaction documents. A CFA can test the financial model. A broker-dealer may facilitate the offering. The regional center and its counsel support the project structure. These roles overlap at the edges, but they do not substitute for one another. For more on selecting the right immigration counsel, see our Guide to Selecting an EB-5 Lawyer; for an overview of how Davies & Associates represents EB-5 investors specifically, see our EB-5 Lawyer practice page.

A note on broker-dealers and migration agents is also worth making directly. Broker-dealers and migration agents are typically compensated only if capital is raised and subscriptions close. That compensation structure does not necessarily invalidate their work, but investors should understand it creates economic incentives that differ from those of independent investor’s counsel retained solely to protect the investor’s position.

The Regional Center’s Counsel Does Not Represent You

Every regional center project is structured around a New Commercial Enterprise (NCE) — the entity in which EB-5 investors hold their interests — and a Job Creating Entity (JCE), which is the actual project. Investors are limited partners or members of the NCE. The NCE is run by a managing member (in an LLC) or a general partner (in a limited partnership). That manager or general partner is almost always an entity affiliated with the regional center and the developer.

Regional centers and developers retain sophisticated law firms to structure their projects, draft the offering documents, and file the project’s I-956F application with USCIS. That law firm is counsel to the regional center and to the managing member or general partner. It is not counsel to the investors. Its professional duties run to its client, and not to the investors who will eventually subscribe.

The interests of the regional center and the interests of the investors are not the same. The regional center’s economic interests are aligned with the developer’s: raising capital quickly, on favorable terms, with minimal investor-side negotiation. Investors want maximum protection, transparent disclosure, and tight controls on how their capital is used. These interests diverge in the drafting of risk factors, the structure of waterfalls and remedies, the scope of manager indemnification, and the seniority of EB-5 capital in the capital stack.

Why PPM Risk Factors Do Not Protect the Investor

Every EB-5 Private Placement Memorandum contains a section titled “Risk Factors,” often running to twenty or thirty pages. Investors sometimes treat the existence of these disclosures as a form of protection — the reasoning being that if a risk has been disclosed, the project must somehow be safer for it. This is a misreading of what risk factors actually do.

Risk factor disclosures are, first and foremost, a tool to allocate legal liability, not to protect the investor. A risk factor that has been clearly disclosed in the PPM is generally one the investor is deemed to have accepted. The function of the disclosure, legally speaking, is to reduce the issuer’s exposure to securities-fraud claims later by making clear that the investor was told. It is not a guarantee that the disclosed risk will not occur, and it is not a representation that the disclosed risk has been mitigated.

• Disclosure is not protection. The fact that a risk is named in the PPM does not reduce that risk. It only reduces the issuer’s legal liability for it. A project whose PPM lists fifty risks may still be sound; a project whose PPM lists five may still be unsound.
• Disclosed risks can still destroy capital. “Real estate values may decline.” “The project may fail to find tenants.” “The senior lender may foreclose.” Each has caused total EB-5 losses. The disclosure does not soften the outcome.
• Sophisticated drafting tends to protect the issuer. Risk factors are written by issuer’s counsel. The drafting tradition is comprehensive about risks (which protects the issuer from suit) and specific about the investor’s waivers and acknowledgments (which protect the issuer further). Investors often sign subscription documents acknowledging they have read and understood these risks and are relying solely on their own investigation.
• Reading the risk factors is not a substitute for reading the documents that create the risks. The PPM tells you risks exist. The operating agreement, loan agreement, lease, and intercreditor agreement determine which of those risks are real, how severe they are, and what protections, if any, the investor actually has.

An investor who has read the risk factors carefully understands what the issuer has said they might lose. They have not yet done the work of finding out whether the documents protect them in any of those scenarios. That second exercise is the work of investor’s counsel.

The EB-5 Document Package: What to Demand and What to Review

Before any EB-5 investment is made, the project sponsor should provide a complete document package. Anything described as “we’ll send that later” is itself a red flag. The checklists below combine the standard EB-5 document set with the documents an institutional commercial real estate investor would expect to see in any private placement of this size.

