4/25 Meeting Questions, Program Changes, New RCs

April 19, 2016 7 Comments

Discussing EB-5 Changes with USCIS

Next Monday 4/25 USCIS will hold an EB-5 listening session to give stakeholders a chance “to provide feedback on potential EB-5 regulatory and other policy changes.” This week USCIS emailed “a list of topics that we would like your input on,” as follows: “Minimum investment amounts; The TEA designation process; The regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center; and Indirect job creation methodologies.” This list gives us an interesting tip of the hand on the areas USCIS plans to address in forthcoming revised regulations and new policy.

So what are the potential changes? I’ve summarized issues and proposals that are on the table in these four categories, with special reference to Secretary Jeh Johnson’s legislative wish list as expressed in his April 2015 letter to Senators Grassley and Leahy, and provisions that have been included in EB-5 reform bills. All these items were put on the table for Congressional action, and I’m not entirely clear about how much USCIS has power to change through regulation and policy, absent legislation. And I don’t hold my breath for USCIS much more than for Congress to get things done. But I hope to hear more on Monday about what USCIS has in the pipeline, and this list may help spur your thinking on feedback you’d like to give during the meeting.

— Minimum investment amounts —
What DHS suggested to Congress:
— Increase both the TEA and base investment amounts, considering that they haven’t been adjusted in 25 years. And link minimum thresholds to inflation indices going forward. (Jeh Johnson letter)
Proposals from EB-5 legislation:
— Leahy & Grassley: base amount $1.2M, $800K in TEA, and CPI adjustments every five years
— Lofgren & Gutierrez: base amount $2M, $1M in TEA
— Flake, Polis, Paul, Schock: no change proposed
Other notes:
— In an IIUSA member poll, 72% thought raising the TEA level to $800K workable for their business; 15% thought the $2M/$1M level workable.
— Judiciary committee hearings have all mentioned the need to raise investment amounts. The Senate TEA hearing discussed Congressional intent for the base amount to be the norm and TEA investment an exception to incentivize a limited number of projects.
— The US investor visa amount is indeed rather low compared with other major investor visa programs. (Migration Policy Institute report.)

— The TEA designation process —
What DHS suggested to Congress:
— Prevent jerrymandering by limiting TEAs to a specified number of contiguous census tracts. Also include closed military bases. (Jeh Johnson letter)
Suggestions from legislative proposals:
— Leahy & Grassley: new set-asides, new NMTC-inspired categories, limit gerrymandering, USCIS designates rather than states, TEA designation valid for 2-year period
— Flake, Polis, Paul, Schock: no change
Other notes:
— In an IIUSA poll, 59% percent thought the 12-census tract California model viable for the industry, 36% thought the NMTC-modeled category could work.
— Judiciary committee hearings have expressed strong and divisive opinions about what types of projects should be incentivized and which type of geographic areas privileged, what types of incentives would be effective, and who should designate TEAs.
— Some interesting analysis has been done on the potential impact of TEA change proposals, including by Friedland & Calderon.

— The regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center —
What DHS suggested to Congress:
— Require RC principals to be US citizens or permanent residents with records free of certain criminal and civil violations. Require exemplar filing (business plan and organizational documents) in advance of individual investor filings. (Jeh Johnson letter)
Suggestions from legislative proposals:
— Most 2015 bills include a provision requiring exemplar I-526 filing for project pre-approval, and include a provision prohibiting foreign RC ownership.
Other notes:
— I haven’t noticed other people talking about regional center geographic scope as a sensitive issue, and interested to see this point raised now. I’ve been remarking since late 2013 on the many multi-state regional centers getting designated, and wondering what IPO thinks “regional center” means. The law establishing the program specifies that “a Regional Center shall have jurisdiction over a limited geographic area, which shall be consistent with the purpose of concentrating pooled investment in defined economic zones” (Section 610(a) of the Departments of Justice and Related Agencies Appropriations Act 1993).

