In a recent webinar, CanAm Investor Services CEO Peter Calabrese and Michael Harris, a seasoned immigration attorney from Harris Law P.A., shared valuable insights into the EB-5 investment program, particularly the essential role of job creation. As Calabrese highlighted, “Job creation in EB-5 is a subject that gets thrown around a lot,” but often investors focus on it superficially, not realizing its importance in securing a successful EB-5 green card. This conversation offered essential guidance for investors and underscored the need for a solid understanding of job creation to achieve EB-5 objectives.
The EB-5 Capital Stack and Job Creation
An EB-5 investment requires careful planning, especially around the project’s capital stack—the combination of debt, equity, and financing that fuels development. Harris elaborated on this structure, explaining that investors should assess a project’s funding sources closely. “You should see the total cost of the project and the different sources of where that capital is going to be coming from,” Harris noted, underlining that investors should understand the breakdown and usage of these funds, whether from EB-5 investments, equity, or other financing sources.
Calabrese expanded on this, noting that EB-5 funding often plays a catalytic role: “It would be safe to say that theoretically this project would not be happening but for the EB-5 funding going into it.” He emphasized that while EB-5 funds may be just one component, the entire capital stack contributes to job creation, which is crucial to meeting EB-5 requirements. Harris confirmed that “all the uses of funds being utilized in the project towards the development can be utilized in the job creation predictions,” meaning the entirety of a project’s funding can positively impact the required job creation targets.
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Timing and Documentation of Job Creation
The timing of job creation within an EB-5 project is a critical factor. According to Harris, the U.S. government adheres to a “two and a half year rule,” expecting jobs to be created within two and a half years of the investor’s I-526 petition approval.
“The rule is that within two and a half years, [the jobs] should be created at the very latest,” Harris explained.
Calabrese clarified that proving job creation comes later in the process, at the I-829 petition stage, where investors must show that the anticipated jobs were indeed created. This documentation can significantly impact the investor’s path to a green card, making it essential to partner with a reliable regional center that comprehends the nuances of job creation documentation.
Indirect vs. Direct Job Creation
In regional center projects, job creation typically follows an indirect model, which uses economic multipliers to estimate job impact rather than counting only direct employment. Harris explained, “Under the EB-5 regional center program, we’re able to use indirect job creation supported by reasonable economic methodologies,” a system designed to include job creation effects from construction, operations, and other economic impacts. This model is based on longstanding economic studies that allow projects to estimate the number of jobs created from various expenditures.
This distinction is critical because direct job creation models, which focus on employment within the project itself, can be limiting. “The economic impact model…can help us to easily analyze how many jobs are being created from this project,” Harris pointed out, comparing it to a lemon: while a direct project might only squeeze a portion of the lemon, indirect job creation “gets the full amount of the juice,” maximizing the benefits. However, Harris also stressed that investors must pay close attention to the types of jobs being forecasted, as reliance on volatile factors like project revenues could introduce risk.
Risks in Job Creation: Avoiding Pitfalls
A key theme of the webinar was the importance of risk assessment in EB-5 projects. Harris cautioned investors about projects with high dependencies on certain funding sources, such as pre-existing debt, as they may be more vulnerable to economic fluctuations. “If you need 1,000 jobs and 40% of them are coming from construction and 60% from revenues, and that revenue doesn’t materialize, you’re in a risky spot,” Harris explained. Calabrese concurred, emphasizing the value of choosing a conservative path, especially for investors seeking long-term stability: “You want to go into an investment where you’re expecting to create 1,001 jobs, not just 1,000.”
To mitigate such risks, CanAm takes several steps, including securing completion guarantees and incorporating “buffers” into job creation estimates. “We want to make sure that we will take a very conservative estimate of the job creation that’s coming from a project in the first place,” said Calabrese, describing CanAm’s approach to project financing. This buffer provides a safety margin, ensuring that even if job projections fall short, investors’ immigration outcomes remain unaffected. According to Calabrese, these are critical precautions that help investors navigate the EB-5 process more confidently.
Role of Due Diligence and Compliance
Both Calabrese and Harris emphasized the role of strong legal and regional center partnerships. Calabrese underscored the value of working with attorneys who understand both the financial and immigration aspects of EB-5 projects, explaining, “A great attorney…will judge how viable of an immigration-linked investment decision [the project] is.” Harris added that a good regional center will prioritize investor interests by maintaining transparency, adhering to securities laws, and providing thorough updates throughout the investment period.
CanAm’s status as one of the few regional centers with an in-house broker-dealer was also discussed. “Having an in-house broker-dealer means CanAm complies with stringent securities laws,” noted Harris, adding that “these are the types of questions you want to be asking when you are approaching a regional center.” Investors should confirm that their regional center follows best practices, such as regular investor communication and detailed project reporting. According to Harris, this “best practices approach” can be a deciding factor in project success.
Final Takeaway: Careful Planning and Partnership Are Key
In closing, Calabrese highlighted the importance of careful planning and conservative project selection, advising investors to approach the EB-5 process with a clear understanding of job creation and financing. “It’s a great program when done right, and there are great ways for people to go forward,” he remarked, underscoring CanAm’s commitment to investor success.
Harris echoed this sentiment, adding that the quality of the regional center and legal support could make a substantial difference in investor experience. He noted, “This is a multi-year relationship…being treated right is incredibly beneficial if you’re working with a company that knows what it’s doing.” For prospective EB-5 investors, this webinar served as a reminder of the importance of a careful, informed approach in navigating EB-5 projects and selecting the right partners.
This webinar showcased the detailed process behind EB-5 investments and job creation, with Calabrese and Harris providing a comprehensive roadmap for investors. Their insights make clear that successful EB-5 investments require more than meeting the minimum job creation metrics—they demand diligent planning, conservative estimates, and, most importantly, a reliable team dedicated to long-term success.