Typical Documents to Ask For in an EB-5 Project — Quick Reference

The following is a consolidated list of the documents an EB-5 investor should request from the regional center, sponsor, or developer before subscribing. Each is then expanded by category in the detailed checklists that follow.

The detailed checklists below organize these documents by category, with additional items and commentary. Investors and their counsel should work through each category as part of structural diligence.

Where Does EB-5 Capital Sit in the Capital Stack?

One of the most consequential questions in any EB-5 project is where the EB-5 capital sits relative to other money in the deal. In distress, claims are paid in order of seniority — and EB-5 capital is almost never at the top. Understanding the position of EB-5 capital, and the subordination provisions that govern it, is a core part of structural due diligence.

The Diagram Is the Marketing Version. The Real Stack Lives in the Documents.

The capital stack pictured above is the way projects are sold. It is the version that appears in the PPM summary, the marketing deck, and the verbal pitch. Real EB-5 projects can include preferred equity layers, sponsor-affiliated loans, deferred fees, intercompany advances, and bridge facilities — each with its own priority, remedies, and quiet ability to leapfrog EB-5 capital. EB-5 capital is rarely the most senior money in the project, and two further questions matter more than the picture itself.

1. Can the Stack Be Changed the Day After You Invest?

A capital stack is not a fixed thing. Without contractual restrictions, the manager of the New Commercial Enterprise — affiliated with the regional center and the developer — can often add new debt, refinance existing debt on different terms, grant additional liens, issue new preferred equity, or otherwise alter the stack after EB-5 investors have subscribed. The version you reviewed during diligence may not be the version that exists a year later.

The protection against this is a set of negative covenants in the operating agreement, the NCE-to-JCE loan agreement, and related documents. Negative covenants are contractual promises the manager or the JCE will not do certain things without investor consent. Typical examples include caps on additional senior debt, restrictions on further subordination of the EB-5 loan, prohibitions on new liens on the collateral, limits on amendments to senior loan documents that worsen EB-5 investors’ position, and restrictions on sponsor distributions before EB-5 investors are repaid.

Covenants that are missing, heavily qualified, full of carve-outs, or unilaterally waivable by the manager are themselves a form of documentary exposure. The marketing capital stack means very little if the manager can restructure it the next day.

2. The Intercreditor Agreement Is Where the Real Rights Live

The intercreditor agreement is the contract among the lenders in the capital stack — typically the senior lender, any mezzanine lender, and the NCE on behalf of EB-5 investors. It is what actually governs the rights of each party in distress. A capital stack diagram shows an order of seniority. The intercreditor agreement defines what that order means: who can take what action, when, against what collateral, and over whose objection. The questions only the intercreditor agreement answers include the following.

• Standstill periods. For how long is the NCE prohibited from exercising remedies after a default by the JCE? Six months? A year? Indefinitely while the senior lender works things out?
• Payment blockage. Under what circumstances can the senior lender stop the JCE from paying interest or principal to the NCE? How long can a payment blockage last, and does interest continue to accrue during it?
• Right to cure. Does the NCE have a right to cure senior defaults to prevent foreclosure on the underlying asset? If so, with what money, and under what conditions?
• Right to purchase the senior debt. Does the NCE have an option to buy out the senior lender at par if the senior loan goes into default? In sophisticated transactions this right can be valuable; in EB-5 it is often absent or impractical.
• Voting and consent rights. Whose consent is required to amend the loan documents, release collateral, extend maturities, or modify the senior facility? A “subordinated” lender with no consent rights is in a meaningfully worse position than one with negotiated approval rights over key changes.
• Turnover provisions. If the NCE somehow collects on its loan ahead of the senior lender, must it turn those proceeds over? Most intercreditor agreements include such provisions; the scope and triggers vary.
• Bankruptcy-related limitations. Does the NCE waive certain rights in a JCE bankruptcy, including the right to seek adequate protection, to vote a plan, or to be treated as a separate class? These waivers can substantially affect recoveries.