— Indirect job creation methodologies —
What DHS suggested to Congress:
— I can’t recall USCIS proposing changes in indirect job creation methodologies.
Suggestions from legislative proposals:
— The Leahy & Grassley bill proposed adding a requirement that at least 10% of RC project jobs be verifiable direct jobs. (Their original bill would also limit EB-5 investor credit for job creation based on percentage of their investment in the enterprise and says that at least 50% of all indirect jobs in a TEA project must be created within the TEA.)
Other notes:
— In an IIUSA poll, 39 respondents agreed with a 10% direct jobs requirement.
— Speakers at both House and Senate judiciary committee hearings questioned whether it’s fair to let EB-5 investors count all the jobs in a project when they provided only a small portion of funding needed for that project. I don’t resonate with this concern (after all, it’s common for a small piece of the capital stack to be a piece without which that whole project could not proceed), but apparently it’s fixed in the Congressional imagination as a concern. But I don’t know whether it’s in USCIS’s possible policy/regulation reach.
— There have been suggestions in the past about getting other agencies (ie Department of Commerce) involved in vetting and/or setting rules for EB-5 economic analysis, but I haven’t heard this bruited recently. I wonder whether this is the indirect jobs issue currently on USCIS’s radar.

Articles on Proposed Changes
The latest edition of the Regional Center Business Journal has a valuable article by Peter Joseph discussing the schedule between now and September 30, 2016 and what may happen in Congress during that time (page 19), and also a roundtable of EB-5 experts discussing the possibilities for changes through policy and regulation (p 38).

Regional Center List Changes
Additions to the USCIS Regional Center List, 04/13/2016 to 04/19/2016

  • EB5 International III LLC (Oregon, Washington)
  • Global Alliance Carolina Regional Center, LLC (North Carolina)

Filed under EB-5 Law & Policy, New RC

4/13 Senate Hearing Notes, RC Research, SEC Case (VT), RC List Changes

April 14, 2016 2 Comments

Senate TEA Hearing
You can now review video of the 4/13 hearing on EB-5 targeted employment areas on the Senate Judiciary Committee website (be patient, the video does start eventually), or download my audio recording. My main take-away from the hearing is that Senate leaders are on a long-term path to EB-5 reform and Regional Center reauthorization. They discussed very substantive potential changes in a very preliminary manner and sounded no-where near ready to sit down and agree on legislation. This is worrisome, considering that only a handful of Congress workdays remain before the 9/30/2016 Regional Center sunset date (what with conventions and vacation and holidays) – hardly enough time to hammer out the issues and questions that this hearing raised as important. The TEA issue is a thorny one because it comes down to a question of what kind of projects Congress wants to see incentivized, and our representatives don’t agree about that, much less on the question of what type and method of incentive would effectively focus on such projects.

EB-5 Project Research
Listening to Gary Friedland testify at the Senate Hearing reminded me that I’ve been remiss in reporting on the latest EB-5 research that Mr. Friedland and Professor Calderon have posted at the NYU Center for Real Estate Finance Research. Their paper EB-5 Mezzanine Financing: A Real World Example (3/23/2016) presents and analyzes an actual term sheet for a large EB-5 regional center deal, and will be very interesting for people seeking examples of EB-5 documents and deal terms. EB-5 Capital Project Database: Revisited and Expanded (3/29/16) follows up on last year’s paper A Roadmap to the Use of EB-5 Capital: An Alternative Financing Tool for Commercial Real Estate Projects (5/24/2015) by adding details of 27 additional EB-5 projects. The number 27 is small – representing a minority of EB-5 projects – and yet these few projects alone involve over $5.6 billion in EB-5 capital, which means over 11,000 EB-5 investors and almost three years of the total EB-5 visas available. I have to hope that Senators and journalists don’t examine the NYU database, because these few projects claiming so many dollars and visas could provide ammunition for criticism that EB-5 TEA investments have become a subsidy for luxury developments in tier one cities, a benefit for mega-developers and Chinese developers, an opportunity to replace existing financing rather than a source of needed capital, and a minor contribution to job creation. As a business plan writer I work with EB-5 projects that could be attractive poster children for the regional center program, but such modest projects usually don’t make the research papers or the news and their fate may depend on how the big players are seen to use EB-5.

