EB-5 Law & Policy | EB-5 Updates

Final EB-5 Policy Memorandum!

May 30, 2013 2 Comments

From: U.S. Citizenship and Immigration Services [mailto:uscis@public.govdelivery.com]
Sent: Thursday, May 30, 2013 3:25 PM
Subject: USCIS Stakeholder Message: Final Policy Memorandum EB-5 Adjudications Policy

Dear Stakeholders:

Today, USCIS has published the final policy memorandum on uscis.gov:

PM-602-0083 (May 30, 2013) EB-5 Adjudications Policy

Interim and final policy memos are official USCIS policy documents and effective the date the memos are approved.

We would like to thank stakeholders for the thoughtful and informative comments you provided on previously posted versions of the EB-5 memorandum.

Visit the Feedback Opportunities web page for additional information about our stakeholder comment process.

If you have any comments or questions please contact us at Public.Engagement@uscis.dhs.gov.

Kind regards,

U.S. Citizenship and Immigration Services

Filed under EB-5 Law & Policy, Updates from USCIS

Comment on USCIS SEC Engagement

April 3, 2013 7 Comments

Today’s EB-5 Engagement with the Securities and Exchange Commission and USCIS featured representatives from the SEC Division of Corporate Finance, Division of Trading and Markets, Division of Investment Management, and Division of Enforcement. The panelists discussed EB-5 offerings as securities and conditions for exemption from securities registration, individuals involved in EB-5 as broker-dealers or investment advisers and associated registration issues and exemptions, and SEC enforcement with particular reference to the recent Chicago case. Two passing comments from Barbara of the Division of Investment Management stand out to me as a summary of the call: “you need to be worried,” and “it does get very complicated.” As a non-attorney I would have liked to hear “just do it this way and you’re safe” but instead I heard something like: here are some of the many lines to avoid crossing, and if in doubt you’re probably not compliant, but the issues are fact-specific so consult a good lawyer. Rob Silvers opened the call by noting that USCIS has been engaging with the SEC at the programmatic and case-specific level, but did not comment on the results of this engagement. The call declined to tell us whether this joint review of actual cases has identified endemic or repeated practices in the EB-5 program that are problematic from the SEC perspective (though Robert Divine did ask the question). I hope that USCIS and/or the SEC and/or securities attorneys in the EB-5 industry can come up with a set of basic practical “dos and don’ts” that focus on the positive (how to get it right) and also highlight the relative black and white amidst all the grey areas. Panelists at meetings like this tend to hedge their statements so much that we non-attorneys can get lulled into thinking that the fine print rules are too ambiguous to be a serious guide or threat. We struggle to distinguish between practices that may raise issues in 15% of situations and those that are problematic 99.9% of the time. Obviously false statements and schemes to defraud are always wrong, but beyond that what do offerors most need to know when structuring and promoting investments? Who will help us identify and publicize any commonly-used practices in EB-5 deal structure and marketing that are almost certainly problematic, securities-wise? Or reassure us about what is most likely okay, for that matter? We want to keep our job-creating American business people safe from litigation. We don’t want EB-5 to become the new asbestos, or to fade based on unfounded fears.

That said, the call was substantive and helpful, and I would recommend it to everyone involved in an EB-5 offering. You are welcome to download my recording of the call from Dropbox.

Update: USCIS has published an Executive Summary of the call.

Update: See also “Investor Alert: Investment Scams Exploit Immigrant Investor Program” (10/1/2013). Published at http://www.sec.gov/investor/alerts/ia_immigrant.htm.

Update: I’ve added a section of securities compliance links to my Resources page.

Filed under EB-5 Events, EB-5 Law & Policy

Another meeting reaction

March 7, 2013 8 Comments

On Tuesday we heard EB-5 stakeholders eloquently express grievances to the CIS Ombudsman. Yesterday I imagined a USCIS representative taking his complaints, in lieu of real-life forum, to St. Thomas More. Today my imagination takes up another voice that tends to be underrepresented — that of the US business person trying to use EB-5. Let’s designate Mr. Jarndyce as patron saint of the red-tape oppressed, and let our hypothetical business person appeal to him.

St. Jarndyce hear the prayer of the afflicted, this honest American businessman struggling with a funding program that looks great but seems to get more complicated and cumbersome the more I get involved in it.

Let me get one thing straight: I do business. I’m passionate about my industry, and have put my own life and resources into developing my business and creating new opportunities, but here’s the bottom line: I do projects when the value exceeds the cost of capital. That’s it. I don’t exist as a goose to lay golden eggs for agents and consultants and Tulkinghorns, and I sure as hell am not in the business of selling green cards.

EB-5 looks attractive to me because the current capital crunch encourages me to consider alternative financing for my business opportunities, and because the immigration benefits offered by USCIS effectively lower the return that the EB-5 investors would require from me, thus promising a relatively low-cost piece for the capital stack to fund my great new project. One would think that I could contract some professionals to do the paperwork and deal with the foreign investors and the government, collect and present the kind of detail about my business that’s required by industry standards for loan underwriting or a private equity raise, and then I can go ahead and do my business and break even in the end with some profit for the shareholders. Meanwhile investors get green cards, the economy gets money, and Americans get jobs. What a deal.

But what happens in real life? I hired professionals at costs that made my CFO faint to prepare the paperwork for USCIS, and found out why they’re so expensive when USCIS responded a year later with a Request for Evidence that would – if we fully responded to every point – require about a thousand pages of exhibits. I don’t know if those people over at USCIS take me for a fraud or for The Bill and Melinda Gates Foundation, but anyway they ask me for the kind of minute economic analysis that would presumably be water-tight but at a cost of several months and a tens of thousands of dollars, tell me that the market study I commissioned from a preeminent consultant in my industry doesn’t match up to their mysterious understanding of reasonableness and verifiable detail, inform me that my real quotes and bids are insufficient support for cost claims, request records that they don’t realize would fill file boxes, criticize me for not being “average” as compared to some median for US firms (as if I have to be 37.2 years old just cause that’s the median age for Americans), inform me that the prospective jobs that won my project all those support letters copied in my application are not actually attributable to me thanks to some proprietary USCIS theory of job creation, and so on. I don’t know who’s laughing here, unless it’s the crowd of consultants I have to pay to figure all this out, or the guy who’ll be able to sell me a replacement Xerox machine by the time this is over. I consider whether my firm should keep pursuing this path, as the unforeseen complexity of the paperwork results in mounting costs and as potential projects rise and change and fade and die with the pace of the market while USCIS reviews my documents with the pace of Baltoro Glacier.

I decide to persevere, since the firm has already sunk over a hundred thousand in pursing the EB-5 option, and I finally get my prized approval letter, only to realize that the fun fair is just getting started. Now that I finally got approved by convincing the government that I am really a business person ready to sponsor real investment in real projects, agents get their hands on my business and parade it before foreign investors telling them the opposite – that this is not real investment in a real business with realistic risk and return, but rather some kind of government-produced vending machine where you put in money and eventually “poof!” out comes that same money plus a green card, risk-free and guaranteed. Not only do agents make investors believe such nonsense but they ask me for fees and cuts and promises to match some other rogue – not characteristic of US businessmen – who can afford to pay huge fees and make big promises because he doesn’t need to conserve money for a real business venture but only for his disappearance to Tahiti. In my application process with USCIS, I found my detailed and sophisticated proposal at the back of the line behind proposals that were small, bland, and relatively easy to digest. When it came to finding investors, I found my genuine offering at the back of the line behind any business of any quality who would pay the agents and promise the investors more than I considered realistically or ethically possible for me.

Was it all worthwhile? I can only say that my project better have fantastic cash flows to justify the investment in time and money that I had to put in to get that EB-5 piece into the capital stack. Not to mention the risk I accept entering a minefield of securities laws and having not only the money but also the families of foreign investors depending on the successful, timely, and predictable progress of my project. Before recommending this to someone else, I would want to see more guidelines on the table to give people like me a realistic sense of what they’re getting into, how much it will cost, and how to do it right. And when I say “do it right,” I’m not talking about standards for the perfectly accurate economic report, the ironclad business plan, the unquestionable verifiable evidence, the fool-proof offering documents, the guaranteed business opportunity – because such things simply do not exist in the real world, and if they did who could afford them. I’m talking about “good enough” – achieving a reasonable standard – something less than perfect but possible and reasonable. I’m here to do good business, and that doesn’t include paying more to get capital than I could possibly earn by deploying that capital. It doesn’t mean accepting risk and making concessions that can’t be balanced by potential benefits. It doesn’t mean raising funds that can’t be made available within the lifetime of the project that needs them. I’m here, champing at the bit to raise money and put it all into profitable job-creating activities because those activities are my business. USCIS defeats its mandate if its policies and lack thereof force me to invest in cumbersome processes and paperwork, diverting resources that I’d rather put into new business activities and job creation. Likewise, the market undermines itself by insisting on rosy promises that favor the desperate. Come on everyone. Let’s get real here. Otherwise people like me, honest American business people who are the engine for this system, are going to do the math and lose interest in EB-5.

This speaker is not real, and his experience is not characteristic. But I have evidence that everything that happened to him has happened to at least one real person in the past year.

Being in the paperwork profession myself, I did not have my hypothetical business person dwell on the headaches he encountered with the service providers who prepared his documents. However, this is an important factor to consider, and perhaps my kind are more guilty of creating problems than the government and the agents put together. I recommend an excellent article on “Lessons I Learned from My First EB-5 Capital Raise” by Ron Wilkinson, a developer with Vantage Pointe Investments.

Filed under EB-5 Law & Policy

Ombudsman meeting reaction

March 6, 2013 5 Comments

In case you missed yesterday’s EB-5 stakeholder meeting hosted by the CIS Ombudsman’s Office, here’s the gist: “the processing of EB-5 petitions and applications has not been smooth, and it’s USCIS’s fault.” The Ombudsman listened politely and made notes to convey to USCIS, which was not offered a speaking part at the meeting. I can share my recording, if you want to hear all the EB-5 stakeholders’ complaints and suggestions in detail. Since none were new to me (although some were constructive and worth stating), I shall report instead on an imagined meeting. Let’s pose St. Thomas More as Ombudsman for the American people, and imagine how USCIS representatives might tell him their side of the EB-5 processing story.