None of these questions is answered by a diagram or a PPM summary. They are answered only by reading the intercreditor agreement in full. A capital stack picture that looks favorable can coexist with an intercreditor agreement that strips the EB-5 NCE of meaningful rights in precisely the scenarios that matter most. This is one of the central reasons investor-side counsel exists.

Sponsor Guarantees: Read the Guarantor’s Balance Sheet, Not Just the Word

EB-5 marketing material often emphasizes that the project benefits from a developer or sponsor guarantee — a completion guarantee, a payment guarantee, or a personal guarantee from the principals. The existence of a guarantee is rarely the point. A guarantee is only as strong as the guarantor’s balance sheet and the enforceability of the guarantee itself. A guarantee from a well-capitalized parent company with substantial unrestricted assets is meaningfully different from a guarantee from a special-purpose entity created for the transaction.

Several issues recur and should be examined directly.

• Special-purpose entity (SPE) risk. Many development structures use single-purpose holding entities as the named guarantor. If the SPE was formed for this transaction, has no operating business, and holds no assets beyond its interest in the project itself, the guarantee may provide little economic protection — the SPE is insolvent at exactly the moment its guarantee is needed.
• Thinly capitalized guarantors. Even where the guarantor is not a pure SPE, it may be a holding company with minimal liquid assets, encumbered real estate, or obligations to other lenders that rank ahead of EB-5 investors. The relevant question is not “is there a guarantor?” but “what would the guarantor actually pay, and what would compete for those funds?”
• Affiliate guarantees. A guarantee from an affiliate of the developer is not the same as a guarantee from the developer’s ultimate parent or principal. Affiliates can be allowed to fail without consequence to the parent group. Investors should understand which entity is on the line and whether its financial picture is independently documented.
• Non-recourse carve-outs (“bad-boy” guarantees). Many guarantees in real estate finance are non-recourse with carve-outs — the guarantor is liable only for specific bad acts such as fraud, misappropriation of funds, voluntary bankruptcy, or environmental violations. A non-recourse guarantee with narrow carve-outs is very different from a full payment guarantee, even though both are described as a “guarantee” in marketing materials.
• Enforceability and jurisdiction. A guarantee’s value depends on the ability to enforce it. Where is the guarantor incorporated? Where are its assets? Which court has jurisdiction over a claim? An offshore guarantor with offshore assets and an offshore choice of law may produce a guarantee that is theoretically valid but practically uncollectible.
• Audited financial statements of the guarantor. The single best way to evaluate any guarantee is to read recent audited financials of the actual named guarantor entity — not the broader corporate group, not the parent, not the website. If audited financials of the guarantor are not made available, the guarantee should be discounted in the investor’s analysis.

The presence of a guarantee in the marketing deck is a starting point for diligence, not a conclusion. Investor’s counsel should read the full guarantee instrument, confirm the identity of the named guarantor, request its audited financials, and review the carve-outs and enforcement provisions before assigning any protective weight to it.

Common Issues in EB-5 Projects

Three issues recur often enough that investors should treat them as defaults, not edge cases. Each has caused real losses. None is detectable from a financial summary alone.

1. “Pre-Leases” That Aren’t

A project markets itself on the strength of a signed lease with a strong tenant — and that lease, when read by counsel, turns out to contain unusual cancellation provisions. Short-notice termination rights. Exculpation clauses that let the tenant walk with minimal liability. Co-tenancy conditions. Build-to-suit specifications the developer cannot meet on time. Personal guarantees capped at a fraction of the lease value. The remedy is simple in concept and rarely executed in practice: have a lawyer read the lease, in full, before subscribing.

2. “Pre-Sold” Units That Are Really Just Deposits

In residential and condominium projects, sponsors often emphasize a high level of pre-sales as evidence that demand is locked in. Read the sales agreements. In many cases, what look like binding sale contracts are in fact refundable deposit agreements: the buyer has put down a small percentage of the price, can cancel on broad grounds, and can recover the deposit if the project misses a delivery date, fails to meet specifications, or for various other reasons. A 70% “pre-sold” project where every contract is cancellable on notice is not 70% pre-sold — it is 70% deposited, and the deposits can evaporate.