New SEC Case (VT)
Also in the category of the last thing we need when facing a fight for Regional Center reauthorization: a venerable figure in the RC program is now subject of fraud charges and an asset freeze. According to today’s press release: SEC Case Freezes Assets of Ski Resort Steeped in Fraudulent EB-5 Offerings. The State of Vermont has filed a concurrent suit. The SEC Complaint does not name Vermont Regional Center, but it does call out Ariel Quiros, William Stenger, and a whole list of Jay Peak companies. I read the SEC complaint ready to make allowances, since I know that in real life it’s extremely difficult to produce documents that are completely free from omissions and misleading statements or that perfectly anticipate what subsequently happens, and I think one should be very hesitant to cry fraud. Sadly the SEC complaint leaves little room for charitable interpretation, and this situation looks like a mess likely to pass beyond Jay Peak and their investors to leaders who have been regional center program champions. Senator Leahy concluded his comments on the enforcement action by saying: “Given the significant problems plaguing this program, I will continue to push for meaningful reform. Without reform, I believe the time has come for the program to end.” Hurry up, reformers!

Additions to the USCIS Regional Center List, 04/05/2016 to 04/13/2016

  • America FX Regional Center, LLC (California)
  • EB5 International II, LLC (California)
  • Hawaiian Ohana Regional Center (Hawaii)
  • Luichi, Inc. (Nevada)
  • Manhattan Metropolitan Regional Center (Connecticut, New Jersey, New York)
  • Watercrest Florida Regional Center, LLC (Florida)

Removed from the list

  • Deictic Investment Group LLC (California)

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

4/13 Hearing, 2016 AAO Decisions (NCE requirement), RC List Changes

April 7, 2016 Leave a comment

Senate Judiciary Committee Hearing Rescheduled 4/13
The Senate Judiciary Committee’s provocatively titled hearing on The Distortion of EB-5 Targeted Employment Areas: Time to End the Abuse has been rescheduled for Wednesday April 13th.  The hearing will be streamed live at the above link.

AAO Decisions: Regional Center NCE, Jobs Allocation, At Risk Requirement
Several 2016 AAO decisions on I-526 cases have been posted on the USCIS website. I’m particularly interested in MAR252016_02B7203 (and the nearly identical _03 and _04), which deal with a regional center investment. Here’s what I’m particularly surprised or intrigued to hear AAO saying in the MAR252015 cases:

  • In the Regional Center context, the job-creating entity’s history and creation date are not relevant to the question of whether EB-5’s “new” commercial enterprise requirement has been met. When the regional center investment involves a new commercial enterprise and a separate job-creating enterprise, only the NCE has to qualify as “new.” In making this point, AAO argues against a position commonly taken by USCIS. In the MAR252016 case, the petitioner invested in a limited partnership formed in 2013 that deployed capital in a hospital established in the 1960s. In its denial, USCIS predictably cited Matter of Soffici and indicated that the NCE requirement wouldn’t be met unless the hospital were restructured or substantially expanded. (Soffici deals with a new enterprise’s purchase of an old hotel and says “It is the job creating business that must be examined in determining whether a new commercial enterprise has been created”.) AAO countered that: “We disagree with the Chief’s analysis. Soffici, unlike this case, did not involve a regional center project.” AAO argues that the relevant precedent is rather Matter of Izummi, which did deal with a regional center case, and “In Izummi, when determining what constituted a ‘new commercial enterprise’, we reviewed the date of creation of the entity in which a petitioner had invested or intended to invest, not the job creating entity where the funds were ultimately to be deployed.”
  • A petitioner can’t get credit for any jobs created by the project if the project didn’t create enough jobs for all EB-5 investors in the project (unless there is an agreement among all investors about how jobs will be allocated). In the MAR252016 case, AAO wouldn’t consider whether any of the 61 new jobs finally claimed could be credited to the petitioner, since there were 11 other EB-5 investors in the project and no job allocation agreement on file. This is not new policy, but an important reminder. Make and file a job allocation agreement, just in case!
  • An EB-5 investment does not meet the “at risk” requirement if the business plan does not “present a comprehensive analysis of the potential net profit available for distribution to each of the limited partners” and therefore fails to “sufficiently establish that there is a reasonable chance for gain, especially in the foreseeable future.” This is not technically a new point (the full “at risk” requirement is “at risk for the purpose of generating a return on the capital placed at risk”), but I haven’t seen AAO/USCIS focus on insufficient profit analysis as a basis for denial.

