EB-5 to replace existing financing


from the 5/30/2013 EB-5 Adjudications Policy Memorandum [Note: this is official policy. The other sources quoted below provide reference but are not policy.]

See 8 C.F.R. §204.6(j) (it is the new commercial enterprise that will create the ten jobs).

Since it is the commercial enterprise that creates the jobs, the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, may utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital. If the project commences based on the interim or bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise may still receive credit for the job creation under the regulations. Generally, the replacement of bridge financing with EB-5 investor capital should have been contemplated prior to acquiring the original non-EB-5 financing. However, even if the EB-5 financing was not contemplated prior to acquiring the temporary financing, as long as the financing to be replaced was contemplated as short-term temporary financing which would be subsequently replaced, the infusion of EB-5 financing could still result in the creation of, and credit for, new jobs. For example, the non EB-5 financing originally contemplated to replace the temporary financing may no longer be available to the commercial enterprise as a result of changes in availability of traditional financing. Developers should not be precluded from using EB-5 capital as an alternative source to replace temporary financing simply because it was not contemplated prior to obtaining the bridge or temporary financing.


Many people ask me about the possibility of bringing in EB-5 capital to replace existing financing. This option is especially attractive to developers, as it would allow them to deploy EB-5 money at a later stage in the development process and avoid making the project wait on EB-5 marketing and immigration delays. It may or may not be approved by USCIS depending on the circumstances of the case.  The key point is that you need to have an argument for how the investment can be said to result in creation of jobs. Some written evidence for you to consider:

from USCIS’s Executive Summary of the 5/1/2012 EB-5 Quarterly Stakeholder Engagement

Bridge Financing
Q: Under what circumstances will USCIS approve bridge financing? Will the memo address this? This does not appear to be covered with adequate specificity in the last iteration of the policy memo. Stakeholders are not aware of any written guidance on bridge financing other than am AAO decision on the Victorville case, and this is an extreme example with specific facts. Of the two memos in 2009 (June and December) on construction, the December 2009 memo superseded the June memo, but stakeholders continue to receive RFEs referencing the June memo.
A: Pursuant to 8 C.F.R § 204.6(j)(4)(i), the new commercial enterprise, not the EB-5 investors, must create the requisite employment. As such, it is acceptable for the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, to utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital. If the project commences based on the bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise still gets credit for the job creation under the regulations.

from AAO Decision Affirming the Termination of Victorville Development Inc. (December 21, 2011)

The regional center must be terminated because the applicant is seeking to invest capital only after the jobs in question have already been created. DPSG and Plastipak began hiring in December 2009. As of June 2010, the IWWTF was 90 percent complete. Regardless of the stage of financing the investors propose to provide, it remains that the jobs for which the applicant wishes to receive credit already exist. Notably, the record does not show that the applicant made a commitment to provide later-stage financing at the outset of the project. Instead, the applicant appears to have decided to commit capital toward later-stage financing only after the initial stages of the project that created the jobs in question were already complete.
The applicant’s argument that the IWWTF will be a ghost plant if it does not obtain bridge financing is inherently an argument that touches on preservation of jobs, not creation of jobs. The regulation at 8 C.F.R. § 20S.6G)(4)(ii) allows investors to be credited with preserved jobs, but only for investments in a troubled business. The applicant has never claimed or documented that the alien investors will be investing in a troubled business. As such, they may not rely on job preservation arguments to establish eligibility for benefits under the EB-S visa program.

from the December 16, 2010 USCIS EB-5 (Immigrant Investor) Stakeholder Quarterly Engagement

A stakeholder asked USCIS to confirm if it is permissible to utilize EB-5 funds to pay off a loan on a capital investment project as long as it is clearly described in the business plan and will result in job creation.  USCIS shared that there have been some instances where the plan presented has been approvable, and there have also been other instances where timing is a factor. If the project has essentially concluded and EB-5 capital is simply going to replace debt in which the jobs are already created through non EB-5 capital, this does not make a compelling argument that jobs were created as a result of the investment.  Also in all instances whether it’s an equity position or a loan instrument into a project, the agency is looking for EB-5 job creation.  Therefore, like in all EB-5 cases, the evidence must demonstrate that the loan is EB-5 compliant and that jobs would be created within a reasonable period of time.

from an April 23, 2010 AAO Decision (Denial of Form I-829 for a Regional Center project in Philadelphia)

The ultimate issues in this matter are …. whether the new investment demonstrates how the regional center’s bridge loan allows the petitioner to be credited with the statutorily required job creation.  … Had USCIS reviewed the Butcher & Singer business plan in the context of a Form 1-526 petition, it might have raised serious concerns about this plan, such as how the investors’ loan during the final stages of construction that purports to cover preliminary costs such as design fees can truly be credited for creating any jobs and where PIDC acquired the $1,500,000 to loan to the Partnership.  . . . Had the petitioner disclosed this plan, USCIS might have questioned how replacing one loan with another loan would create jobs.

from a December 22, 2009 AAO Decision denying a Regional Center proposal

The plan further indicates that the applicant is “in discussions” to invest in Phase I of the Westport Waterfront project and is “currently negotiating” to participate in the buildout of retail and office buildings to maximize job creation.” The Westport Waterfiont project is already financed up to $380,675,000 through private debt, private equity and grants. The business plan proposes that the limited partnerships would either “come in as equity (e.g. buying out the $30 million debt of Citigroup) or may fund individual projects within each phase (e.g. investing in the office and retail project for period ‘J’ in Phase I or investing in the office, retail and hotel project in parcel ‘D’ in Phase II).” The total investment by regional center limited partnerships would be between $30 million and $1 50 million. The applicant did not submit any evidence of ongoing negotiations or a letter from Turner Construction confirming that it is interested in the applicant’s proposed investment strategies. Moreover, the plan does not explain how assuming financing that already exists, such as assuming Citigroup’s loan, would create any jobs that would not otherwise be created. Without the proposed terms of such an agreement, we cannot conclude whether the “equity” from the limited partnerships instead of the “debt” fiom Citigroup would significantly improve Turner Constructions’ financial situation such that the limited partnerships’ financing could be said to create jobs and improve regional productivity. While we do not suggest that this type of financing is automatically disqualifying, the application cannot be approved unless the applicant first establishes that this assumption of existing financing will improve regional productivity.


About Suzanne (www.lucidtext.com)
Suzanne Lazicki is a business plan writer, EB-5 expert, and founder of Lucid Professional Writing. Contact me at suzanne@lucidtext.com (626) 660-4030.

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