3. Environmental Risks

Environmental issues can be financially catastrophic. Industrial or formerly industrial sites, gas stations, dry cleaners, agricultural land with a history of pesticide use, properties near rail corridors or military installations — all carry elevated risk of soil or groundwater contamination. Remediation costs can run into the millions, and liability under CERCLA and analogous state laws can attach to owners regardless of fault. A current Phase I ESA should be standard; if it identifies any Recognized Environmental Conditions, a Phase II is essential. Always check.

How These Risks Look in Practice: Three Illustrative Scenarios

The scenarios below are hypothetical composites, not descriptions of any specific project or client matter. They illustrate how the abstract issues discussed above manifest in real transactions and how they would be caught by proper investor-side review.

In each scenario, the failure mode is not exotic. It is a foreseeable consequence of provisions in documents that the marketing summary did not surface and the financial model did not capture. In each, the investor would have been protected by the diligence steps described earlier in this guide: independent counsel, environmental review, lease review, intercreditor review, and negative covenants on capital structure changes.

Green Card Due Diligence Still Matters

None of the above replaces immigration due diligence. An investor still needs to confirm the regional center is in good standing with USCIS, the project has received or credibly expects I-956F approval, the job creation methodology is sound and includes a meaningful buffer above the 10-jobs-per-investor minimum, and the timing of job creation aligns with the sustainment period and the investor’s I-829 filing window. For the full EB-5 picture in which this sits — eligibility, process, costs, and project structures — the main EB-5 Visa Guide is the right starting point. From there, the most useful sub-pages are our Form I-526 / I-526E Guide, Form I-829 Guide, the EB-5 visa requirements page, and the EB-5 visa process page for an end-to-end overview.

Practical Steps for an EB-5 Investor

1. Start with the hub. Read the EB-5 Visa Guide for the full picture — eligibility, costs, process, and project structures — so this due-diligence work sits in the right context.
2. Engage EB-5 immigration counsel early. Source-of-funds preparation alone justifies it. Use our Guide to Selecting an EB-5 Lawyer to choose the right firm. To see how the Davies & Associates EB-5 practice represents investors, see our EB-5 Lawyer for Investors page.
3. Separately retain investor’s counsel — a transactional lawyer with real estate finance or commercial transactions experience — to review the structural documents.
4. Demand the full document package up front. “We’ll send that later” is a red flag.
5. Get it in writing that the regional center’s law firm does not represent you, and that the capital structure cannot be changed after your subscription closes.
6. Read every lease, pre-sale agreement, and off-take contract with counsel.
7. Read the intercreditor agreement to understand standstill periods, payment blockage, consent rights, and bankruptcy waivers — not just the capital stack diagram.
8. Survey the market before committing to a specific project. Comparing several offerings against one another is the fastest way to develop a sense of what is standard, what is unusual, and what is a red flag. A starting point is to review the EB-5 Projects (Singapore site) currently being evaluated, and apply the diligence framework in this guide to each.
9. Treat marketing materials as a starting point, not evidence. Every protection described should be traceable to specific language in a specific document.

Questions to Ask on a Diligence Call

Before any introductory or follow-up call with a regional center, sponsor, or broker, an EB-5 investor should arrive with a fixed list of questions designed to test the project against the categories of risk identified in this guide. Marketing presentations move quickly and favor the project; a short list of pointed questions slows the conversation down and surfaces what the marketing tends to skip. The following are reasonable opening questions.

