Investment Models For Planning A Job Creating Small Business
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3. Regional Centers
The third major EB-5 investment model is the Regional Center Model under which EB-5 investors invest in projects sponsored by a Regional Center. Investors would participate in a new commercial enterprise, which would make loans to, or take equity in a job creating enterprise. We discussed in our last article peculiar features of the Regional Center Model, the most important of which is that job creation can be counted that is not only generated directly by the job creating enterprise, but by other businesses that may supply or provide services to the job creating enterprise. Another important feature of the Regional Center Model is that it provides an opportunity for investors to invest more passively in an EB-5 enterprise in contrast to the direct EB-5 investment model that requires investors actively to direct and manage the enterprise.
Because Regional Center projects, generally, involve an investor’s obtaining a limited partnership or membership interest in a new commercial enterprise that serves as source of capital for the job creating enterprise, such participating interests are considered securities under the U.S. Securities laws, which implicates a layer of regulation that investors need to be aware of.
The significant capacity of regional centers to aggregate huge amounts of EB-5 capital has not been lost on some EB-5 theoreticians interested in scaling up direct investments by positioning investment funds as new commercial enterprises, along the lines of the Regional Center model. The nuanced differences between these models is explained by Nima Korpivaara in his very instructive article–“Advanced Direct Investment Structures: Ending the Myth of Direct Investor Owner/Operator”, EB-5 Investor Magazine (August 19, 2014).
4. The Take Away
From being a vehicle for foreign entrepreneurs to start job creating enterprises in the U.S., the EB-5 program has morphed into a method to amass large amounts of investment capital to help finance sometimes very extensive construction and development projects. 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 future articles, we will explore further how an investor should consider these options in assessing how to structure a prospective EB-5 investment.
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The Immigrant Investor Meets Realities, Part I
