Guaranteed EB-5 Job Creation: Use Indirect Construction Jobs

The heart and soul of the EB-5 investment immigration program is based on creating full time jobs for U.S. workers. There are a lot of ways to create jobs but not all of them are as dependable or easy to account for. Developers and investors are both highly invested in making sure that the project creates enough jobs and qualifies the investors to finally obtain their permanent green cards. The absolute best way to create jobs is through indirect construction jobs.

In order to understand why indirect construction jobs are better, I need to have a deep understanding of the various types of job creation, how they are accounted for and the risk associated. Brief descriptions of various different job creation methodologies.

Direct Jobs (Medium difficulty to estimate for USCIS, difficult to report & high risk to maintain through investment period)

Direct jobs are jobs that are created directly by the developer through hiring of employees. Employees must be full time, have benefits and all the proper tax documentation associated. The job counts need to be justified through third party feasibility reports or some source outside of the EB-5 project developer that justifies the assumptions of job creation. In a hotel example, the EB-5 project would need to justify their projected staff levels to make sure they are not overstating their job creation.

Benefit: Direct jobs can be counted in addition to indirect jobs adding an extra opportunity add more job creation and potentially lower risk for investors. The developer is in complete control of whom it decides to hire so the developer can choose to fulfill this job creation.

Risk: The documentation and management needed to report direct jobs is by far the most time and cost intensive. Employees may not stick around for 2 years or some service level employees might not even be properly documented Americans. The developer may not know the employee had falsified documents but USCIS surely will when they start counting up all the individual employees hired by the EB-5 project. Most EB-5 projects try not to utilize direct jobs much or at all due to the complexities and risk.

Indirect Jobs (Easy to estimate for USCIS, easy to report, multiple types of Indirect job categories)

With the introduction of the Regional Center Program, USCIS introduced policy where a projects job creation could be reported through verifiable means such as using an economic impact model such as RIMS-II or IMPLAN. Essentially it is recognized that an EB-5 projects job creation potential exist outside of who it hires directly because of the economic “ripple effect” that would be caused. The economic impact and job creation within these models is really defined by two categories, “Revenue” or “Spending”.

Indirect Jobs – Revenue Based

Revenue based indirect jobs are based on revenues earned through the operations of the new EB-5 business. Hotels earn revenue by guests staying at the hotel, Factories earn revenue by selling the goods they produce and apartments earn revenue by leasing units to tenants.

Benefits: Revenue based jobs are easy to estimate for USCIS through third party market studies readily available from consulting firms projecting potential revenues and reporting those jobs are as simple as providing audited financial statements showing how much gross revenue was earned.

Risks: The risk associated with Revenue based jobs is market risk. If the business performs poorly, the jobs won’t be created. For a project to rely on Revenue based jobs, the investment must be financially successful and on schedule. The investor needs to rely on the management and market completely for these jobs to be created. If the business doesn’t open and start generating revenue during the EB-5 investors 2 year period, then theoretically zero jobs would be created.

Indirect Jobs – Spending Based

Indirect jobs created through spending include examples such as spending on construction, purchase of equipment or services.

Benefits: spending is the ideal form of job creation for an EB-5 project. Specifically, jobs created through construction spending are the ideal source of job creation. The scale of construction projects are large in comparison to other spending thus allowing a large scale, simple to account for, and reliable job creation opportunity. Construction jobs are easy to estimate for USCIS at the I-526 stage through a detailed bid from a contractor. For investors, they can have confidence in the jobs actually happening as construction spending is 100% controlled by the developer. Since the developer is being provided the capital they need through EB-5, they will be able to spend it on construction and easily create the jobs. Construction spending based jobs are easy to report to USCIS by submitting financial statements showing the expenditures related to construction. For all of the reasons above, construction jobs are by far the most favored form of job creation in the EB-5 industry for both developers and investors.

Risks: The risk of the construction project really depends on the type of asset, the difficulty of the construction and the experience of the developer or contractor. USCIS also requires that construction projects last longer than 2 years in order to get the maximum amount of job creation value within the RIMS-II model (or “direct” multiplier rather than “indirect” multiplier). The difference in job creation from construction on a project that lasts less than two years can be almost 50% less through the RIMS-II model. Construction of wood frame homes is common and a mature process whereas construction of major infrastructure projects such as an underwater tunnel is more complicated, expensive and subject to potential delays. The Bay Bridge running from Oakland to San Francisco took over 25 years to complete and was massively over budget. Each project has different construction risks.

The Berkeley Regional Center Fund, LLC specifically focuses on residential projects with construction as its core job creator specifically to lower the risk for EB-5 investors as much as possible. For example, The Berkeley Regional Center designs its EB-5 investment opportunities to protect investors from all angels. Copperstone Villages (Sacramento, California) a 270 unit apartment EB-5 project creates 100% of its needed jobs from construction and we obtained completion guarantees and a guaranteed maximum price contract from the general contractor. When the project is finished, EB-5 investors will have a cash flowing luxury apartment building protecting their cash investment. To learn more about the low risk EB-5 investment opportunities from the Berkeley Regional Center, contact us now.