1. Who is your counsel on this project, and whom do they represent? (Expected: the regional center, the NCE manager, and the JCE — not the investors. Will you confirm that in writing?)
2. What negative covenants prevent the capital structure from being changed after I invest? Please point to specific provisions in the operating agreement and the NCE-to-JCE loan agreement.
3. Where does the EB-5 capital sit in the capital stack today, and where might it sit a year from now? May I review the full intercreditor agreement?
4. Who are the named tenants on the leases the financial model relies on? Are those entities the operating businesses, or special-purpose affiliates? Has the parent guaranteed the lease?
5. For residential or condominium projects: are the pre-sale contracts binding sale agreements or refundable deposits? Under what conditions can buyers cancel and recover their deposit?
6. What does the most recent Phase I ESA say? If RECs were identified, has a Phase II been performed? Where does the responsibility for any remediation cost sit?
7. Who is the named guarantor on every guarantee, and may I see their audited financials? Is the guarantee a full payment guarantee or a non-recourse carve-out (“bad-boy”) guarantee?
8. What fees flow to the sponsor or its affiliates over the life of the project? Development, construction, management, refinancing, asset management, disposition?
9. How many of your prior projects have repaid EB-5 investors, and how many remain outstanding past their original maturity? What were the I-526 / I-526E and I-829 approval rates?
10. What happens if the project misses its construction schedule, occupancy assumptions, or refinancing window? Who absorbs the risk, and where does EB-5 capital sit in that scenario?

The substance of the answers matters less than the form. Specific provisions and named documents are good responses. Marketing language, assurances of intent, and references to general practice are not. Where a question cannot be answered with specifics, that is itself a finding to record.

Download: Questions Every EB-5 Investor Should Ask

A printable checklist of the questions to ask the regional center, sponsor, and developer before subscribing — covering capital stack, intercreditor terms, lease review, environmental risk, sponsor guarantees, conflicts of interest, negative covenants, track record, and immigration. Take it to the project sponsor and to your own counsel.

Download the checklist View and print

Where to Go Next

This page is one piece of a larger picture. To put it to use:

• Start with our EB-5 Visa Guide — the main hub covering eligibility, process, costs, and project structures.
• Use our Guide to Selecting an EB-5 Lawyer to choose the right immigration counsel.
• To engage Davies & Associates directly, see our EB-5 Lawyer for Investors page for how our EB-5 practice represents investors and their families.

Go to the EB-5 Visa Guide Choose an EB-5 Lawyer Our EB-5 Services

Related EB-5 Resources

• EB-5 Direct vs. Regional Center
• EB-5 Direct (Stand-Alone) Investment Guide
• Overview of EB-5 Investor Visas
• EB-5 Visa Requirements
• EB-5 Visa Process: Step-by-Step Guide
• EB-5 Visa Costs and Fees
• EB-5 Business Plan (Matter of Ho)
• Form I-526 / I-526E Guide
• Form I-829 Guide

Related Practice Areas

EB-5 project due diligence sits at the intersection of several legal disciplines. Investors often benefit from advice that draws on more than one of the following practice areas. For the immigration side of an EB-5 engagement, our EB-5 Lawyer for Investors page describes how Davies & Associates represents EB-5 families end-to-end.

• Securities counsel and private placement review
• Commercial real estate transactions
• Investment due diligence
• Environmental law and Phase I / Phase II ESA review
• Private placements and Regulation D / Regulation S offerings

EB-5 Project Due Diligence: Frequently Asked Questions

What is EB-5 project due diligence?

EB-5 project due diligence is the process of investigating an EB-5 investment offering before committing capital. It has two distinct goals: confirming the project can deliver U.S. permanent residency (the Green Card outcome) and confirming the project can return the investor’s capital. Each goal requires review by a different qualified professional — immigration counsel for the petition and project compliance, and investor’s counsel for the legal structure of the transaction. For the broader EB-5 context this work fits into, see our main EB-5 Visa Guide.

What are the main risks in an EB-5 investment?

EB-5 investments carry two categories of risk. Green card risk is the chance the investor does not obtain U.S. permanent residency. Money-back risk is the chance the investor does not recover the invested capital. Money-back risk has two sub-categories: structural risk (legal weaknesses in the project documents, leases, loan agreements, and waterfalls) and financial risk (whether the underlying business model works). Most EB-5 losses are caused by structural risk that was never reviewed by counsel engaged by the investor.

Does the regional center’s lawyer represent the EB-5 investor?

No. The law firm hired by a regional center represents the regional center and the managing member or general partner of the New Commercial Enterprise — not the individual investors. Their professional duties run to the entity that retains and pays them. Investors generally have no professional malpractice claim against that firm in the event of errors or omissions in the project documents. This is why investors in any sophisticated private placement retain their own counsel. For how to choose your own immigration counsel, see our Guide to Selecting an EB-5 Lawyer.