St. Thomas, thank you for holding this meeting and giving your faithful civil servants here at USCIS the opportunity to express concerns regarding the American people and their handling of the EB-5 program.

Sir, the people complain about consistency and predictability in processing of EB-5 cases. They are angry that documents similar to those approved a few years ago are not approved today. They mutter that EB-5 may be heading for a crash such as it experienced in the late 1990s – a crash that they blame on us and our track-changing. But look at the facts of the late nineties. Hundreds of Interbank Group investors lost their green cards – but Interbank was convicted on dozens of counts of visa, mail and wire fraud and a couple operators went to jail – whose fault was that? Back then hundreds of AIS investors ended up in legal limbo – but AIS had been structuring EB-5 deals so that foreign investors only had to actually invest $125,000, a fraction of the legally required amount. How could we not change course and crack down when it became clear to us that the bottom line of the EB-5 program – real investment and real job creation – was not being realized, and that fraud was being given a chance to flourish? And look at us now. The people have been sending us economic impact reports that soberly claim, for example, that building one new hotel or one new office building will result in thousands of new jobs in the community. When our in-house economists that the people agitated for us to hire point out problems with such analyses, and explain why we should not and should never have rubber-stamped claims like this – how can we not act on that? What would the newspapers and the voting public say if we didn’t adjust? How can the people gasp and swoon when our economists challenge certain job count practices when a little thinking or a call to the local university economics department would raise the same issues that our economists are raising?

How come a country full of smart people can only tear their hair and cry “you approved it before therefore you should approve it again,” and “why can’t you tell us the right way to do this?” Why can’t those smart people put their heads together and figure out together what constitutes a reasonable economic analysis, a quality business plan, and solid offering documents? Why can’t they come up with best practice guidelines for the industry, based on the combined intelligence of a range of experts in business, economics, and law? You think we wouldn’t welcome those guidelines and take them into account? We would love to see the community self-regulating to file more consistent and high-quality documentation that’s easy for us to process and approve, and that won’t get innocent investors or business people in trouble later. Who thinks we like wasting our time issuing tons of Requests for Evidence, telling people one by one to please source the claims in your documents and avoid tenuous assumptions and make your paperwork consistent and follow the relevant rules and regulations? Who thinks we like spending months wading through binders stuffed with paperwork that could have been approved more quickly if prepared differently? Sure, we should probably publish more clear instructions and more extensive policy guidance, but why wait on us? Why can’t the lawyers and economists and business experts out there participate in the challenge of creating best practices for a healthy EB-5 program that fulfills Congressional intent and resists fraud? Why are they just fixated on “what we got away with before,” leaving all the reigning in and guidance to us? Why do they promote self-serving proposals that leave a wide-open window for fraud – such as the suggestion that people should be able to freely deviate from plans approved at the I-526 stage and should have the option of not proving job creation at the I-829 stage (effectively, never having to prove job creation)? Why do the people have to resist our reform attempts all the way? The people agitate for us to limit our standards to what’s “commercially reasonable,” and yet they were angry when we started to issue Requests for Evidence with the simple question: “please reference sources to show what is commercially reasonable in this situation.” They blame us for approving that Regional Center in Chicago that’s now being taken to court by the SEC and causing an international stink, but they’re angry when we implement procedures to help to help ensure that future applicants aren’t inflating numbers and forging documents like the Chicago people did.

So you see, St. Thomas, we’re in a hard spot. No one longs more than we do for EB-5 processing to go smoothly and quickly. We want to receive paperwork that’s clear and reasonable and easy to approve. We want to quickly approve real investment that will create real jobs and give immigration benefits to investors with clean money. But we can’t do this alone. We need the American people to step back from their adversarial approach to us. We need them to support and share the goal of making EB-5 cases easier to process. We need their shared commitment to regulate the EB-5 program so that it results in real investments in solid US business, real job creation for US workers, real economic development in distressed areas, and immigration benefits for people whom we’ll be proud to call fellow Americans.

[As a business plan writer I strive for imaginative sympathy with my audience, EB-5 adjudicators, but I don’t actually know anyone at USCIS and have no evidence that this speech reflects the views of any living person.]

In other news, Steven Anapoell at GreenbergTraurig has published an article raising issues with major potential implications for use of bridge financing in the EB-5 context. Any thoughts from other securities attorneys on this article? See: The Investment Company Act of 1940 and Underwriting the Financial Gap Between Filing and Approval of the I-526 Petition

Filed under EB-5 Events, EB-5 Law & Policy

New EB-5 Guidance Memo

January 2, 2013 8 Comments

In January 2012, I wrote a post about the Regional Center applications reported to be “on hold at USCIS headquarters pending resolution of an issue.” Now it’s January 2013, and many of those same applications are still on hold. We know the issue now, or some of the issues, but can we see a resolution? What can we take from the guidance memo recently released by USCIS?

It appears to me that the 12/20/2012 “Operational Guidance for EB-5 Cases Involving Tenant-Occupancy” is a formal presentation of the message that USCIS gradually released through Requests for Evidence and stakeholder meetings throughout the year. Specifically: An enterprise that invests EB-5 capital in commercial real estate development may count tenant employees as created jobs provided that it demonstrates a “reasonable causal link between the EB-5 enterprise and the job creation.” The causal link may be 1) financial (based on significant investment in the job-creating tenants), or 2) “facilitation-based” (based on removing a significant market-based constraint to the tenant job creation). In either case, the jobs must be new, not merely relocated. The memo allows that the I-924 application may analyze potential tenants by industry category rather than identifying specific tenants. It also grants that modifications to tenant arrangements between I-526 and I-829 do not necessarily constitute a material change. The underlying message is that USCIS did not change any policy or object to anything in principle (i.e. don’t sue us), but is only raising fact-specific questions about tenant job counts.

If you followed RFEs and stakeholder meetings last year, then you already know the basic principles presented in the guidance memo. What’s new? The memo clarifies that the options for showing nexus between investment and tenant jobs are either/or options rather than both/and requirements. “For applicants and petitioners that seek to utilize a facilitation-based approach, USCIS will not require an equity or direct financial connection between the EB-5 capital investment and the employees of prospective tenants.” The memo includes a form of the facilitation approach appropriate for a high unemployment area (which the tenant occupancy RFE omitted to do). The flexibility on I-924 application detail and material change are also new concessions.

I appreciate that USCIS has issued a formal, public statement about the question of counting tenant jobs. The memo articulates general policy, and states that “whether an applicant or petitioner has demonstrated that an EB-5 enterprise caused the creation of indirect tenant jobs will require determinations on a case by case basis and will generally require an evaluation of the verifiable detail provided and the overall reasonableness of the methodology as presented.” The memo leaves the adjudicators and us to figure out what constitutes overall reasonableness. I’d like to know how adjudicators understand the guidance to look for “evidence backed by reasonable methods that map a specific amount of direct, imputed, or subsidized investment to such new jobs.” (p 10-11 in the 5/1/2012 stakeholder meeting summary provide some detail, but I don’t know whether that Q&A reflects current USCIS thinking). I’d like to see examples of applicants succeeding at the task “to project the number of newly created jobs that would not have been created but for the economic activity of the EB-5 commercial enterprise.” I’d like to see to what extent applicants must go to “demonstrate that the economic benefits provided by a specific space project will remove a significant market-based constraint.” I want to know whether it’s possible to take advantage of the theoretical flexibility to not identify a tenant at the I-924 stage when one has to demonstrate in verifiable detail how many new jobs that unidentified tenant will create, and state a minimum four-digit NAICS code for the industry type. I want to know details on the settlement of Courtney Carlsson, et al v. United States Citizenship and Immigration Services, and whether USCIS compromised on any issues raised in the Complaint on behalf of American Life investors whose I-526 petitions were denied in 2012.

The new guidance memo assures us (probably with Ira Kurzban in mind) that USCIS does not object in principle to counting jobs generated by tenants. That’s nice (and politic), but what I really want to know is whether it’s possible to count such jobs in practice. Based on the guidance provided, I can visualize an approve-able business plan for investment in a building that will house a new restaurant tenant that will receive start-up assistance. Certain build-to-suit scenarios in constrained markets also look do-able. I don’t think it’s clear yet how/whether the retail centers and office buildings that were a staple of EB-5 for years can now fit back into the equation. Developers are welcome to try to show “verifiable evidence” for “the number of newly created jobs that would not have been created but for the economic activity of the EB-5 commercial enterprise.” It remains to be seen whether economists and writers will be up for the challenge, and what adjudicators will make of our fact-specific arguments.

I think of applicants who filed Regional Center applications in 2011 and RFE responses back in Spring 2012, and who are still waiting to hear back from USCIS. We wrote many pages describing scenarios such as joint venture arrangements with identified tenants or funds for start-up expenses for prospective tenants. Responses included detailed market studies showing excess demand and constrained supply for specific types of commercial real estate in the local area, letters from identified tenants describing need for specialized space, and even pleas from local economic development officials detailing how proposed projects would fill an existing investment void in the area to generate new demand for the tenant business. When USCIS starts giving feedback on such responses, then I will start to get excited. So long as those applications continue to sit while someone figures out how to apply principles in practice, I consider that the “tenant occupancy” issues remain technically “unresolved at headquarters” despite the nice new memo.

May 2013 Update: USCIS responded to the tenant occupancy applicants that I mentioned above, and the result is not pretty. For details, see my post Tenant Occupancy Saga Continues (NOID Chapter).

