EB-5 Project Scoring Index TM - PDF Free Download

Executive Summary The EB-5 Project Scoring Index (PSI) is provided to help investors assess the probability of an EB-5 investment generating the desired outcome of: 1. Creating sufficient jobs for the project to achieve USCIS's requirements of creating 10 jobs per investment on time, (thereby generating a Green Card for the investor and their family), and; 2. Achieving sufficient operational success to enable the project to repay the investment within 3-5 years. The Project Scoring Index (PSI) assesses and scores 26 specific and material EB-5 project risk elements. These 26 items are grouped into Seven sections, in accordance with the Seven C s of EB-5 Investing. The sections address: Market Conditions (Industry, National and Local Market need) Evaluates and scores the empirical data from the: Market Study, Appraisal, as well as Industry and National Market research. Character (trustworthiness of borrower / developer) Evaluates and scores the Personal Credit Rating, Credit Worthiness of business, Lawsuits, Bankruptcies, Criminal Background check, Foreclosures, and a personal subjective Integrity assessment, based upon interviews. Capital (developer equity - at risk) Evaluates and scores the Project Equity compared to industry norms and perceived project risks. Also evaluated is the Debt / Equity ratio at time of I-829. Collateral (Assets available for loan / investment repayment) Evaluates and scores the Value of the project at stabilization needed for future refinancing. Also assessed are collateral guarantees. Capacity (lender / investor payment ability - from operations) Evaluates and scores the: Debt Coverage Ratio, Developers Liquid Net Worth, Reserves and Working Capital, Net Operating Income and Pricing Assessment for Product or Service. Competence ( on-time EB-5 job creation assessment) Evaluates and scores the: Competence and Prior Success record of the Development Team, Similar Project - Job Creation Success, Similar Project Time measured Job Creation assessment and the Months to Project Stabilization. Capability (repaying the EB-5 investor on time) Evaluates and scores the: Viability and Timing of EB-5 Investor Repayment plan, Interest Rate Sensitivity analysis, Assessment of Project s Future Market Demand and Probability of future Refinance or Project Sale. Project Scoring Convention The PSI scores each of the 26 assessments with a score that based upon 1 10. (10 being highest) The scoring methodology assumes that there is no such thing as a 10 score (no project attribute can be perfect ), therefore the highest grade assigned is a ) A score of would equate to EXCELLENT, an would equate to VERY GOOD, a would equate to GOOD and a or below would be POOR. PSI Q 3, 2012 Copyright 2012, Education Fund of America, LLC Page 2

Project Scoring Index - Detail EB-5 Project: Public Charter School Project Name: Prepared By: Education Fund of America, LLC 1. CONDITIONS - Industry & Market Demand for the Project Scoring the Risk Score Industry assesment Project is in a Industry: Industry factors can and should be considered a "Risk" factor. Different industries react to changes in the economy - differently. Slightly Affected by economic change... Moderately Affected by economic change... Highly Affected by economic change... National market assessment National Market Demand is: The national "market need" projections (for a business) is essential to understand, to enable a current financing and future "refinancings." Proven & Growing need for business for next 20+ years... Stable & Predictable need for business over next 20+ years... Possible need for business over the next 20 years... Local market assessment Occupancy, Market Penetration ratio's & other measurements Proven market need for a project is the most important 1st step in assessing project viability. A Market Study and / or Appraisal is Proven - Significant local market opportunity for business... Proven - Average local market opportunity for business... 2. CHARACTER - Trustworthiness of Project Principals or Entity Credit Rating (Personal) assessment Average Credit Score of Principals: The credit score (3 agencies) gives an assessment of the payment abilities and payment history. Credit analysis (Business) assessment The credit analysis on the Developers business indicates it's financial health through the eyes of others who have extended credit, loans, payment terms, etc. Above 800,... Between 750-799... Between 700-749... Below 700... Credit Report for the business (D & B, Emperion, bank references, etc.) A Rating... Rating... C Rating... D Rating... B 5.5 PSI Q 3, 2012 Copyright 2012, Education Fund of America, LLC Page 3