What documents should an EB-5 investor review before investing?

At a minimum: the Private Placement Memorandum (PPM), the Subscription Agreement, the Operating or Limited Partnership Agreement of the NCE, the NCE-to-JCE loan agreement and promissory note, Form I-956F filings, the regional center designation letter, the business plan and economic report, the escrow agreement, senior loan documents and any intercreditor agreement, all leases or pre-sale contracts on which the revenue model depends, a current Phase I Environmental Site Assessment, the title commitment, the construction contract with performance bonds, and the sponsor’s and guarantor’s financial statements. Each of these should be read by qualified counsel.

What is the difference between structural risk and financial risk in EB-5?

Structural risk arises from the legal architecture of the project — the way leases, loan documents, guarantees, intercreditor agreements, and operating agreements are drafted. It is identified by a lawyer reading the actual documents. Financial risk arises from the financial model itself — revenue, costs, debt service coverage, refinance assumptions. It is identified by a CFA or financial analyst. EB-5 marketing typically focuses investor attention on financial risk because financial models are designed to look reasonable. The greater real risk is structural and is usually overlooked.

Is my EB-5 immigration lawyer also doing my investment due diligence?

Usually not. EB-5 immigration counsel typically handles the I-526E petition, lawful source of funds documentation, regional center compliance, and the immigration aspects of the project. Most immigration attorneys do not have securities, commercial real estate finance, or commercial leasing experience, and contractual review of the transaction documents falls outside the scope of the typical engagement. Investors who want this layer of analysis must retain separate investor’s counsel for that purpose. For guidance on selecting the right immigration counsel for the EB-5 side of the engagement, see our Guide to Selecting an EB-5 Lawyer, and for how Davies & Associates represents EB-5 investors, see our EB-5 Lawyer for Investors page.

What is a Phase I Environmental Site Assessment and why does it matter for EB-5?

A Phase I ESA is a standardized environmental investigation (under ASTM E1527) of a real estate site to identify Recognized Environmental Conditions (RECs) such as soil or groundwater contamination. It matters in EB-5 because remediation costs can run into the millions, liability under CERCLA can attach to owners regardless of fault, and environmental issues can render a project financially distressed. Any real estate-based EB-5 project should have a current Phase I in the document package; if RECs are identified, a Phase II ESA is essential.

What are the most common red flags in EB-5 projects?

Three recur frequently. First, pre-leases that contain unusual tenant cancellation, exculpation, or contingency provisions, making the “signed lease” far weaker than the marketing implies. Second, pre-sold residential or condominium units that are really refundable deposits with broad buyer cancellation rights. Third, undisclosed environmental issues. Each can be identified only by reading the actual documents and ordering the proper third-party reports — not from the offering summary.

What is the NCE and JCE in an EB-5 project?

The New Commercial Enterprise (NCE) is the entity in which EB-5 investors hold their interests — usually a Delaware LLC or limited partnership. The Job Creating Entity (JCE) is the operating business or real estate project that actually deploys the capital and creates the qualifying U.S. jobs. The NCE typically loans EB-5 capital to the JCE under a loan agreement and promissory note. The terms of that loan agreement, and the seniority of EB-5 capital relative to other financing, are central to the documentary exposure of the investment.

How much does EB-5 project due diligence cost?

Costs vary based on the project’s size and complexity, but a thorough investor-side review typically involves two engagements. EB-5 immigration counsel fees cover the I-526E petition and source-of-funds work. Separate investor’s counsel fees cover review of the PPM, operating agreement, loan documents, leases, and related transaction documents. Compared with the USD 800,000 minimum investment at risk, properly scoped diligence is a small fraction of total exposure and is the single most valuable layer of investor protection. To understand how the Davies & Associates EB-5 practice scopes investor engagements, see our EB-5 Lawyer for Investors page.

External References

• USCIS — EB-5 Immigrant Investor Program
• USCIS — EB-5 Regional Centers
• ASTM E1527 — Phase I Environmental Site Assessment standard