Filed under EB-5 Law & Policy, Updates from USCIS

Operational Guidance for EB-5 Cases Involving Tenant Occupancy

December 28, 2012 5 Comments

From: Public Engagement [mailto:Public.Engagement@uscis.dhs.gov]
Sent: Friday, December 28, 2012 2:47 PM
Subject: Operational Guidance for EB-5 Cases Involving Tenant-Occupancy

Dear Stakeholders,

In May 2012, USCIS published operational guidance on EB-5 adjudications involving the tenant-occupancy methodology which explains how USCIS policy on deference to prior EB-5 adjudications applies in the context of determinations regarding the reasonableness of an economic methodology. Since this guidance was issued, USCIS has carefully considered responses to Requests for Evidence (RFEs) as well as input from other relevant government agencies and has issued further operational guidance to govern the adjudication of these cases. This guidance will be applied to pending cases involving the tenant-occupancy methodology, as well as cases filed on or after the date of this guidance.

For more information, please see “Operational Guidance for EB-5 Cases Involving Tenant-Occupancy” on the USCIS.gov website http://www.uscis.gov/memoranda.

Kind Regards,

U.S. Citizenship and Immigration Services (USCIS)

See the following post for my comments on the new EB-5 guidance memo.

Filed under EB-5 Law & Policy, Updates from USCIS

What doesn’t work for Regional Centers

September 20, 2012 2 Comments

I’ve been too busy recently for much comment but want to at least link several important documents that deserve your attention.

The USCIS website recently posted three AAO Decisions affirming denial of Regional Center applications.

The decision dated January 18, 2011 affirms that a Regional Center application should not be approved if it applies for a geographic area without demonstrating how proposed investments will affect that area, requests industry categories without giving examples of investments in those categories, and declines to demonstrate that its “hypothetical” plans are realistic. The case centers on the question of what level of detail ought to be provided at the I-924 stage. The AAO argues that USCIS is right to ask for evidence to support job creation claims, especially since the agency is under pressure to accept projections approved at the regional center stage when it is adjudicating Form I-526 petitions. The decision does not preclude basing an application on hypothetical plans, but such plans  “must be sufficiently detailed and credible pursuant to 8 C.F.R. §§ 204.6(m)(3)(iv) and (v) if USCIS is to approve the regional center proposal…. While a general proposal as contemplated by Congress may include hypothetical plans, they may not rely on investment costs and direct employment numbers that have no basis in reality.” I recommend Joe Whalen’s analysis of this decision, the issues involved, and the applicant’s mistakes.

The decision dated November 10, 2010 dissects problems with an economic impact report and its attempts to calculate job creation through DOE estimates for number of employees per square foot. If your reports use a similar methodology, read this case and ensure that your economist isn’t making mistakes like the ones that doomed this application. If you haven’t laughed and cried enough after reading the decision itself, read Joe Whalen’s analysis of the November 10 and November 23 decisions.

The decision dated November 23, 2010argues that USCIS does indeed have the right to hold applicants accountable to the current regulations at 8 C.F.R. § 204.6(m), which have not been overturned by Federal Court or Congress. Repeating a point that has often been made of late:
The regulation at 8 C.F.R. § 204.6(m)(3)(ii) requires the applicant to provide “verifiable” detail as to how the jobs will be created. Nothing in the 2002 amendments to the pilot program suggests that the general proposal need not have verifiable detail at to how the jobs will be created pursuant to 8 C.F.R. § 204.6(m)(3)(ii). Rather, the Congressional language expresses that the regional center proposal may be based on a general proposal rather than a specific project. “General,” however, does not have the same meaning as “vague.” The proposal, while general in nature in that it may cover several potential industries, must still provide verifiable detail as to how the jobs will be created in each industry proposed.

Not all frustrated petitioners and applicants take their cases to the AAO; others sue in court. The most prominent recent complaint was brought by no less than Ira Kurzban on behalf of a group of investors who had I-526s denied or revoked when USCIS found fault with the investment — an American Life real estate renovation/leasing project in the time-honored American Life model. The case is a must-read for existing Regional Centers who are nervous about how much their prior approvals mean now and how to deal with emerging issues such as tenant occupancy and NAICS code requirements. You’ll find a cautionary tale and eloquent arguments that you might try in your defense. Again, I recommend that you keep an eye on http://www.slideshare.net/BigJoe5 if you are interested in the unfolding of this and other EB-5 litigation.

But don’t abandon Lucid Text altogether, as I have two major additions cooking: a page with collected guidance from recent I-924 RFEs (“the real I-924 instructions,” I’m thinking of calling it, since the official instructions don’t tell you everything you need to know to get approved), and an informational page on stand-alone/direct EB-5 (as I’ve noticed increasing interest in and misinformation about this EB-5 option).

Filed under EB-5 Law & Policy

RC Program Extended to 2015

September 13, 2012 5 Comments

IIUSA reports that that U.S. House of Representatives today passed S. 3245 (412-3) – which includes a three year re-authorization of the EB-5 Regional Center Program through September 2015. Having been passed by the Senate on August 2, the bill is now on its way to President Obama for signature – likely later this week.

September 28 update: President Obama has signed S. 3245, and the EB-5 Regional Center Program is now extended until September 30, 2015.

Filed under EB-5 Law & Policy

Q&A from USCIS on Economic Methodologies

July 5, 2012 2 Comments

Well, well. We ask and USCIS answers! I regret not emailing my questions to the USCIS public engagement mailbox, as it appears that public.engagement@uscis.gov is not a black hole after all. USCIS has already responded to two stakeholder questions arising from the conversation with USCIS Economist John Rodgers on June 22. Thank you to Stephen Yale-Loehr for pointing this out to me.

From the USCIS website:
Questions and Answers: EB-5 Economic Methodologies
On June 22, 2012, USCIS hosted a public engagement featuring two economists who work on the EB-5 Immigrant Investor program. Following that engagement, some stakeholders sought clarification as to certain points raised by the economists. USCIS is now pleased to provide clarification as to two of the primary questions raised.

EB-5 Projects Involving Hotel or Resort Development

Q:  When an EB-5 project involves the development of a hotel or resort, when is it economically reasonable to input projected funds spent by visitors into economic models to project indirect and induced job creation resulting from the spending of these potential hotel occupants (e.g. on rental cars, dining, etc.)?

A:  In general, job credit based on “visitor spending” is appropriate only where the applicant or petitioner can show by a preponderance of the evidence that the development of the EB-5 project or resort will result in an increase in visitor arrivals or spending in the area. Applicants or petitioners should provide reasonable estimates of how new visitor spending and tourism demand is driven by the specific project that is the subject of the application or petition. If the applicant or petitioner presents a reasonable case that the visitor spending and demand for tourism generated by a project is new then it may be reasonable to conclude that the specific project has generated an increase in demand, and thus, has generated increased employment in the region resulting from the projected increase in visitor spending. If the applicant or petitioner meets this burden and the application or petition can otherwise be considered reasonable, new visitor spending revenue can be considered an eligible input to an appropriate regional input-output model.

Regardless of whether visitor spending is shown to be attributable to a particular project, jobs created from construction (lasting over two years), management, and operation of the hotel or resort, including hotel revenues, can be considered eligible inputs to an appropriate regional input-output model assuming that the application or petition can otherwise be considered reasonable.

Acquiring Real Estate

Q: May a regional center use funds from EB-5 investors to acquire real estate?

A:  In general, yes, subject to the requirement of Matter of Izummi, 22 I & N Dec. 169 (Comm’r 1998), that the “full amount of money must be made available to the business(es) most closely responsible for creating the employment upon which the petition is based.” For example, a job-creating enterprise may propose to allocate some EB-5 funds to purchasing land and allocate other EB-5 funds to developing and operating a business on the purchased land, and the jobs created by the enterprise can be apportioned among all the EB-5 investors. It is important to note, however, that real estate acquisition is not generally recognized as a job-creating activity in and of itself. Thus, it is not generally reasonable to treat funds spent on real estate acquisition as inputs to an employment impact model. Where some EB-5 funds will be used for real estate acquisition, such apportionment should be detailed in the business plan.

USCIS does recognize that certain soft costs directly related to real estate transactions may reasonably be counted as valid job-creating expenditures and inputs to regional input-output models. In addition, soft costs related to the development and construction of EB-5-supported projects on designated land parcels may be considered on a case-by-case basis. If the input-output model utilized in the economic impact analysis provides specific categories for the soft costs, the multiplier categories specific to these costs should be used instead of bundling such costs under general construction expenditures.

Filed under EB-5 Law & Policy, Updates from USCIS

Call with USCIS Economists: Transcript and Thoughts

June 23, 2012 10 Comments

I am officially an EB-5 hero, having spent my Saturday transcribing much of the June 22 Engagement with Director Mayorkas and USCIS Economists regarding EB-5 investment in real estate-related projects. (Here is my recording of the call.)

After many hours listening to the voice of John Rodgers, new Chief Economist at USCIS, and typing his sentences, I am feeling sympathetic. Tone and syntax suggest that he approached this engagement as a real, unscripted discussion and was very nervous about it. Being on the spot is hard, and John Rodgers got himself lost at points. When making an uncontroversial point about land acquisition costs as an inappropriate input to an IO model, he surely did not mean to make a judgment about budget items to which EB-5 capital may be applied – a separate issue that he admitted to be outside his purview. To his credit, John Rodgers struggled partly because he didn’t come armored with polished talking points and did try to answer questions. I typed out most of the meeting so that you can review exactly what was said and consider the implications, but remember to keep this information in context. The transcript is not a guidance memo but simply the record of a discussion with plenty of mistakes and points that will be clarified or modified later. I wouldn’t have recorded this except that I suspect USCIS will not quickly deliver the promised written guidance, and we are desperate for whatever information we can get.

