The issue is whether the project will follow the business plan and complete the project. Project completion is far from guaranteed – even with a completion guarantee. While nice to have, what is more important is ensuring that the developer has an acceptable amount of cash invested into the project to financially incentivize the developer to complete the project. While this may vary from asset class[1] and size of capital stack, it is critical to know that the developer has sufficient cash, so that it will not be likely to walk away from the project. Currently in EB-5 some developers are redeploying EB-5 funds from other projects and calling those funds “equity.”
In this case, that is clearly not the same as cash. It is critical to confirm that the developer invested substantial cash that it would have to walk away from if it does not complete the project. During Covid, we saw developers walk away because there was not sufficient financial incentive to remain. For this reason, the focus must be on cash invested in the project. Another issue to consider regarding project completion is whether the capital stack is complete. It is best to invest in a project that is fully capitalized and does not rely on EB-5, but is replacing more expensive capital with less expensive EB-5 capital.
[1] 15%-25% cash invested is common.