I’ll let you read the MAR252016 decisions for yourself to get the rest of the story. The case also involves the hot issues of troubled business qualification and the separation of ownership, management, and employment among multiple entities, and AAO doesn’t raise all the questions or reach all the conclusions I would’ve expected. What AAO doesn’t say in this case may be as significant as the points that are made. To assist in following the case, I’ve done my best to illustrate the fact pattern (reading around redactions, so mistakes are possible).
Fig-1UPDATE: You can read more about this case in a civil suit filed by the petitioners. (Update: the petitioners won the suit.)

AAO Decisions: Search Function
The Administrative Appeals Office has launched a search tool for most non-precedent decisions since 2005. Just enter a search term in the box under “AAO Non-Precedent Decision Repository” and poof – links to all AAO decisions where that term is mentioned, with sorting options. I love it. (And now regret that weekend spent downloading EB-5 decisions one by one to make my own searchable master file.)

Regional Center List Changes
Additions to the USCIS Regional Center List, 03/21/2016 to 04/05/2016

Terminations

  • Path America KingCo, LLC (Washington), Terminated 3/23/2016
  • MCIG Regional Center (Florida) Terminated 3/29/2016
  • Velocity Regional Center (California), Terminated 3/24/2016

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

Q1 2016 Petition Processing Stats, RC List Changes

March 22, 2016 Leave a comment

Petition Processing Trends

The USCIS Citizenship and Immigration Data page has been updated with data on I-526 and I-829 petition processing in the first quarter of fiscal year 2016 (aka October to December 2015).  The numbers are not heartening. Investor Program Office petition processing volume peaked in April-June 2015, and progressively lost ground over the following quarters.  In Q1 2016, IPO processed 355 more I-829 petitions but 933 fewer I-526s than in the previous quarter.  The I-829 gains are nice, but then the I-829 backlog is only a dire 4,000+ petitions while the I-526 backlog is an extremely dire near-22,000 petitions. IPO cannot afford to be processing fewer and fewer I-526s, or fewer EB-5 petitions overall. The number of I-526 receipts is also striking. We expected the surge in July to September 2015, in advance of the possible September 30th Regional Center Program sunset date, but the numbers show that the surge continued through December. That’s two quarters in a row with over 6,000 I-526 filings each. The program can’t handle many quarters like that, considering that only about 10,000 EB-5 visas are available per year for investors plus family members (not to mention the fact that IPO has only managed to process about 3,000 I-526s a quarter at best). In addition to slowing I-526 processing over the course of the year, IPO got tougher, denying 8% of I-526 petitions processed in Q3 2015, 15% in Q4 2015, and 23% in Q1 2016.
I526q12016
I829q12016
pendingq12016

Regional Center List Updates

Additions to the USCIS Regional Center List, 03/01/2016 to 03/21/2016.

  • American Lending Center Ohio, LLC (Ohio): usa-rc.com
  • American National Regional Center Southern California (California)
  • Discovery Florida, LLC (Florida)
  • East West Global Regional Center (California)
  • Fairhaven Capital Advisors Regional Center (Colorado)
  • MCFI Mississippi / Louisiana (Mississippi): www.mcfiusa.com
  • MCFI New York / New Jersey / Connecticut (Connecticut, New Jersey, New York): www.mcfiusa.com
  • Midwestern Investments For America, LLC (Ohio)
  • Nevada Regional Center Enterprises (Nevada)
  • New York Renaissance Regional Center, LLC (Connecticut, New Jersey, New York)
  • Reliant Regional Center (Minnesota): www.relianteb5.com
  • Socal Investment Regional Center (California)
  • Southwest Florida Regional Center, LLC (Florida)
  • TriHaven Investment Group Southern California (California)