Here are a few of my personal conclusions from the June 22 engagement with the economists:

USCIS still thinks that real estate developers may claim job creation associated with their tenants. The conditions are that the owner/developer must demonstrate: 1) that the tenant jobs/impacts will be new and not shifted from anywhere else in the US, and 2) that the owner/developer will have a substantial business relationship with the tenant. USCIS is not currently defining exactly what may constitute an acceptably substantial relationship, and is open to arguments from applicants. Possibilities mentioned included equity stakes, joint ventures, partnerships, rental rebates, and revenue-sharing. John Rogers resolutely declined to set in stone any particular metrics or guidelines, disavowing even those in the tenant occupancy RFE. This gives us freedom to experiment, but no guarantees of success. If adjudicators are as unclear about the standards as we are, it’s going to be a confusing few months going forward, with many RFEs and long processing times. I haven’t decided if I should stop writing real estate-related EB-5 business plans, admitting that even I don’t know the current rules of the game, or if I should start charging an arm and a leg for plans because, lacking set metrics, success will be all about clever rhetoric and impressive presentation. I’m also not sure that developers will want to try EB-5 under the current conditions. Everyone who can show in advance that all your future tenants will house all new jobs in your building plus agree to a significant financial relationship with you, please stand up!

The USCIS economists consider their mandate to include judging the validity of economic reports and also the viability of business plans. They want to ensure that the job creation formulas are correct and also that the inputs are reliable. The economic impact report filed with the I-924 application postulates “under X conditions, Y job creation would occur.” USCIS wants the application to convince them that X conditions will in fact occur. If your economist says that a hotel at 80% occupancy will generate a certain number of jobs, USCIS will check the economist’s math and formula and then ask you to demonstrate that your hotel is very likely to actually reach 80% occupancy in time. That explains why John Rogers spent more time talking about market analysis than about economic methodologies, and why the current review standards are not as cut-and-dry and quantitative as we might like. (USCIS may also be putting such a spotlight on demand analysis because it can be a theoretical approach to the issue of the “newness” of tenants and their job creation. Is that the case?)

USCIS has been traumatized by poor applications to the point that it will assume your data and assertions are baseless and unrealistic unless you demonstrate otherwise. If you are going to file an application now, be prepared to go all out to source and validate every claim that you make about project costs and timing and market conditions and prospects.

The economics team at USCIS is new, and its thinking is open to change. Director Mayorkas invited people to email thoughts to USCIS at the public engagement mailbox (public.engagement@uscis.gov), being sure that any comment clearly identifies the EB-5-related issue and suggests an approach to the issue. He also promised additional engagements with the economist. Listening to John Rogers discuss hotel job creation, I could tell that he had reviewed and been influenced by recent feedback from the EB-5 community. (Specifically, his statement about the acceptability of hotel jobs controlled by a management company modifies the stance in recently-issued RFEs from USCIS, which have been questioning such jobs.)

Enough of my thoughts. If you are concerned about options for EB-5 investment in real estate development, I encourage you to listen to the call or read my partial transcript for yourself.

June 22, 2012. Unofficial transcript of portions of the Engagement with Director Mayorkas and USCIS Economists. The primary speakers include USCIS Director Alejandro Mayorkas, Chief USCIS Economist John Rodgers, and Will Cooper, a contract economist from ICF International. Click here for Suzanne’s unofficial recording of the call. Note that I have added list numbers below for ease of reference; these numbers don’t refer to anything in the call.

John Rodgers: The economists at the California Service Center that are under the EB-5 team are very very much aware of the importance of all of your applications with respect to employment, immigration, and economic growth. We take that role very seriously. When we receive an application, every single data point is looked at, every source is looked at, every single word is looked at, nothing is left unturned. And I think that when we come out at the end today what I hope to be able to have us all take away is that we see the going forward of this program as valuable in getting your inputs as well, for you to help us in understanding what constitutes reasonable methodologies. As you are all aware, job creation is a science, but it is not a perfect science, and it is also an evolutionary science that encumbers [sic] new research methods, business and economic fundamentals, and other dynamics.

That being said, in keeping spirit with what Ali mentioned, the first substantive topic is going to be tenant occupancy. I’m going to tackle it in two specific ways after getting to some of the key points, and that is the overall issues that we see with respect to tenant occupancy and also the RFE that many of you have submitted questions pertaining to.

About 70% of all applications that we see from Regional Centers involve some form of tenant occupancy. Not all the forms are the same, so it is a very significant part of the program. We understand that it’s very important. What we specifically focus on is first the question: is data, methodology being presented to us in the business plan that allows us to believe reasonably that in the future, tenant jobs that move into a commercial or retail space will be new, they will not be transferred or shifted from elsewhere? The new commercial enterprise, whether it be the EB-5 directly-funded enterprise such as Limited Partnership or the tenants themselves, the job creation needs to be new and not shifted from elsewhere.

What we specifically look for in business plans is a linkage between the EB-5 capital and the actual new commercial enterprise that pays the wages of tenant workers for example. What we especially look favorably on are financial arrangements such as equity stakes and joint ventures between the EB-5- funded partnership or company and the tenants. As most of you are aware, we also accept as reasonable, direct job inputs into benchmark models, employees funded by management, operational support, maintenance, and things like that that go into the space, or the building if you will. In circumstances in which there is not a direct link or connection between the EB-5 capital and the tenant businesses, under some circumstances we will grant economic benefits in the form of direct employment inputs into whatever relevant model you have presented, if we can reasonably see a long-term, sustained business relationship between the facility owner and the tenant business. I’ll let you absorb that for a sec and switch to the next topic. I want to rephrase, that that is one part of the tenant occupancy core substantive aspect of EB-5, and that is ensuring that the economic benefits – and I mean direct inputs into benchmark accepted regional input-output models, are attributed to EB-5 capital. Under circumstances in which that link is not direct, we will still consider reasonable methodologies, and we look forward to having you help us out in presenting those to us.

The second issue has to do with the RFE. … We are very pleased actually with some of the responses that we have gotten recently. … We have been quite pleased with some of the responses that have attempted to present reasonable metrics and indicators based on that RFE. Based on questions and submissions that we have received from other forums, we also understand and believe that this is a good opportunity to help clarify some of those, again based on your questions. I think the most important thing that I want to convey to you is that the language in that RFE was not meant to create litmus tests or benchmarks that if you could not present them, we would look unfavorably at the application. They are meant to be part of a comprehensive business plan in which data is available, and we realize that sometimes it’s not, that that data relevant to local occupancy rates and the overall interplay of supply and demand for specific types of commercial tenants is available. The economists, the team that we have in place, has a very good idea of what data is available. And again, we know sometimes it’s not. Sometimes it could be under proprietary controls, and we understand that. However, we do encourage you to attempt to present to us data that focuses on the interplay of supply and demand with respect to specific types of commercial, office, retail space, and potentially important aspects of that industry like the absorption capacity of the local area. To really get to the economic science for a minute, I know that there were a few questions concerning the vacancy-unemployment ratio, and that is specifically not related to the Beveridge curve, which is a very formal mathematical model for modeling transitional probabilities in labor markets. That was not the intent of that RFE, even though the language is similar to some of the economics literature in that regard. Again, I’m not going to go into specific types of metrics right now. We could potentially follow up based on the Director’s intentions. But I just want all of you to know that not providing one or two or potentially some of those metrics, not being able to do so is not something that’s going to render your application unfavorable. Again, it should be part of the overall comprehensive business plan, which again I’m going to talk extensively about.

… The next topic, which again is significant in the sense that it encumbered [sic] perhaps a quarter of the questions submitted for this forum, involved the construction and development of hotels and resort-like projects. Approximately a quarter of all of the applications that we see for Regional Centers involve these types of projects, and it’s growing. We’ve seen a significant increase in the time trend over even the past several months. What I want to say first is the main shortcoming that we see with respect to this type of project is the lack of data and the lack of data sourcing. The way we see the ultimate requirement for this program being met in terms of job creation with respect to this type of endeavor, is a chain of causation that starts with local market conditions, very localized market conditions, based on occupancy rates, local occupancy rates. It is in those two categories where we feel the need for data sourcing, data robustness, and timeliness is very important. As we move along the causation chain, we get to the local concept of absorption. And I want to spend a few minutes talking about what I mean in that sense. When we look at occupancy rates, and an applicant presents data that says the occupancy rate for this area is approximately x percent, we do not look favorably upon simple extrapolation of how that percentage would fall into the new supply. In some cases it may, in some cases we may not. What we would like to see is more of a comprehensive plan for the absorption rate of the new supply of hotels, of the new supply of hotel rooms per se. And that’s where I think the modeling and methodology comes in. The sourcing is first, the methodology is second, and it really comes into play when we’re talking about how the local supply, the new supply of hotel rooms will be absorbed in the local market. So essentially what we’re talking about here is the need to match supply and demand. I realize that sometimes this is difficult to do. There are a lot of business studies on this, but not a lot of formal economic established methodologies, so we really look forward to you helping us out in presenting some of those. The single biggest metric or indicator that we look at is what’s known as REVPAR, revenue per available room, that’s we consider the industry benchmark. And it is through absorption and revenue per room that we see the method by which the job creation requirements will be met. When I talk about the matching of supply and demand, what also needs to be taken into consideration is a reasonable plan that details, justifies, or outlines, why visitors would not have visited that specific area were it not for that hotel to be built. So once again, what we would like to see is a business plan that details and frames the art of the possible for how and why these specific construction of a specific hotel relates to increased visitor spending in that area.