Lawsuits, bankruptcies, foreclosures Lawsuits lost (as defendant), bankruptcies, foreclosures or deed-in lieu Lawsuits with judgments awarded against the Principals may be a cause for concern. Bankruptcies or foreclosures may indicate lack of business competence, skill or abilities. Character - integrity assessment Would you personally loan the principals $5,000 on a handshake? Meeting the developer or project principals... is essential. This can be done either personally or via a video call or even viewing a video. There is nothing like seeing a person - to complete your assessment as to the person's honesty, integrity and trustworthiness. None...... Two... Yes... Possibly... Doubtful... No... One 0 ( n/a ) 1.5 3.5 1.5 0.0 3. CAPITAL - Developer's equity, at risk Scoring the Risk Score Project equity assessment Developer Capital invested - as a percentage of COST Developer's "skin in the game". Note: projects with REVENUE coming from governmental entities (Publically Funded) or committed from AAA rated entities may qualify for lower developer equity - because of lower perceived "Revenue" risk. Over 40%... Between 20% - 40%... Under 10%... Privately Funded Publically Funded Debt Equity analysis at I-829 adjudication the percent of business debt divided by business equity This financial ratio measures a company's leverage by dividing its Long Term Debt (LTD) by stockholders' equity. In this assessment, determine stockholder equity by valuing the business (at I-829 time) and subtracting the debt. Below industry norm... At industry norm... Above industry norm... 4. COLLATERAL - loan or investment security backing Value (appraisal) assessment Value appreciation - at stabilization Establishing the value of a business, via an appraisal, is a requirement for bank involvement in a project. it is also a good measure to determine how much value is created (above cost) at stabilization. Greater than 26%... Between 16-25%... Between 5% - 15%... Below 5%... Collateral guarantee assessment Guarantees - a secondary source of repayment Guarantees include personal and / or business guarantees assuring investors or lenders that the guarantor will make the periodic payments and satisfy any repayment shortfall. Some projects are able to purchase guarantees - called "Credit Personal Guarantee... Enhancements". The EB-5 program does not Business* Guarantee... No guarantee... allow a repayment of principal (invested sums) guarantee. EB-5 investments must be "at risk". Projects considered "low risk" may often not require a personal guarantee. * other than the business entity being financed with EB-5 funds PSI Q 3, 2012 Copyright 2012, Education Fund of America, LLC Page 4

Lien position assessment EB-5 Lien position - as a Percent of Cost Banks and other financial institutions like to be in a first lien position of up to 75% - 80% of VALUE (for an established business) or the same percentage of COST- for a start-upbusiness. Note: Publically (Gov.) Funded projects may show first lien positions that exceed 90% - 95% of COST. For example, banks and Bonds have funded projects up to 100% of COST Privately Funded Under 60% LTC... Up to 75% LTC... Up to 90% LTC... Publically Funded 9.0 5. CAPACITY - Project's payment ability, from operations Debt Coverage Ration (DCR) assessment Debt Coverage Ratio: This coverage ratio helps to access the additional capacity of the business to make debt and equity payments - if there is a business decline. The (DCR) shows the percentage of additional cash available - to continue making the debt payments - in the case of an unforeseen business problem. Above 2.0... Between 1.6-1.99... Between 1.251-1.6... Below 1.25... 5.5 Developer's net worth assessment Developer's: "Liquid" net worth as a percent of project cost The developer is usually looked upon to continue making periodic payments, if the business encounters a financial payment problem. The ability to make the payments is usually determined by looking at the developer's Net Worth, especially the "Liquid" Net Worth. Above 25%... Between 10.1% - 25%... Between 5.0% - 10%... Below 5.0%... 5.5 Revenues and working capital assessment Funded O & M reserves at start-up and through operations The replacement reserves and working capital should be adequately funded at start-up. There should be a well defined Operations & Maintenance (O & M) plan & budget. Revenue predictability assessment Strengths, Weakness, Opportunities, Threats (SWOT) Analysis Achieving the revenue plan for an real estate based EB-5 project is a function of 3 primary factors... Is the product or service better in terms of: 1. quality, 2. price, 3. ability of the marketing team? Review the business SWOT to assess this. Funding exceeds plan... Funding at plan... Funding below plan... Compelling & Convincing (no doubts)... Very Believable (few doubts)... Believable... Not Sure... 5.5 PSI Q 3, 2012 Copyright 2012, Education Fund of America, LLC Page 5