Name Changes:

  • Southern California Commercial Regional Center LLC (former name US Commercial Regional Center) (California)
  • Charter Investor Financial (former name Charter USA Financial LLC) (Florida)

Filed under EB-5 Statistics, New RC

2015 Visa Statistics by Country, RC list changes

March 7, 2016 Leave a comment

2015 Visa Statistics
The US Department of State has finally published Section V. of Report of the Visa Office 2015, so we now have figures by country for all EB-5 visas issued in FY2015. (Last December I reported numbers from Section VI of the report, which only reflects EB-5 visas issued at consulates.) Here is my updated summary table.
2015visastats
DOS issued over 10,000 EB-5 visas in 2014, and fewer than 10,000 in 2015. China continues to dominate the list of countries, but with a smaller percentage of total visas in 2015 than 2014. Vietnam topped the list of countries claiming an increased number of visas in 2015, while China, South Korea, and Mexico showed significant decrease between 2014 and 2015. It’s interesting to note the number of visas issued to applicants from islands (including British and French territories) and wonder how many of these may be for applicants originally from more difficult countries who got intermediate citizenship. In terms of use, visas for regional center investments (98.4% of total) and TEA investments (99.2% of total) were even more dominant in 2015 than 2014. I assume that visa numbers for 2015 mainly reflect investments made in 2012-2014 (considering processing and wait times) by about 4,440 investors (assuming average 2.2 visas per investor). FYI here is my post with summary table for the 2014 Visa Office report. And note that IIUSA has a handy Investor Origin Map showing EB-5 investments by country.

Regional Center List Updates

Changes to the USCIS Regional Center List, 2/10/2016 to 03/01/2016

New Approvals:

  • EB-5 Bonds Texas-Oklahoma, LLC (Oklahoma, Texas)
  • Future Resources, Inc. (California): fureinc.com
  • Index Regional Center, LLC (Florida)
  • Rainier Valley RC LLC (Washington)

Name Changes:

  • Florida First Regional Center, LLC (former name USEGF Florida Regional Center) (Florida)

Terminations:

  • Luca Energy Fund Regional Center (Louisiana, Texas): Terminated 2/2/2016
  • U.S. Investment Regional Center, LLC (Arizona): Terminated 2/22/2016

Filed under EB-5 Statistics, New RC

Senate TEA Hearing

February 26, 2016 Leave a comment

Update: the Senate hearing on EB-5 Targeted Employment Areas has been postponed.

The Senate Judiciary Committee is more serious about EB-5 than I expected, and already has another hearing scheduled for next week, on Wednesday March 2, with the provocative title The Distortion of EB-5 Targeted Employment Areas: Time to End the Abuse. Senator Grassley is making good on his vow in December for Continued Push to Reform EB-5 after Fixes Ignored in Omnibus Spending Bill. Senator Grassley is concerned that “the status quo will not benefit Middle America. It benefits New York City and other affluent areas at the expense of areas in Iowa, Kentucky, Wisconsin, and Vermont,” and he is disturbed by reports such as Wall Street Journal’s September 2015 article How a U.S. Visa-for-Cash Plan Funds Luxury Apartment Buildings. On the other hand, Senators representing coastal America are likely to point out that big cities also struggle with unemployment and economic distress, and that it’s not right to make the TEA issue into a regional fight or impose a rural model on urban areas. If you’d like to review arguments on various sides in advance of this hearing, consider Jeanne Calderon’s research on the history and current use of the TEA incentive and impact of potential changes, Carolyn Lee’s 2014 article on State Designations of EB-5 Targeted Employment Areas (explaining the logic of current practice), and Jeff Campion’s 2015 article Targeted Employment Areas: Where Are We Now (giving the urban perspective). The proposed new TEA provisions in last year’s draft legislation were awkward and confusing, probably the result of too many contradictory compromises, but maybe all these hearings can result in a more reasonable reform proposal.