Moving on to the second component of the hotel projects. The economics team has come to recognize that there is a specific type of model the hotel and resort industry operates under with respect to development, ownership, management, and operation. If capital from the developer, partly or wholly financed by EB-5 capital, directly contributes to the equity and finance of the development and operations, then all of the operational jobs derived from that connection can be counted as direct employment inputs into the regional model. This type of arrangement is favorable. However, given the specificity and the nature of this industry, USCIS, the economics team specifically, will grant economic benefits to management functions that are hired by the developer and/or owner even if they are not directly funded by EB-5 capital. However, I want to be clear in saying that that does not include all of the employees of the management company or the people who work in various support functions. It needs to specifically involve only those that are necessary for this project and this hotel. This is very important ladies and gentlemen, so let me just rephrase it if I might. The type of financing arrangement that we consider favorable is that in which EB-5 capital directly funds the maintenance, operation, the overall functionality of the hotel, the operations. Due to the specific nature of this industry, however, we will grant economic benefits in the form of direct inputs into the – which means that they get the full multiplier effects, indirect, induced – on the grounds that in this specific type of setting one could look at potentially at those jobs and those functions as part of a supply chain for the overall ability of the hotel to operate. I imagine that there’s going to be some questions on that, so I’ll just stop there and end this section with the issue of the tenants, the non-affiliated tenants of a hotel. In this situation, too, we will grant economic benefits, and again, by that — and I’m going to say this several times because I think it’s very important – economic benefits in terms of direct employment effects into a standard-practice input-output model – if a significant, substantive, long-term business relationship is established with the tenant. Long-term, sustained, clear, and transparent business connection. And I’m going to attempt to provide specifics on what those might be, but again I look forward to your input on that.

… The economics team essentially approaches all of your applications as a twofold process. One is a detailed analysis, an assiduous [sic] study of the business plan. We look at the business plan, again, as framing “the art of the possible.” Is it possible, given what’s presented to us, that the job creation requirements set forth in the regulations of the EB-5 program, will in fact be met. The second part of the at is the economic impact analysis which is derived from the three of four major – with some incarnations of the standard practice – regional input-output models that are known in the academic and business literature and practical fields, as well. The way we look at the second part, the economic impact analysis, is: does that analysis give us a reasonable belief that there is decent probability that the job-creation requirements will actually be met. So the business plan is the art of the possible; the economic impact analysis tells us whether we think the projects will actually get to the requirements. So they are both very very very important, very important, and they are taken very seriously.

If I were to convey four – and I realize these are very broad themes, but in consulting with the team there are four general terms that I would like to convey to you as important: 1) We want them to be concise, which means only talking about the projects that are encumbered in the plan, and specifically related to the projects in the plan with respect to the data sources that are necessary to support that plan. If the data sources are not relevant, not necessary for that plan, you can certainly include it, but we don’t necessarily need to see that. 2) Robust is the next one, and that means models and methods that are as current as possible and that are standard practice in the sense that they are accepted by the supporting literature or business community. 3) Appropriate data sourcing. In this, one of the key take-aways is the timeliness. Again, we have a very good idea of what data is out there and what data is missing and what the timelines are. We like to see the most up-to-date data. 4) And then transparency, and that is to provide mainly the relevant information on the specific key components of the plan. Those are four very broad buckets.

Now I want to turn to more specificity with respect to the questions you’ve submitted as to what should be in those business plans and what we consider favorable. Foremost: real estate transactions, reserve funds, and contingency funds cannot be used for EB-5 job creation purposes because they are not place in at-risk, job-creating investment position. If you feel you need to include that data in your business plan to give us better situational awareness of the overall project, that’s fine and we welcome that, but funds that are not place in an at-risk position in productive service of capital cannot be used for EB-5 job creation purposes.

Secondly, the applicants do have the option of providing expenditures or projected revenues as the inputs into the model. We accept both, and we defer to you as to which you think is most appropriate at the time of application.

A third topic is the construction timelines. One of the key aspects of business plans that we would like to see improved a bit is construction timelines that reflect industry standards. Those are available, those are widely available, in business correspondence, and we would like to see how the applicant projects correspond to those industry generally-accepted standard practices. If there are situations in which construction timelines do for some exogenous [sic] reason exceed what we would consider industry standards — and our general approach is that most construction projects should not last more than two years – in the event that they could, we would ask for specific reasons, specific constraints on materials, supply, transportation mechanisms, whatever, that would give rise to that need. We would evaluate that on a case by case basis.

Okay, soft construction costs. There are soft costs that can be included in the input-output models for purposes of EB-5 job creation. I’m not going to go through the whole laundry list. But for instance, things like architectural and engineering fees could potentially be used. Land acquisition costs cannot be used. There are a number of others that we would consider, but again those are just some potentials that we would consider. Again land acquisition expenditures should not be considered part of EB-5 capital.

[Selected portions of the Q&A period. Note that I abbreviated a number of the questions and did not type out all exchanges. No offense intended to any of your good comments and questions; I just got weary of transcribing. You are welcome to listen to the recording, type out sections that I missed, and email them to me for inclusion here.]

Q: You said on the tenant occupancy that you were concerned that the jobs will be new and not transferred from elsewhere. Where is “elsewhere”? How would you define the market area within which you don’t want those jobs being transferred?

Will Cooper: The region is the US. If it’s a new US job, it’s a new US job. If you move a job from Palm Beach to Nevada it’s not a new US job; it’s simply being transferred from one location to another.

* * *

Q: My name is David Shiver, Bay Area Economics, and I wanted to address the tenant occupancy. I’m maybe a little unusual. I’m new to the EB-5 but I’m a real estate economist, worked a lot with federal agencies and developers on the projects. What’s funny about this process as I got introduced to it is the tenant occupancy issue. If you’re looking at new jobs or job shifting, it seems to me that that’s solved by the real estate feasibility studies that simply show that there’s demand for the product or business activity being proposed in the market area which the analyst would define in an appropriate manner. So I wanted to point out that using some of the real estate industry standards for preparing your look at demand for the real estate-oriented Regional Centers is really the simple way to go. There are methodologies out there, there are plenty of different ways that you can document demand. When you look at when you grant economic benefits, I think you can get into a slippery slope with respect to defining and monitoring the relationship between the property owner or developer and all of the tenants. What is long term? What is equity stake? Would tenant improvements count as an equity stake? If it’s part of the property, or do you have to transfer improvements to the tenant to have it count? There are a lot of issues that you’re raising with these standards. And I think the simplest way to go is to look at it as any bank or developer themselves would look at it, which is: does this project make sense in the marketplace? Thank you.

John Rogers: You raised a good point with respect to the tenant occupancy issue, and I want to be clear. You said that you’re new to this. What you’re specifically referring to as far as the real estate component reflects the construction side of the project. If you look at the overall tenant occupancy issue, we don’t see it as completely separable but there are two phases if you will of projects that involve this, and that is the construction/refurbishment/renovation of a space and then the employment effects. So when we look at the construction phase, we do look at the local real estate conditions. Again, we have a good idea of what data is available. And that is the key component of our understanding what the art of the possible with respect to demand is. We do address that specifically in the way we look at the construction phase of the project. The tenant component of it is related, but it engenders an additional component of the business plan. And I’m going to leave it at that, but I just wanted to respond. Thank you for your question sir.

* * *

Q: I hire a management company to manage my hotel but the employees are mine. There is a third party management company but I am the one paying the salaries of the employees – a typical hotel model. For what I understand, that would allow us to receive credit for those direct jobs in the operational phase of the hotel. Can you please confirm that?

John Rodgers: You know that is a very good question but it is a very specific one. Again, I’m going to repeat what I said before, and that is that we realize the unique structure and operational system of the hotel. If in the business plan a reasonable and comprehensive plan can be proposed that shows that the functionality of the hotel depends on a specific company that was hired via operational or management employees, we would grant economic benefits in terms of job creation.

* * *

Q: I wanted to ask a question based on the vacancy-unemployment ratio which was mentioned in that RFE. You said that that was not related to the Beveridge curve, and I was hoping that you shed some light on what exactly that was related to and what kind of information you are looking for. You are aware that some of this data doesn’t exist on a local level, so if the economists could shed some light on what kind of data would be sufficient and what kind of relationship do they want applicants to demonstrate.

John Rodgers: What we’re looking for is data that provides a reasonable picture that demand for specific types of space is sufficient to generate future occupancy that will meet the job creation benefits of the program. I’m not going to get into the specific types of data, but what I would say in terms of that general metric is that a relationship between supply of specific types of space, demand based on local market conditions, and the interplay of that supply and demand with the respect to the ability of the market to absorb the increased capacity such that new jobs will be created.

* * *

Q: You mentioned that there needed to be a “significant relationship” with the tenant and the EB-5 capital. Does that significant relationship specifically mean “lease”? When you say “long term,” do you mean five years, ten years? Is there a certain period of time? And secondly, but part of that, when you talk about the supply-demand dynamic, by way of illustrating an exception, many of our build-to-suit transactions may be in an area where there is significant vacancy for office space, yet our lessor wants specific space built for them and would not take that space.

John Rodgers: Let me speak more generally and then hone it more toward your specific question. When we talk about “financial relationship” there is obviously a very wide umbrella of what that could potentially be. In the event of joint ventures, in the event of a partnership … there are many many options available that you could present to us. In circumstances, for example with [intel?], where there may be a time or situations where normal businesses process by which those are not practical – well I don’t want to get into specifics we are seeing, but I will say that things like rental rebates, revenue sharing with the tenant would be things that we would potentially look favorably on. And I invite you to provide some thoughts to us, given your expertise in this area, what types of arrangements you think would be in tune with that type of industry that would present a link to the EB-5 capital germane to the developer. …

More important than “long term,” I would say, is a substantive business relationship that is presented to us with the [right?] documentation and the [right?] evidence. I don’t want to try to answer what specific time length we’d be looking at. But the second part of the question, I think is very important too, because it goes back to my statement that the metrics that were conveyed in the Request for Evidence were meant to be part of a comprehensive business plan, not specific litmus tests by which we would look at an application unfavorably in their absence. What you’re bringing up is a situation in which there may be overall high vacancy rates, we may be talking about an underserved area, a blighted area – in those situations when you are referring to a specific type of business that needs a specific type of space, all we would request is that you submit whatever evidence you can provide in the business plan. And we would not consider it unfavorable even if it is a high vacancy area. It all depends on the type of business and the type of space. If you can make that case to us, we would be happy to take a look.

* * *

Q: You said you’d like to see construction timelines. So if we had the construction company provide a timeline that says we break ground here and receive a Certificate of Occupancy here, is that sufficiently credible to show a timeline longer than two years?

