EB5 Reality Check

(Author: Joseph P. Whalen)  

Joe Whalen

As 2012 draws to a close, I figured that a basic review of some of the major and broad issues in EB-5, especially but not exclusively, relating to Regional Centers would be welcomed and worth the effort. This is more than the past year in review because some issues that were clarified in 2012, have been dragging one for years. But first, a special acknowledgement: On December 28, 2012, USCIS sent via e-mail, a copy of a new EB-5 Guidance Memorandum (GM), dated December 20, 2012, relating to the “Tenant-Occupancy” methodology. When properly understood and applied, that basic methodology had been accepted for well over a decade but in the wake of too many under-informed and overly-enthusiastic new applicants seeking Regional Center Designation it was horribly misinterpreted and warped out of shape.  The newest GM clears up much of the confusion, unlike its predecessor, the May 8, 2012, “Operational Guidance”  on “EB-5 Adjudications Involving the Tenant-Occupancy  Methodology”which caused needless panic and worry due to its poor ability to communicate the real issues underlying its issuance. A variety of administrative and judicial cases have also helped focus our attention on key issues this past year or so. Some major points to keep in mind for all EB-5 Stakeholder are questions and issues relating to:

·        Nexus.  Is there a palpable and palatable connectivity between the EB-5 funds & actions, i.e. the specific project used as the investment vehicle AND the jobs being claimed as a result of the EB-5 investors’ investment and efforts?  

·        Facilitation. Was the funding provided by the EB-5 and associated investors properly used to support job creation? Did the EB-5 funded project make it possible to fill a void in the regional economy? Was a property specifically built, remodeled, or renovated in order to suit specific “kinds of commercial enterprises” within the approved “scope of the Regional Center”?

·        Hypertechnical Details and Matters.  Also within the “scope of the Regional Center” are the mechanisms employed to inject funds into projects. In other words, the forms of investment and the money pathways have to have been cleared by USCIS in advance. The Regional Center is not free to gain its Designation by stating it will proceed in one manner and then abruptly change its modus operandi, on a whim. 

·        Commitment to the Project and Money Pathways.  A Regional Center cannot hang back and shop around for a completed or nearly completed project and merely “buy it” or “refinance it” and then take credit for the jobs created by another. Also certain EB-5 indirect jobs with only an extremely tenuous connection to the EB-5 efforts won’t count (Victorville RC tried to take credit for its customers’ jobs and really fudged the budget—they misstated how the EB-5 money would be utilized). IF, a Regional Center “puts USCIS on notice” that it has already committed to a project and states its intention up-front to use alternate financing in order to get started and refinance with EB-5 funds later, THENthis should be found acceptable.  So if USCIS finds up-front that the intended project otherwise meets the EB-5 Regional Center Program requirements and associated demandsof the EB-5 visa category, the pay-down or pay-off of bridge financing should be OK.

·        Distinct Parties and Processes.  Separate participants in EB-5 have their individual formal processes. Regional Centers use the USCIS Form I-924 for initial designation and a variety of amendments thereafter, including the Dummy I-526. The individual aliens use the I-526 visa petition and then I-829 petition to remove conditions from status. Between the I-526 and I-829, the aliens must either seek a visa abroad from the Department of State (DOS) by filing Form DS-230, or seek adjustment of status if legally in the U.S. by filing Form I-485 with USCIS.

·        Priority Date. The EB-5 visa is limited. There are approximately 10,000 visas available on an annual basis. This figure includes all visas for the actual EB-5 investor and the dependent spouse and unmarried children under age 21. In reality, approximately 3,300 (give or take) I-526s filed annually is likely to max-out the visa allocation. That means that only 3,300 INVESTMENTS can be accommodated annually. Even if additional funds are actually spent in a given year, those additional EB-5 investors may have to wait until the allotment of visas is renewed in the next fiscal year.[1]The filing date of an approved I-526 becomes the alien’s priority date for visa allocation and issuance purposes. The I-526 must be in sufficiently good order upon filing in order to secure that priority date. An I-526 record of proceeding (ROP) can only be supplemented but most major material changes after filing are prohibited. In stark contrast, the DummyI-526 is in reality an I-924 Amendment and does NOT secure a priority date therefore it is wide-open for grand and material changes in order to make it approvable.  

While there is much more to consider, this short list should help to get folks thinking and talking about critical and relevant EB-5 issues as we start 2013.

---

[1] The Federal Fiscal Year (FY) runs from October 1^st in one year until September 30^thin the next.  FY 2013 (FY13) began on Oct. 1, 2012 and ends on Sept. 30, 2013.