Risk Management Framework
In order to better communicate the great diversity of risk that must be managed with respect to EB-5 projects, we developed our Risk Management Framework as a guide.
Investing in private equity and real estate is challenging enough in your own backyard even if you have decades of experience. Prospective foreign investors are attempting to understand risk and make sound decisions with limited knowledge or insight into the local markets within the U.S. demographic profile, feasibility, operating teams, or any truly defensible metric. That is, of course, one of the reasons we focus on Family Office projects.
However, we wanted to equip EB-5 investors with a resource that can aid them in asking the right questions, challenging underlying assumptions, and better defining the true risks of any project.
There are two broad categories of risk with respect to EB-5:
Immigration Risk Factors
Investment Risk Factors
Immigration risks are those that can have an adverse impact on your application for US residency. While a portion of those risks can be attributed to your personal application and the performance by your personal immigration lawyer, the Regional Center also has specific rules and objectives as it relates to the project.
We will take a deeper dive on each in subsequent posts but suffice it to say, the job creation elements are especially critical. Below is an infographic of the key immigration related risk factors.
Investment risks span the universe of variables that equally apply to all investors. One of the axioms of the private investment space is that the level of return on a given investment is highly correlated to the level of risk taken in that underlying investment. Therefore, private equity is first and foremost about defining, mitigating, and managing the true finanical risks.
EB-5 is somewhat unique in that the priorities for most investors are: (i) obtain US residency, and (ii) safe return of invested capital. The return on investment is historically low and is, in many ways, traded in exchange for improved safety and certainly of outcomes.
Therefore, the key risk management drivers for EB-5 will be even more heavily weighted towards preservation (protection) of capital and achieving the highest probability of a successful project. We will explore these further in future posts.
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