John Rodgers: On the timeline, we in the research and the consultation that we have access to, many of the industry standards that we see do in fact conform to the two year window. However, absolutely we agree that there are certain local conditions, certain types of projects that may require expansive timelines. We are absolutely amenable to looking at that on a case by case basis and the evidence presented to us. As far as providing certification from the construction company, we would rather have certification ensconced in your business plan not from a third party. You can present the evidence, the sourcing, but we don’t necessarily ask for third party correspondence.

Will Cooper: I think that if you submitted the construction timeline from the construction company, we would look at that very favorably. What we have been seeing are a lot of unsupported and unjustified construction timelines that simply say “it’s going to last this long.” They don’t tell us what activities are happening, they don’t tell us what these individual activities will cost, and there is in general a lack of detail that we would like to see. In response to your first question, I think we would look at that very favorably. Our agency also understands that sometimes these data are propriety, and in those cases our agency would like to see validating data that shows that this construction timeline is in a reasonable range when compared to industry standards. In terms of the second question with respect to direct, indirect and induced jobs, I think in general if you provide the agency with a detailed construction timeline that is either well validated or from a construction company – if we consider it reasonable and other circumstances – then direct, indirect, and induced jobs in those cases would be attributable to the EB-5 capital.

John Rodgers: Added to what Will said, and something that’s extremely important is, in the overall construction segments of the business plan, we really want to see as precise as possible itemization of the hard costs as well as projected milestones and timelines. We understand flexibility, changing fundamentals and changing dynamics, but the more you can provide specific data, the more you can tailor the plan industry standards, and the more you can provide reasonable justification to fall outside of those normal intervals, so to speak, the better it is in terms of our ability to analyze the business plan.

* * *

Q: Ron Klasko, Philadelphia. I am merely a lawyer, trying to understand what you’re saying. I do represent many developers, involved with very large projects, maybe hundreds of millions of dollars at stake. And what I see as a lawyer trying to advise developers is a big difference between what you’re saying and what I was dealing with and advising-on say six months ago. Six months ago, it seemed to be a more quantifiable process. I could, as a non-economist, review the economic report; look at the inputs, look at the multipliers; and make a determination to be able to advise a developer, who may not move forward with this multi-million, multi-hundred million dollar project, unless he’s pretty sure he can get EB-5. Previously, when it was more quantifiable, I could give advice on that. From a macro sense, what I’m hearing from you is “This is really not very quantifiable.” There was almost nothing in what I heard you say that is quantifiable. If that’s where we’re going, and if there isn’t a way to quantify this, where we can’t say how long a lease has to be for a long-term sustainable relationship; if that’s the case, it seems critical to have some procedure to vet a project in advance, whether you call it an advisory process, or whatever, rather than saying “Well, we don’t have a quantifiable standard, but you have to create a shovel-ready project, you have to spend hundreds of thousands or millions of dollars to get to that point, and the we will let ya’ know what we think based on fairly subjective factors. I would appreciate your comment on that. And then I would have one other question (though I may have just misunderstood). The question specifically is: did you say that for the purposes of hotels and guests, did you say we have to show that guests would not visit that city were it not for building the hotel? For example, do I have show, if I’m building a hotel in New York, that these folks would not visit New York if I don’t build this hotel?

John Rodgers: I’m going to tackle the first part of your question and then let Will take up the second. […] The first, with all due respect, I don’t believe that I said that things are not “quantifiable.” They are quantifiable. What I said is that very specific industry conditions differ, and that what we would like to see is you present the case to us as to what the reasonable time lines and reasonable length of contracts […] etc should be. So it’s not that they’re not quantifiable. It’s just that we don’t impose benchmarks and litmus tests which we […] could convey to the officers if something’s unfavorable. Thank you. […]

Will Cooper: In general, the agency just wants to see justification and some supporting data that the demand will be new demand as opposed to demand that’s not simply transferred from elsewhere.

Q: So, again, there would be no quantifiable vacancy rates we can look to? So, say, if there’s 90 percent occupancy in a city, does that get me anywhere?

Will Cooper: We would consider that in combination with a bunch of other things. It really would, again, be a case by case basis. I can’t really say anything too specific.

* * *

Q: My question is a question of clarification. In the past EB-5 money has been spent to acquire land in the course of building something. One of you made a comment that the cost of the land would not be included in the calculation of the job creation. Are you now also saying that EB-5 funds cannot be used for the acquisition of the land as well, or just that the project has to have excess job creation such that the job creation from the other spending in the project must cover the funds used for the land?

John Rodgers: We do not consider real estate transactions to be part of the EB-5 job-creating input into an IO model. We realize that it’s very important, and if you feel that for purposes of our awareness that you include that in the business plan then we welcome it, but we do not include real estate transactions in job-creating methodology.

Q: So if I have a $100 million project, and $90 million of it is EB-5 funds, and my land costs $20 million: I’m clearly using some of the funds from EB-5 to purchase the land, but I have excess job creation, which if the project only costs $70 million I have enough jobs for my $90 million of expenditure. Where am I?

John Rodgers: I think that’s a question that we would take up with Counsel and Policy.

* * *

Q: My specific question has to do with the market studies which seem to be requested in the RFEs. Could you provide some guidance as to what type of area that market studies should cover? Should it be the entire region of the Regional Center? Should it be the town? Should it be the business district? This is something that’s very unclear.

Director Mayorkas: The issue of the geographic area is actually something that we are looking at internally, so we’re going to take at that internally and engage on that separately or include it in our forthcoming policy memo.

* * *

Q: How long are the RFEs going to be pending? Are you going to work on RFE responses not related to the tenant occupancy issue, or are you waiting to process all RFE responses together?

John Rogers: That’s an adjudicative question.

* * *

Q: I have the data related to vacancy rates, rental rates, absorption rates, and they’re all over the board, from vacancy rates funder 5% to over 25%. Each one of these clients is thinking they qualify for excess demand, and I’m trying to weigh, where is that cut-off point? Is it quantitative, is there a metric, or is more qualitative, comparable to other places in the area? I just need some direction.

John Rodgers: In the recent RFEs that have come to us, we have seen attempts to provide good data in a comprehensive way that can potentially overcome some of the tenant occupancy concerns that we have. In other cases we have seen business plans retooled and recalibrated as necessary. I don’t want to give the impression that we encourage or discourage either of those, but what I would say is: I understand that those numbers are all over the place, they can vary significantly even within cities. What I would ask is that you present the most comprehensive and relevant data to us with respect to the most localized area you can, and not go into it a priori thinking that a certain vacancy rate is a cut-off for what we think is unfavorable. I wouldn’t want to convey that at all. What I would say is: present a plan as accurately and comprehensively and accurately sourced as you can, and we will take it into consideration on a case by case basis.

* * *

Q: You indicated that the portion of the budget related to land acquisition is not a job-creating expenditure. However, is it still the case that the purchase of a vacant building in which a business will be operated and funded with EB-5 money is in fact a job-creating expenditure?

Will Cooper: I believe that under the facts of that case we would consider the acquisition of real estate as analogously a non-job-creating activity.

Q: Even if it’s improved real estate? I’m referring to buying a vacant building and putting a business in it, like buying a vacant restaurant building and putting a restaurant in it and funding and operating the restaurant. Would that acquisition be considered EB-5 job-creating expenditure?

Will Cooper: I think we would need to see some more detail of the actual acquisition and how the money was spent.

* * *

Filed under EB-5 Law & Policy, Updates from USCIS

Question for USCIS Economists

June 7, 2012 6 Comments

We have the opportunity to submit agenda items and questions for the engagement with USCIS economists on June 22. Here is the question that I plan to send in by the deadline on Monday 6/11.

True or False: There exist fact-specific scenarios in which USCIS may accept attribution of tenant-created jobs to EB-5 investors in the entity responsible for construction/leasing/management of the building that houses those 3rd party tenants. (Assume that deference to prior approval is not a factor.)

If false, please explain whether this judgment of “too-attenuated nexus” between construction investment and tenant job creation is based on economic principles or on other reasoning. If true, please describe a fact-specific hypothetical “tenant occupancy” scenario that would be acceptable, and demonstrate a proper use of economic methodologies to count job creation for this particular hypothetical case.

Filed under EB-5 Law & Policy

EB-5 I-829 RFEs: What Does USCIS Look for?

June 3, 2012 2 Comments

“EB-5 I-829 RFEs: What Does USCIS Look for?” (© 2012 Stephen Yale-Loehr, Robert C. Divine, and Sonia Sujanani) asks a question of vital importance for all of us in the EB-5 community. What does USCIS look for when it reads an I-829 petition and decides whether to give the investor a permanent green card or removal proceedings? Statistics show that USCIS denied 30% of I-829 petitions adjudicated in FY2008, 14% in 2009, 17% in 2010, and 4% last year. What went wrong in the cases that were denied? What common pitfalls can we prepare to avoid? What kind of documentation does USCIS expect to see in the I-829 petition, particularly with respect to verifying job creation? The article addresses these questions by analyzing 895 pages of redacted I-829 requests for evidence and denials recently released by USCIS in response to a Freedom of Information Act request by IIUSA. I encourage you to read the article for a full analysis of this trove of I-829 information. [2014 Update: A Cumulative Analysis of What USCIS Looks For in EB-5 I-829 RFEs and Denials]

Filed under EB-5 Law & Policy, EB-5 Resources

New Orleans Cautionary Tale

March 25, 2012 1 Comment

The principals of New Orleans Mayor’s Office RC (www.nobleoutreach.com) are named in a suit in Federal Court brought by 27 EB-5 investors who allege fraud and mismanagement. The court has yet to judge the validity of the finger-pointing, but it’s clear at least that this case exemplifies a diversified investment strategy gone very wrong. With this case in mind, I can see why USCIS is demanding extreme clarity and specificity in the I-924 and I-526 petitions regarding path and use of investor funds. See the article EB-5 Investors File Suit Against New Orleans Regional Center for a summary of the key issues and a link to the case. Those responsible for drafting offering documents for EB-5 deals should pay special attention, and note the risk of inadequate disclosures.