Filed under EB-5 Law & Policy

How long does I-924 take?

February 25, 2016 Leave a comment

01/2017 Update: I have newer charts with data through January 2016 here.

–ORIGINAL POST–

USCIS reports a 8.5-month processing time for the Form I-924 Application for Regional Center as of December 31, 2015 (per the February 2016 IPO processing times report). This number does not distinguish between initial applications and amendment requests, and does not hint at the possible range of actual processing times. It has some base in averaged reality, but we don’t know how it’s calculated.

For more perspective, compare the average times USCIS reported from March 2014 to March 2015 (recorded from past IPO processing time reports) with the times for actual I-924 approvals from the same period (recorded from available regional center designation letters, which show approval date, filing date, and application type).

i924comp

The numbers from designation letters suggest that I-924 amendments in 2014/early 2015 were processed much more quickly and predictably than initial designation requests (although USCIS has said there’s no separate workflow or special treatment for amendments), and that actual processing times have often far exceeded what one would expect from reported averages. The trend from 2014 into 2015 looks somewhat positive. A scatterplot of approvals shows an increasing number of approvals coming in under 10 months (but also that USCIS was still working on applications that had been in the pipeline for 2-3 years). I will be interested to see how the numbers change when I have more letters to add to the data set. USCIS designated 208 new regional centers in FY2015, and there were 902 Form I-924 applications pending at USCIS as of January 2016 (as reported by Mr. Colucci in statements on 2/2 and 2/3). I guess that many of the pipeline I-924s are amendments/Exemplar I-526 filed in mid-2015 ahead of anticipated program changes, not new RC applications, but still 902 is a big number. Regional center applicants filing Form I-924 today should not be too alarmed by the processing time outliers in 2014/2015 (many of those 2-3 year cases were caught up and delayed in the confusion over tenant occupancy, which has been cleared now), but they also shouldn’t count on finishing the process in nine months, considering the backlog and IPO’s past performance.

i924timeplot

Filed under EB-5 Resources

Portfolio investments, existing business

February 24, 2016 Leave a comment

Noticing traffic to old articles about EB-5 investments that involve diversification and existing business, I’ve re-written the following posts with reference to more recent official and unofficial guidance from USCIS.

Filed under EB-5 Resources

EB-5 business plan matrix

February 17, 2016 2 Comments

I’m preparing for a webinar next week that will discuss “What goes into an EB-5 business plan?” This is a good question, and depends on the further questions “What does the business plan need to accomplish?” and “In what context will the business plan be used?” The following matrix helps visualize the goals and contexts that can affect EB-5 business plan content.

BPmatrix

People who talk about EB-5 plans tend to focus on just one quadrant – 1A, positive standards for success in USCIS review – and especially on Matter of Ho-compliance. But if you study examples of EB-5 plans gone wrong (AAO denial decisions, lawsuits, unfunded projects), you know that it’s not enough to simply follow the business plan definition in the EB-5 precedent decision Matter of Ho. A plan can be beautifully detailed, covering all the Matter of Ho points from business description down to income projections, but still fail USCIS review due to inconsistencies with external evidence or to mismatch with program requirements (for example describing an enterprise that isn’t “new” or jobs that aren’t “qualifying” as defined by the EB-5 regulations). A perfunctory, formulaic business plan written to satisfy bare minimum requirements can pass USCIS review, but that document will never reach USCIS if it needs to and fails to attract investors. USCIS won’t table a plan for being an ungainly document, or ignore it because the proposal isn’t sufficiently appealing, or cite it in a lawsuit for being misleading. Investors may well do all those things. In my documents detailing direct and regional center EB-5 business plan standards (linked from my service website), I consider factors in each quadrant of the above matrix of goals and contexts. Investor review is not always an issue (not all investors look to the EB-5 business plan to introduce the business), and review outside USCIS takes different forms depending on the advisors involved. But it’s generally wise to look beyond the Matter of Ho box when writing or reviewing an EB-5 business plan.

