Can EB-5 Portfolio Investment Work?

[Post updated 1/19/2017] This post discusses the possibility and practicality of deploying an EB-5 investment across a portfolio of businesses. Packaging multiple projects or businesses within one EB-5 offering can be attractive. Diversification can mitigate investment risk and the risk of insufficient job creation. Increasing the size of an offering improves economies of scale and can make the offering more marketable. However, a portfolio or fund investment must navigate limiting provisions in the EB-5 regulations and deal with the human nature of USCIS adjudicators who struggle with complexity.

Here are issues to consider:

1. An EB-5 investor must always place the full amount of his or her qualifying investment in a single commercial enterprise. An investor can never qualify by placing $300,000 in one commercial enterprise and $200,000 in a separate commercial enterprise. However, the single commercial enterprise that receives EB-5 equity may be able to allocate the capital among multiple job-creating projects/entities.
2. What an enterprise can do with EB-5 capital depends on whether or not it’s associated with a regional center. If not associated with a regional center, the enterprise must deploy the capital internally — within a single entity, or a portfolio of businesses each wholly owned by that one entity. Qualifying direct EB-5 investment and job creation may not be divided among businesses that aren’t united by a wholly-owned subsidiary relationship. If the enterprise is associated with a regional center, then it is free to deploy the capital across a portfolio of related or unrelated businesses or projects. For example, the regional center enterprise receiving $500,000 of EB-5 investment could deploy $300,000 in one business and $200,000 in another business, and those businesses need not be under common ownership. (See my post What is the difference between direct EB-5 and regional center EB-5? for discussion of the differences in possible investment structures between direct and regional center investment. See 6 USCIS-PM G Chapter 2 (A) subsection 3 “Required Amount of Investment” and 6 USCIS-PM G Chapter 2 (D) subsection 2 “Multiple Job-Creating Entities” for policy statements on portfolio investments. For exemplar I-526 approvals for regional center portfolio projects, see for example Texas Golden Pacific, Citizens Regional Center of Florida.)
3. A portfolio investment can have special challenges in showing compliance with the following requirements that apply to all EB-5 investments:
   • The job-creating business must be located within a targeted employment area (TEA) in order for a petitioner to be eligible for the reduced minimum capital requirement. If a TEA portfolio includes job-creating businesses at multiple locations, each and every location must qualify as a TEA. (Matter of Izummi)
   • The job-creating business must be located within the geographic limits of the regional center that sponsors the investment. If a portfolio includes job-creating businesses at multiple locations, each and every location must fall within the regional center’s designated area. (Matter of Izummi)
   • The full requisite amount of capital must be made available to the business(es) most closely responsible for creating the employment on which the petition is based. If a portfolio investment involves multiple layers and multiple entities, then the EB-5 investment needs to be deployed entirely and only in those layers and entities that create jobs. USCIS will definitely question EB-5 investor funds being allocated to the expenses of holding companies and parent companies (Matter of Izummi) and may question EB-5 funds allocated to any business within a portfolio that’s not expected to contribute to job creation. (e.g. see p. 7 of 1/23/2012 Stakeholder Engagement. Non-precedent decisions that object to inclusion of passive or non-job-creating investments in a portfolio include Mar172009_03B7203, Mar062009_01B7203, Nov032008_01B7203, APR212005_01B7203.) EB-5 rules aren’t very clear on the level of nexus required between EB-5 investment and job creation, and individual adjudicators vary in what they expect. It’s not officially required to trace a clear line from X investment dollar to Y job, but (judging from anecdotal evidence) some USCIS adjudicators want to see such a line and will make trouble for portfolio investments where such a line is impossible. For official policy, see 6 USCIS-PM G Chapter 2 (D) subsection 2 “Multiple Job-Creating Entities,” and 6 USCIS-PM G Chapter 2 (A) “Investment” (particularly the “Made Available” subsection).
   • The I-526 business plan is required to show that job creation is likely to have occurred within 2.5 years of I-526 filing. For a portfolio with multiple job-creating businesses, the plan needs to show that all of them will have created sufficient jobs within the theoretically required time. (If there are also multiple investors/multiple I-526 filing dates, the plan needs to correlate the investors’ timelines with the business timelines.)
   • The job-creating business must create new jobs while sustaining any preexisting jobs (unless it qualifies as a troubled business). These requirements apply to each of the job-creating businesses in a portfolio investment. (Q&A from the 3/17/2011 stakeholder meeting with USCIS, slides 52-58). (However if the portfolio is a regional center investment, the job-creating businesses do not themselves have to qualify as “new,” per non-precedent decision MAR252016_02B7203.)
   • EB-5 is not an attestation-based program, and a petitioner must establish eligibility at the time of filing I-526. Prospective job creation must be demonstrated at the Form I-526 petition, when USCIS reviews and approves the business plan and associated economic analysis for the actual capital investment projects that will receive the immigrant investor’s capital. If a portfolio includes multiple job-creating businesses, all of these need to be identified and analyzed within the Form I-526 petition. I-526 petitions may not be approved for investments (or loans) to businesses that will not be identified or selected until after the approval of the petition. This is according to Q&A from the 3/17/2011 stakeholder meeting with USCIS, slides 52-58, and a number of non-precedent AAO decisions that discount investment into any businesses identified only after I-526 petition filing (e.g. JUN112013_01B7203, MAY172013_01B7203, FEB162005_01B7204). Some people report that USCIS approves I-526 petitions that do not specifically identify and provide complete business plans for each business foreseen in a portfolio or fund investment. But I suspect the truth is that such proposals have been optimistically filed, not that (m)any have been approved. The litigation around the Quartzburg Gold Company LP case gives a detailed autopsy and arguments and counterarguments in a denied portfolio investment case. To quote from USCIS’s 5/2016 response, “because the NCE was not able to specifically identify the JCEs, there was no way for USCIS to determine whether the business plan is credible and will result in the requisite job creation. Plaintiffs therefore failed to satisfy their burden of showing job creation.”
4. Some attorneys report receiving RFE and NOID from USCIS that required the petitioner to firmly link and trace X dollar to Y job in Z location, and refused to accept the very idea of distributing X investment among identified location Z1, Z2, and Z3 and then crediting the combined Z1-Z3 jobs to that investment. I think that here we are in the realm of human nature that just likes things simple, and that such RFE/NOID have no regulation/policy ground to stand on. But sometimes you don’t want a fight with USCIS, even if it’s a fight you have every right to win, and in that case may be advised to avoid deals with any kind of diversification complexity.