2018 updates:

Two Maryland Men Charged in EB-5 Visa Scheme to Defraud Investors (May 25, 2018) Department of Justice U.S. Attorney’s Office Eastern District of Louisiana

USCIS Termination letter for New Orleans Mayors Office of Economic Development

Filed under EB-5 in the News, EB-5 Law & Policy

New AAO Decision (RC denial with econ analysis issue)

February 16, 2012 1 Comment

Thanks to Joe Whalen for pointing out that USCIS has posted another AAO decision affirming denial of a Regional Center application (May 2, 2011). This decision is very important and interesting. It discusses issues that I suspect underlie many recent denials of applications for initial RC designation (44% of all RC applications adjudicated from 10/2010 to 12/2011 were denied) and details what USCIS is looking for in the economic impact report and TEA information. As the AAO summarizes the issues resulting in denial:

The applicant seeks approval of an extremely broad proposal that covers seven broad investment possibilities. For the reasons discussed below, while the applicant need only support the proposal with general predictions, the economic analysis fails to sufficiently address all of the proposed types of investment possibilities for which the applicant seeks approval. In addition, parts of the analysis rely on assumptions for which Dr. _ provides no source. Finally, the AAO acknowledges that a regional center may include investments in non-targeted employment areas. Nevertheless, the proposal implies that the regional center would strive to focus investments within targeted employment areas (TEAs). The petitioner, however, has not established that any such areas exist within the proposed geographical limits of the regional center.

After you read the decision, I recommend you to Joe Whalen’s entertaining and insightful analysis of it.

Filed under EB-5 Law & Policy

Info from 1/23 Stakeholder Engagement

January 25, 2012 3 Comments

The presentation from the 1/23 Stakeholder Engagement did not, this time, contain the written Q&A, so I’ve written up my notes on note-worthy points that emerged at this meeting. In case you’d like to review the entire conversation, you can download my recording of the call.

TEA Issues

Kevin of the Office of Policy and Strategy announced that, as indicated in the draft EB-5 guidance memo, “we are going to defer to the state agencies in regards to the geographic area of TEA designation.” However, USCIS is not yet saying whether it will allow a single census tract to qualify as a geographic area. Kevin specifically declined to state a position, saying that it “is a question that we’ll cover in the written questions/issues.”

Sasha Haskell said that they have consulted with the Bureau of Labor Statistics and determined that yes, it is appropriate to use newly-available five-year American Community Survey data from the U.S. Census Bureau as a base for estimates for TEA designation. (As an alternative to Census 2010 data.)

Question: When determining 150% of the national average for unemployment rate, which national unemployment rate should we use? Just the most current one? Sasha Haskell: In general the recommendations that we have received from the Bureau of Labor Statistics involve the analysis of 12-month or an annualized set of data. So I think in general that’s what we are looking for.

“Hold at headquarters” Issue for I-924 Regional Center applications

Sasha Haskell: “If I understood the question correctly, there is a concern raised about an issue that’s being examined across a number of applications and the question focuses on when there will be resolution, is that correct?… Okay, well, actually this is an issue that we’re dealing with regarding the economic analysis. We’ve had our contract economists online with us for several months now and we’ll be talking more about that in the staffing section of these presentation. They’ve been invaluable in terms of presenting their expertise in approaching these cases. This is all a growing period for us, incorporating their expertise into our adjudications. We want to make sure that we proceed very carefully. This is being discussed at the highest level in the agency. We expect to have some better clarity within the next couple of weeks on this issue. We appreciate all the patience that the applicants have displayed on this issue, but we’re really trying to proceed carefully.”

The leadership reiterated the hope (but not certainty) that a resolution on questions regarding the econ analysis would be reached in the next couple weeks, and that applicants would have the opportunity to provide supplemental information if needed.

Issues with I-924 applications generally

Common reasons for denial will be discussed at the next stakeholder meeting

A new I-924 Form is currently being prepared that will describe more fully what USCIS is looking for at the Regional Center application stage, and will that lay out standards for “shovel ready projects.” According to Sasha Haskell, generally “what we have found is the greater the specificity the better prepared the package is.”

Customer Service Issues

Email Communication: Sasha Haskell conceded that USCIS has had some growing pains with its EB-5 email-box, but assured stakeholders that the EB-5 mailbox is now administered full time by an EB-5 administrator and has a goal to respond to inquiries within 2-3 days.

CSC Staffing: It was reported that the CSC now has four teams of adjudicators working on EB-5 cases (versus one team in Summer 2010) and that the most recent training was conducted 12/2011. The agency is working to incorporate economists into the review process. Each team has a supervisor and there is one supervisor in charge of work flow issues. They are trying to bundle filings for single Regional Centers for the sake of consistency while still adhering to the “first in first out” principle.

Processing Times: The leadership was not able to provide any current estimate on I-924 processing times, but said that time estimates will be available soon on the EB-5 page of the USCIS website.

Regional Center program sunset question

A stakeholder asked what procedures might be employed in the event that Congress does not extend the EB-5 Regional Center program past its current sunset date of 09/30/2012. Rachel Ellis quickly responded that this as a question that will just have to be addressed when and if it occurs, and that the Service does not have a response at this time.

Questions regarding amendments

Sasha Haskell and Kevin discussed at length the requirements for various types of Regional Center amendments (e.g. to industry code, geographic area, or economic impact modeling). To summarize, the applicant needs to follow I-924 relevant instructions and submit evidence that the change is warranted and appropriate, which usually involves submission of a business plan and economic analysis. Concurrent filing of an amendment and I-526 petitions dependent on approval of the amendment is not okay.

Questions regarding investment in real estate

See my post below.

Filed under EB-5 Events, EB-5 Law & Policy, Updates from USCIS

New AAO Decision (RC application denial)

January 19, 2012 2 Comments

The AAO has published another EB-5-related decision (04/26/2011), this one affirming denial of a Regional Center application filed on behalf of The Statesman Group and its Pleasant Harbor Marina and Golf Resort project in the North Olympic Peninsula. The decision is interesting, if unsurprising. To quote a portion of the analysis:

… the AAO finds that the applicant’s proposal is a marketing strategy to attract buyers for vacation suites rather than investors of capital in a new commercial enterprise. Specifically, the evidence incontrovertibly establishes that the applicant proposes that “investors” would purchase a vacation suite as either a “primary residence,” “second home” or “investment property.” For the reasons discussed below, the AAO affirms the director’s determination that such a real estate purchase of a private residence, even if still under construction, is not an at-risk investment of capital that can be credited with direct or indirect job creation under the employment creation program set forth at section 203(b)(5) of the Act and the implementing regulation at 8 C.F.R. § 204.6. The purchase of individual residential suites by alien “investors,” even if concentrated in one resort complex, is also not the type of “pooled investment” concept Congress envisioned for the regional center program. In addition, the offer in the record indicates an alien “investor’s” funds would be returned should the residence not be completed on time, even if the alien has already adjusted to conditional permanent resident status. Thus, the alien’s funds would not be at risk if the project failed or construction was delayed. Furthermore, the record does not identify a new commercial enterprise, such as a limited partnership, in which alien investors invest capital. Rather, their full involvement would be to purchase residential units from the regional center. Finally, the applicant asserts that membership in the resort’s Homeowner’s Association will constitute management in a new commercial enterprise. As the Homeowner’s Association is not the new commercial enterprise in which the alien investors will invest, this assertion lacks credibility. As the described proposal does not contemplate an investment of capital in a new commercial enterprise, the job creation at a proposed resort is immaterial.

According to the Peninsula Daily News, The Statesman Group is planning to try again with its Regional Center application, this time “expecting better luck… because he hired a professional writer to pen the application.” (Hooray for professional writers!) I trust that the writer in question will take care to keep in tune with “the letter and spirit” of the EB-5 regulations, as the AAO’s summary requests. To be fair to The Statesman Group, this is surely not the only RC application denied for trying to frame purchase of residential real estate as an EB-5 investment.

For all EB-5-related AAO decisions, see my AAO Decision summary page.

Filed under EB-5 Law & Policy

Insights from Conversation with Director Mayorkas

January 18, 2012 2 Comments

And now a guest post from Joseph McCarthy, an immigration attorney and EB-5 expert who was one of the select few in-person participants at both “Conversations with the Director” in Washington DC on 1/12/2012 and 9/14/2011. I’m one of the hundreds who struggled to follow by phone what exactly was going on in the lively discussion with USCIS Director Alejandro Mayorkas, so I prevailed on Mr. McCarthy to share his first-hand experience and highlight key topics and notifications from the session. I don’t know how he found time to write this, but thank you Joe for this generous and useful report from the front. We look forward to hearing more from you.

For the second time in sixth months, USCIS Director Ali Mayorkas offered a small-audience EB-5 “conversation” as part of his ongoing outreach efforts to EB-5 stakeholders. Much like the first event last fall, the meeting took place in an intimate conference room located within USCIS headquarters in Washington DC. This time, however, the audience was noticeably smaller and primarily composed of veteran immigration attorneys and senior USCIS staff (accompanied by 350 passive participants who listened-in via teleconference). The events also differed in tone and format. The first event introduced the beginning of a new EB-5 policy memo, but the meeting as a whole might fairly be characterized as a “listening session” in which Director Mayorkas invited audience topics and concerns. This most recent event largely focused on the content of the revised memo wherein USCIS more vocally espoused positions on policy topics.

