EB-5 investors participate in U.S. projects as overseas investors. Because investors are not physically present in the United States, it is often difficult for them to fully understand U.S. laws and regulations, as well as the true condition of the investment projects. When deciding to invest in an EB-5 project, investors assume a wide range of risks. Therefore, this article analyzes potential risks from the perspective of EB-5 investors under the regional center model, focusing on various stakeholders who may create exposure to risk.

Generally speaking, under the regional center model, EB-5 investors primarily consider two major categories of risk:
(1) Whether they can successfully obtain lawful permanent residence after investing in the EB-5 project (immigration risk); and
(2) Whether the investment project will generate a return (financial risk).

Because the EB-5 process requires two separate immigration filings and often involves lengthy waiting periods before approval, evaluating stakeholder-related risks—such as the sustainability of the EB-5 project, the operational capacity of the regional center, and whether the new commercial enterprise can return invested capital—is critically important.

 

Financial Risks

1. Risk of the Job-Creating Entity (JCE)

EB-5 investors typically first encounter information about the Job-Creating Entity (JCE). The JCE’s track record and reputation are critical considerations, as it directly uses EB-5 funds to generate profit or loss. Investors should evaluate whether the JCE’s management team possesses the necessary experience, competence, and reputation.

Before investing, investors should ask:

1. How many similar projects have been successfully completed?

2. How much relevant experience does the management team have?

3. How much of their own capital has management invested in the project?

4. Has management or the developer previously conducted business with banks or third-party institutions?

5. Does the developer or management team have a history of default, dishonesty, or ongoing litigation?

Each of these factors presents potential risks that could result in misuse of funds or project failure.

2. Third-Party Escrow Agreements

Most EB-5 investors prefer placing their funds into a third-party escrow account until their I-526 petition is approved. However, because I-526 adjudication is lengthy and unpredictable, many developers prefer releasing escrow funds upon filing the I-526 petition.

The conditions for release depend on the structure of the escrow agreement. Investors must clearly understand the escrow structure before investing to ensure it aligns with their expectations.

In practice, risks may arise when:

• There is no escrow agreement;

• The escrow agreement exists but is not properly implemented;

• Funds are not deposited into the escrow account;

• The “third party” shares interests with the project sponsor;

• Investors are asked to amend or revoke escrow protections after signing.

Investors should promptly consult with legal counsel to avoid potential fraud risks.

3. Exit Provisions

Many investors are concerned about whether their capital contribution and administrative fees will be refunded if their I-526 petition is denied.

Typically, project agreements specify how funds will be handled upon denial. Some projects state that investment funds will be returned within a specified number of days. However, such provisions are meaningful only if sufficient financial backing or assets exist to support repayment. Without adequate guarantees, refund clauses may be ineffective.

In some cases, agreements require that even if the I-526 is denied, the investor’s funds must remain in the project until project completion. Given uncertain timelines and potential default risks, this significantly increases the risk of capital loss.

In addition to the investment amount, investors must pay administrative fees. Ideally, contracts provide for refund of administrative fees if the I-526 is denied. Less favorable agreements may state refunds are not guaranteed or will be made only on a “best efforts” basis.

Importantly, USCIS requires EB-5 investments to be “at risk.” Therefore, no legitimate EB-5 agreement can guarantee full return of capital. If full repayment is guaranteed, the investment would not meet USCIS requirements.

Accordingly, investors must evaluate whether the exit strategy is realistic and reliable. For example, if a major third-party bank or institutional lender guarantees the project, this suggests the exit strategy is more credible, since lenders conduct independent risk assessments before providing financing.

4. Capital Structure of the Job-Creating Entity

Many JCE projects include capital from non-EB-5 investors. The percentage of EB-5 capital affects whether the entity has sufficient financial cushion and whether required job creation targets can realistically be met.

If a project cannot secure traditional bank financing at a reasonable loan-to-value (LTV) ratio (for example, above 50%), this may signal excessive project risk and over-reliance on EB-5 capital.

Generally:

• If EB-5 funds exceed 50% of total project capital, investors should exercise heightened caution.

• If EB-5 funds are below 25%, project risk is typically lower.

• Lower EB-5 capital percentages also provide a greater “job cushion” per investor, improving immigration safety margins.

Developers typically contribute their own equity. U.S. banks generally require developers to invest at least 15–20% equity. If developer equity falls below 10–15%, project risk increases significantly.

5. Rate of Return

EB-5 investments generally offer low returns (approximately 0%–1%), so financial yield is typically not the primary motivation and has limited impact on investment decisions.

Immigration Risks

1. Project Completion Risk

Investors must assess whether the JCE will complete the project as planned, create sufficient jobs, and maintain adequate funding—particularly if not all EB-5 capital is raised.

Projects that rely less heavily on EB-5 capital—such as those using bridge financing—may present lower completion risk. Given the competitive EB-5 market and unpredictability in capital subscriptions, timely project completion is critical.

Job creation calculations often rely on construction expenditures and operational revenues. The safest scenario is one in which sufficient jobs are created during the construction phase alone, creating a “job cushion.” In this scenario, even if unexpected events (construction delays, natural disasters, etc.) occur, immigration requirements may still be satisfied.

Despite marketing assurances, contracts often contain exception clauses that shift risk to EB-5 investors. For example, escrow agreements may require third-party capital thresholds before releasing EB-5 funds. If those thresholds are not met, project progress may stall indefinitely.

2. Timing Risk of Job Creation

If sufficient jobs are not created within the required timeframe after I-526 approval, investors risk losing their conditional permanent resident status. Therefore, job creation timing must comply with USCIS requirements.

3. Regional Center Risk

To qualify under the regional center program, investors must ensure:

• The project is properly affiliated with an approved regional center;

• The regional center remains in good standing with USCIS.

More importantly, investors must examine whether the regional center and the JCE share common ownership or management. Such relationships must be fully disclosed. In practice, shared management structures may create conflicts of interest.

Often, the regional center manages or facilitates EB-5 investments, while the JCE acts as the borrower of EB-5 funds. Without independent oversight, overlapping management may lead to misuse of EB-5 capital. In recent years, some cases have involved regional centers engaging in fraud and misappropriation of EB-5 funds.