Net Operating Income assessment Expense ratio assessment - within industry norms: The project's NOI is a function of income achievement and expense control. Are the expense ratio's and NOI within industry norms? If not, is the logic compelling and irrefutable? Better than industry norms... At industry norm... Worse than industry norms... 5.5 Product or service - pricing assessment Competitor: Value / Price Analysis Does the Product or Service offer greater perceived VALUE for the PRICE - when compared to competitors? Better Value at = Price... Same Value at = Price... Can not Determine... 6. COMPETENCE - Creating EB-5 Jobs, on time Scoring the Risk Prior management team success Starting & successfully operating a similar business Prior experience successfully starting and operating a similar business is probably the best indicator of likely success creating a new business. EB-5 investing is NO place to bet on amateurs or propel without lots of proven More than 7 times... 4-6 times... 1-3 times... First time... Similar project - job creation experience Proven competence creating Jobs - compared to EB-5 requirements Previous success in creating jobs with the same project type - in the needed timeframe - is probably the best indicator of likely success creating jobs with the current project. More than 7 times... 4-6 times... 1-3 times... First time... On time - job creation analysis Creating the jobs - "on-time" This analysis looks at the time period from initial project funding to the I-829 adjudication and evaluates the probability of the jobs being created "on-time". Economic modeling methodologies (IMPLAN, RIMS II, etc.) must be factored into the assessment. 99% certain... High degree of certainty... Good degree of certainty... Uncertain...... Months to job stabilization assessment Jobs assessment - 24 months after 1st Green Card issued This analysis looks at the percentage of the needed jobs being created by the I -829 adjudication. 130% of jobs needed will be created... 115% of jobs needed will be created... 105% of jobs needed will be created... Uncertain... 3.5 PSI Q 3, 2012 Copyright 2012, Education Fund of America, LLC Page 6

7. CAPABILITY - Repaying EB-5 investors, on time Prior Project Starting a business and repaying investors - back within 5 years Investor repayment assessment This assesses the developer's prior experience starting a similar business AND repaying investors (or a lender back) within 5 years of the funding... during the past 7 years. More than 7 times... 4-6 times... 1-3 times... First time... Timing of Investor repayment - analysis Soonest probable timeframe to repay the EB-5 investment This assesses how soon is the business able to realistically pay back the investors, without consideration of the I-829 adjudication restrictions on repayment. 3 years... 4 years... 5 years... 6 + years... Interest rate sensitivity - analysis Financing ability - at higher rates - is sufficient to repay investors Financing availability and interest rates are extremely uncertain - for any future period. However, a financing assessment of the project should be undertaken - using a 1.4 DCR and using interest rates at least 3.0% higher than current. Amount exceeds loan payoff by over 31%... Amount exceeds loan payoff by 16-30%... Amount exceeds loan payoff by 1-15%... Amount meets loan payoff... Amount does not payoff balance... 3.5 Market demand - future period - analysis Growth rate for industry and demographics vs. national average The projected 10+ year growth trends for an industry AND the local market are important - if a financing entity is needed to repay the EB-5 investors. For example: are the local demographic trends favorable? Will the industry likely expand or contract, etc. Above average rate... At average rate... Below average rate... 5.5 Repayment via sale predictability - analysis Discounted sale value of business sufficient to repay investors A sale of the business is another method to repay the EB-5 investors. Income producing businesses are mostly sold on either a multiple of revenue, or a CAP rate tied to a variation of EBIDTA. Determine the sale value of the business at time the repayment is promised and then discount that amount by 35%. That net balance needs to be sufficient to pay all obligations Amount exceeds EB-5 and debt payoff amounts... Amount meets EB-5 and debt payoff amounts... Amount does not payoff EB-5 and debt... PSI Q 3, 2012 Copyright 2012, Education Fund of America, LLC Page 7

Risk Assessment of: Project's ability to achieve objectives Score Conditions - market demand Excellent Character - of principals Excellent 9.2 Capital - invested by developer Very Good Collateral - loan security Very Good 8.2 Capacity - to make payments Very Good 9.0 Competence - to create the jobs Excellent Capability - to repay investors Excellent Overall Rating Excellent 9.05 Disclaimer: The Project Scoring Index (PSI) utilizes many industry accepted Credit Analysis and Financial Underwriting methodologies to analyze the prudence of lending - investing funds into an Income Producing real estate based project. The PSI cannot and should not be used as the sole determinant in making an investment decision. There are many more levels of analysis that may be appropriate for a specific investment. Education Fund of America, LLC (EFA) is providing the PSI and it's Seven C's methodology to help EB-5 investors better assess project risks by reviewing the assessment methodologies used by EFA. All assessments are qualified in their entirety by the Project Offering documents, specifically the Business Plan and the Private Placement Memorandum. PSI Q 3, 2012 Copyright 2012, Education Fund of America, LLC Page 8