While one could devote many pages to analyzing the new memo, perhaps the biggest conceptual change added to the most recent draft is related to what many EB-5 practitioners refer to as the “venture capital model.” USCIS inserted several paragraphs discussing how an immigrant investor may diversify their total EB-5 investment across a portfolio of wholly-owned businesses, so long as the minimum required investment and number of jobs occur within a new commercial enterprise. The language chosen by USCIS clearly contemplates a traditional, or non-Regional Center, investment, which quickly led to a discussion as to how the model might apply to Regional Center projects, how job creation could be verified (the ongoing debate between tracing an individual’s investment to job creation versus the creation of jobs by the commercial enterprise (8 CFR §204.6(j))), and the effect of multiple projects with varying TEA status. While discussion was provocative, as one might anticipate, no resolution resulted. Nonetheless, Director Mayorkas acknowledged that USCIS would further drill down into the topic and the Agency on the whole appeared receptive.

In subsequent topics, there appeared to be less agreement between the Agency and stakeholders. In truth, not all debate may have been over closely held policy positions, but rather informed discussion of how certain hypothetical fact patterns play out given proposed ideas. The topics varied and reached beyond the content of the memo, including:

Timing of job creation with respect to the two-year provisional residency period: What is considered to be a “reasonable” period of time following the two year timeframe if the full number of jobs hasn’t been created? USCIS appeared committed to the idea that idea of a reasonable timeframe only contemplated a “short tail” following the initial two years.

The extent to which USCIS should scrutinize the legitimacy of petitioner’s funds: Again, USCIS appeared unapologetic about hyper-technical examination of source of funds, perhaps even addressing compliance with foreign laws.

The source and necessity of the delay in adjudications pending the resolution of unknown policy issues at USCIS headquarters: Frustratingly, USCIS appeared unwilling to identify either the source of the delay, or the expected timeline when adjudications would renew.

At times the debate appeared to get fairly contentious; the Agency seemed highly resistant to particular stakeholder positions or interpretations of law, at times even conveying their own frustrations. Yet overall, Director Mayorkas maintained a professional meeting posture in the spirit of fostering dialogue. An amateur poll of attendees indicated that most participants felt encouraged and appreciative of the increased dialogue with the Agency, but reserved their final impressions until after the January 23^rd quarterly stakeholder call.

Two small, yet highly important notifications were made at the meeting. Director Mayorkas stated that three contract economists and/or business analysts (the distinction was blurred, so it was unclear) have already been hired by USCIS, and the Agency is interviewing for three more contract positions and one full time federal economist. The Director implied that the Agency may be vetting for a corporate or securities attorney, which seemed curious, given that this is within the purview and available expertise of other federal agencies. And certainly the question that is on every client’s mind: there currently is no available timeline for the advent of premium processing, but Director Mayorkas renewed his commitment to the idea. Many EB-5 practitioners continue to wonder if premium processing will manifest as originally proposed – strictly for the I-924 Regional Center petitions – or if some other alternative can be explored that will result in getting money to projects faster. My guess is that will be the topic of conversations with Mayorkas to come…

Filed under EB-5 Events, EB-5 Law & Policy, Updates from USCIS

“On hold at USCIS headquarters”

January 17, 2012 9 Comments

2/17 update: USCIS has identified the problem as relating to whether for a particular case “it is economically reasonable to attribute ‘tenant-occupancy’ jobs to the underlying EB-5 commercial real estate project.”
2/6 update: I recommend this article on the issue by Bernard Wolfsdorf , an attorney who works with EB-5: “Transitions and Predictions for the EB-5 Program”
1/23 update: In the 1/23 EB-5 Stakeholder meeting, Sasha Haskell confirmed that the hold at headquarters indeed resulted from questions about the economic analyses that were raised by USCIS’s contract economists and currently under review by the senior leadership.

A number of Regional Center applicants, including a few who filed over a year ago, have been told that their applications are currently “on hold at USCIS headquarters pending resolution of an issue.”

This hold hasn’t affected all I-924s (the CSC has issued recent Regional Center approvals and RFEs), but it’s a significant phenomenon. I’ve heard several personal reports from attorneys and applicants in the last couple months, and the audience at the 1/12/2012 EB-5 engagement asked USCIS Director Mayorkas about it.

So far as I’ve heard, communications from USCIS to the affected applicants haven’t disclosed the nature of the hold-up(s) or when resolution might be expected, and Director Mayorkas didn’t give much more information at last week’s meeting. He agreed that USCIS should be able to identify the issues and provide a timetable for resolution, and he suggested that the matter will be treated at the up-coming January 23 EB-5 stakeholder meeting. (He didn’t agree that it was unfair for applications filed many months ago to be judged according to current standards. He also noted that the unusual volume of new RC applications has been naturally accompanied by an unusual volume of unprecedented issues requiring judgment calls, thus the need for evolving guidance.)

While we wait for the 1/23 meeting, can we guess what might be the unresolved issue(s) holding up some Regional Center applications? Let’s review a few questionable/questioned areas that we know of:

1)     Econometric Studies
As a layman I’ve struggled to make sense of the economic impact reports and job counts that get filed with Regional Center applications, and I’ve wondered what to conclude when different professional economists working with EB-5 criticize each other’s approaches. How do the adjudicators at the CSC interpret and assess these reports? What do they make of the widely varying length, level of detail, and use of methodologies? And now that USCIS has just hired three new economists, do they disagree among themselves as much as the economists preparing the reports do? Perhaps most adjudicators used to rubber stamp the econometric studies, not being qualified to critique them, but now the new team of USCIS economists is providing more oversight and raising questions? I’ve heard several people (including Joseph McCarthy, who asked about holds at the in-person meeting with Director Mayorkas) speculate that issues raised by the newly hired economists may explain the “hold at headquarters” phenomenon. I expect that the 1/23 stakeholder meeting will include new guidance for econometric studies.

2)     Targeted Employment Area Designation
Even the New York Times recently joined the clamor pointing out “rule-stretching” to allow projects with apparently prosperous surroundings to take advantage of the $500,000 EB-5 investment threshold that Congress intended to benefit areas of high unemployment. Surely USCIS has also noticed the negative press, and is struggling to create guidelines that will limit applicants’ self-serving creativity and the states’ inconsistent practice in TEA designation. For in-depth analysis of the issues at stake, see two excellent articles by EB5info.com (New York Times, EB-5 Visa, TEAS, and Gerrymandering Part I and Part II). I particularly note the issue of whether a census tract per se is an allowable building block for a TEA. Census tracts were the common building block until questions started to be raised last year, and apparently the jury is still out on whether a single census tract or census tract group can qualify as a geographic area or political subdivision for TEA designation purposes. As recently as the 1/12/2012 meeting, Director Mayorkas said that he couldn’t say for sure and would huddle with his team to consider the matter. The conclusion could affect a lot of pending applications.

3) Project Detail
An unresolved issue that I notice is the question of how much and what kind of project detail needs to be included with a Regional Center application. The I-924 instructions say “The job creation analysis for each economic activity must be supported by a copy of a business plan for an actual or exemplar capital investment project for that category.” The EB-5 community tends to pull one way, taking that “or exemplar” option to allow filing applications based on briefly sketched hypothetical projects, while USCIS tugs the other way, issuing RFEs that request extensive real-world project information, often quoting the further I-924 instruction that: “A business plan provided in support of a regional center application must contain sufficient detail to provide valid and reasoned inputs into the economic forecasting tools and must demonstrate that the proposed project is feasible given current market and economic conditions.” Official guidance (notably the 2009 Neufeld memo) specifically allows for “hypothetical” projects in RC applications, but I get the sense that the adjudicators currently don’t like them very much and may be debating what to do with initial RC applications not grounded in actual projects.

Anyone else have first hand evidence or guesses about the reasons for the hold on some I-924s at USCIS headquarters? I’m not happy that we have to speculate about this, but also thankful that USCIS is trying to be vigilant. I hope that eventually the new standards will be honed so that the many good proposals aren’t delayed and the many faulty applicants/projects are cut off before they go live and disgrace the EB-5 program. (But if I had to choose delays or disgrace, I’d choose delays.)

Filed under EB-5 in the News, EB-5 Law & Policy

Revised EB-5 Policy Memo

January 11, 2012 Leave a comment

The USCIS Office of Public Engagement has emailed a revised draft of the EB-5 policy memorandum and a red line version of the memo for our review in advance of the 1/12 call with Director Mayorkas.

Note that this memo is still in the draft stage not to be taken as final policy. The most interesting additions include new language on diversified investment on page 6 and an additional paragraph related to consistency in adjudications on page 19 of the redline version.

Filed under EB-5 Law & Policy

11/9 call with Director Mayorkas

November 9, 2011 Leave a comment

In today’s conference call Director Mayorkas introduced the document “A Work in Progress: Towards A New Draft Policy Memorandum Guiding EB-5 Adjudications” and fielded stakeholder questions. Many of the questions asked were irrelevant to the topic at hand so I won’t bore you with my recording, but there are a few tidbits of interest:

Premium Processing for EB-5: Director Mayorkas reported that the goal is to have premium processing available for initial I-924 applications only by Spring of next year. He also reiterated that the service is working hard to speed up processing times across the board for all petitions, independent of premium processing.

TEA Issues: Director Mayorkas said that the statement on TEA designation in the draft memo represents guidance that is effective immediately. See page 6-7 of the memo. (“….Consistent with the regulation, USCIS is to give deference to the state’s designation of the boundaries of the geographic or political subdivision that will be the targeted employment area. However, USCIS must ensure compliance with the statutory requirement that the proposed area has an unemployment rate of at least 150 percent of the national average rate.” To me this statement looks consistent with recent guidance and as if it still gives USCIS leeway to reject gerrymandering.)

Oversight: Director Mayorkas said that the agency is concerned about fraud and misrepresentation in EB-5 marketing and practices, and that examples should be brought to the agency’s attention.

I recommend those active and knowledgeable in the EB-5 field to review and comment on the draft memo between now and Nov 25, when the comment period closes. Those looking for practical guidance now can skip this document because the content is incomplete and will change. People also shouldn’t look to this memo for new policy. The purpose of the memo is apparently just to collect all existing EB-5 guidance in one handy location with headings — unexciting but useful and appropriate.

Filed under EB-5 Events, EB-5 Law & Policy, Updates from USCIS

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