For those considering making an EB-5 investment, you will no doubt hear of three different kinds of EB-5 business plans: hypothetical, actual and exemplar. Each kind of business plan has different benefits and drawbacks from the investor's perspective. This article will provide a brief explanation of each type of business plan and what it means to investors.
Any kind of EB-5 business plan could be submitted alongside a regional center application, while a so-called 'direct' application requires the use of an exemplar EB-5 business plan.
A hypothetical EB-5 business plan is a plan that provides an approximate overview of the project in question. The details required for a hypothetical plan are usually very high level and non-specific. Details in a hypothetical plan can include economic model inputs, feasibility study or information and general proposals and predictions. The benefit of using a hypothetical plan is that it allows the project owners to move more quickly in terms of getting their project financed, which adds to overall project stability. On the downside, however, investors should be aware that when a hypothetical plan is used, a more formal or exemplar plan would need to be submitted with the project's first investor (I-526) application. From the investor perspective, this means that the business plan is effectively being reviewed and approved by USCIS for the first time with the first investor's I-526. If an investor is among the first to apply for an I-526 under a given project which uses in an exemplar plan, the project would effectively be reviewed for the first time by USCIS at that time. Subsequent investors in a given project would likely benefit from USCIS giving deference to the project approval based on the first investor's approval.
An actual EB-5 business plan is a more or less complete plan although it may be missing some critical pieces such as offering documents. The pros and cons of an actual plan from the investor perspective are similar to those of a hypothetical plan, although presumably USCIS will review the information that is in front of them with regard to the plan itself. Although the project would not benefit from a formal USCIS approval, project developers would benefit from having feedback from USCIS on what was submitted. In effect, this means that the risk to the investor of the project itself not being approved at the I-526 stage is smaller than in the case of a hypothetical plan.
An exemplar plan is a complete plan, which includes offering documents, transactional documents and evidence that the project is shovel ready (i.e. ready to start right away). When USCIS accepts an exemplar plan, it is very unlikely that the plan itself would be challenged at the I-526 stage. This kind of approval provides investors with the least overall risk of USCIS refusing the project part of their application.
Does That Mean Exemplar Plans Are Best?
Not necessarily. As a general rule, investors may prefer the security that comes from an exemplar plan being used, however, it is worth noting that the team behind the project, experience with EB-5 and the team that does due diligence on the project can provide significant added value in terms of mitigating the risk or ensuring that the deal in question is a good one. If an investor's application is not accepted at the I-526 stage due to project deficiencies, with a good team this only means that there may be some delay in processing the I-526.
It is also worth noting that proposed changes to the EB-5 program (not yet approved), would not allow for the marketing of projects to investors without approval of an exemplar business plan, which is a departure from current rules, which allow for marketing once a hypothetical plan is filed.
The best advice for investors is to look for a quality project first and to ensure that whoever is representing the project is experienced in EB-5 and has done a significant amount of due diligence. Given the sea of choices in EB-5 today, investors should consider the quality as the top priority and worry less about delays, which can be common regardless of the kind of business plan being used.
Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com).