Filed under EB-5 Resources

H.R.4530, Resources, RC List Update

February 12, 2016 Leave a comment

H.R.4530 Introduced
Even as Representatives Goodlatte, Conyers, Issa, and Lofgren (who worked with Senators Leahy and Grassley on their legislation last year) were speaking in yesterday’s House EB-5 hearing about how they think EB-5 incentives are misused and need to be re-oriented, representatives Polis and Amodei introduced H.R.4530-EB-5 Integrity Act of 2016, a bill that proposes to keep current EB-5 incentives in place. I’ve added the bill to my comparison chart, but you don’t need to read it; H.R.4530 is a carbon copy of Senator Flake’s S.2415 (and FYI entirely different from the H.R. 616 American Entrepreneurship and Investment Act of 2015 introduced by Polis and Amodei last January). I don’t know whom to cheer in this legislative mix. The Grassley/Leahy camp bill included at least one provision that would touch and could hurt (sometimes even fatally) each segment of the regional center world, while the Flake/Polis camp bill is crafted to ensure that the current winners don’t get their boats rocked and keep winning, with TEA incentives and the investment amount the same and the kind of integrity measures that conveniently double as anti-competitive measures. Diversity in the regional center world can be a problem, because fragmented markets are hard to work with and small-scale players have a relative probability of being unprofessional if not rogue and causing trouble. On the other hand, diversity means that EB-5 is relatively likely to fund the kind of projects that Congressional representatives want to see to help justify the regional center program — the hotels in third tier cities, the logistics companies in blighted industrial areas, the affordable housing, the entertainment and agricultural projects in rural areas, and so on. If regional center investment becomes all small safe loans to luxury developments in gateway cities, then immigrant investors will benefit but the American public, media, and Congress may turn against what looks like essentially a low-bar green card purchase transaction plus jobs-neutral government subsidy for attractive projects that would’ve proceeded anyway, just more expensively without the green card incentive to lower capital costs. On the other hand, the cause of integrity would not be advanced by deciding to limit the regional center program to unattractive projects entirely dependent on hapless foreign investors, or providing too much leeway for issuers that lack resources to operate professionally. If I were called to testify, I don’t know what changes I’d suggest to maximize EB-5’s potential benefits and minimize risks.

Resources
This quarter’s editions of the Regional Center Business Journal and EB-5 Investors Magazine (so far just out in paper form, but to be posted here soon) both have a number of great articles. In RCBJ, I particularly appreciated “What we Learn From SEC Investigation” by Ronald Fieldstone and Jay Rosen, who provide a comprehensive review of the types of violations that get investigated by the SEC, the specific activities that are focus of investigations, and the SEC investigation process from subpoena through discovery, deposition, negotiation and settlement. Lili Wang writes helpfully in RCBJ about the question we all ask “What Do Chinese Migration Agents Really Want?”, and EB-5 Investors Magazine also takes up this theme with two interesting migration agent interviews. Gregory White, Mark Katzoff and Angelo Paparelli authored an article for v.3.3 EB5 Investors Magazine (that I hope will soon be available online) on the important topic of “Avoiding the Inadvertent Investment Company.” The article describes how a regional center or issuer may avoid (and what will happen if it doesn’t avoid) being tagged as an investment company, including possible rescission, ineligibility to satisfy the EB-5 “at risk” capital rules and a duty to register as an investment advisor. EB5 Diligence also had a webinar this week on the topic Are Regional Centers Acting As Unregistered Investment Advisors? Another hot topic is the “rent-a-center” model for regional center investment, which has become increasingly popular and has also appeared in the cross-hairs of some legislative reform proposals. Rohit Kapuria has posted a thoughtful article Is the EB-5 Regional Center “Pure” Rental Model Sustainable?, and EB5 Projects will host a free webinar on 2/23 concerning Immigration & Securities Issues with Renting Buying & Selling an EB-5 Visa Regional Center.

