Here are several investment models investors should consider when planning a EB-5 investment strategy
“For investors, the EB-5 space presents several models for participation, ranging from one that requires investors to take the initiative, found, manage and direct an enterprise to another in which EB-5 investors essentially hold securities in funds that help finance job creating enterprises.”
In our first article on the EB-5 Immigrant investor visa, we tried to dispel some of the common misconceptions about this visa category. In our second article, we discussed the EB-5 visas three basic requirements relating to levels of investment, job creation, and investment sustainability. In this article, we are going to focus on EB-5 investment models and how they compare and differ from one another.
1. The Stand-Alone (or Direct) EB-5 Investment Model
The Stand-Alone, also called the Direct, EB-5 investment model reflects the original vision of the program, which was to encourage foreign entrepreneurs to invest in and direct and manage new commercial enterprises. As we have previously discussed, the standard investment threshold is $1 million, but if the new commercial enterprise were sited in a Targeted Employment Area, the threshold would be reduced to $500,000.
Generally, individual entrepreneurs establish Direct EB-5 enterprises. Examples of such direct investments are restaurants, manufacturing facilities, stores, etc. which would be actively managed and directed by the foreign entrepreneur. It is expected that an entrepreneur interested in establishing a direct EB-5 enterprise have the requisite background and expertise to develop and manage such an enterprise.
2. Direct, Scalable, EB-5 Investments
The Direct, Scalable, EB-5 investment model involves developing a structure designed for the creation of multiple business units, each of which would be managed and directed by a separate EB-5 investor.
One example of this investment model is the restaurant franchise, which involves standardized restaurant units that are, in effect, sold to entrepreneurs who are expected to direct and manage them. Franchises are created by sponsoring businesses, which sell participation rights in business units to investors.
The increasing popularity of this scalable EB-5 business model stems from the fact that a qualified entrepreneur does not have to create an enterprise from scratch, but can buy into an already existing enterprise model that has proven traction in the marketplace.
The Direct, Scalable investment model does not necessarily require a franchise framework. Any enterprise that can scale up its number of business units can potentially be a scalable EB-5 investment. For example, E3 Investment Group has shown how a trucking company can be structured as a scalable investment potentially involving scores of qualified, individual EB-5 investors.
Next- Regional Center and Takeaway