USCIS Engagement Notes
USCIS has updated the 2/3 EB-5 Stakeholder invitation page with copies of the written opening statements made by Nicholas Colucci, Julia Harrison, and Lori MacKenzie. Also FYI I keep a master directory of USCIS EB-5 stakeholder meetings and a handy searchable PDF compilation of all published meeting notes (for those times when you can remember USCIS discussing a topic but forget where and when).

Processing Times
Not that we put much stock in IPO processing time averages (at least not without keeping a 10-month or so standard deviation in mind), but USCIS Processing Time Information has been updated as of 12/31/2016: 16 months for I-526, 16.2 months for I-829, and 8.5 months for I-924 (all up about 0.5 months from the previous report).

Regional Center List Changes
Additions to the USCIS Regional Center List, 01/28/2016 to 2/10/2016.

  • Bluegrass International Fund, LLC (Indiana, Kentucky): www.bluegrass-fund.com
  • East Coast Regional Center, LLC (New Jersey, New York)
  • Howard Hughes Hawaii Regional Center, LLC (Hawaii)
  • Mid-Atlantic Regional Center (Connecticut, Delaware, Maryland, New Jersey, New York, Pennsylvania): aseb5.com
  • Yellow Rock Regional Center of Washington, LLC (Washington)

Renamed:

  • Florida East Coast EB5 Regional Center LLC (former name United States Growth Fund, LLC) (Florida)
  • Prosperity Regional Center (former name U.S. Prosperity Regional Center) (Florida)
  • Investus LLC (former name New Mexico Foreign Investments LLC) (New Mexico)
  • New York Dream Regional Center LLC (former name Tri-State USA Regional Center) (New York)

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

2/11 House Hearing Detail

February 11, 2016 Leave a comment

You can now review video, testimonies, and statements from today’s House Judiciary Committee Hearing “Is the Investor Visa Program an Underperforming Asset?” (FYI, I’ve also uploaded my audio recording.)

In the written testimony, IPO Chief Nicholas Colucci essentially reiterates his Senate testimony, GAO Director Rebecca Gambler discusses the GAO’s August 2015 study of the EB-5 program and USCIS’s slow progress toward implementing GAO recommendations for better risk assessment and reporting, NYU Professor Jeanne Calderon discusses her program research and the history and use of the Targeted Employment Area incentive, and Matt Gordon advocates for maximizing the social value of EB-5 and making program changes that would benefit his direct-EB-5-focused company.

The hearing began with opening statements by Committee Chairman Bob Goodlatte (R-VA), Ranking Member John Conyers (D-MI), and Zoe Lofgren (D-CA), who agreed that the regional center program has good potential but needs significant reform, particularly in practices that have departed from Congressional intent to incentivize investment in needy urban and rural areas. Targeted Employment Area issues were a focus throughout the hearing, including the question period that brought in Darrell Issa (D-CA), Louie Gohmert (R-TX), Jackson Lee (D-TX), Trey Gowdry (R-SC), and Judy Chu (D-CA). Most speakers deplored gerrymandering and TEA incentives for luxury real estate developments, and emphasized the need to increase the minimum EB-5 investment amount (focusing on areas of reform that were part of the Leahy/Grassley legislation but excluded from the Flake bill). Job creation was an additional focus area in this hearing, with Conyers, Calderon, Gambler, and Gordon regretting the limited data on regional center job creation, and Goodlatte and Issa questioning whether it makes sense to let EB-5 investors count the total jobs created by the project they invest in, even if their investment accounts for a small percentage of the capital stack. The issue of effective dates was raised several times, with Goodlatte arguing that reforms would need some retroactivity in order to be effective (considering that there are 6+ years of investors already in the backlog pipeline, and this could defer program reforms 6+ years if they only applied to new investors filing after enactment). Colucci indicated that regulatory changes being formulated by USCIS (to TEA procedures and the investment amount) would be forward-looking per tradition, not retroactive. He did not say when USCIS will come out with proposed changes to the regulations or how much USCIS would increase the investment amount (though he mentioned they are considering the legislative proposals as a reference point). The hearing brought up a number of questions that the witnesses lacked the background to answer, and I found myself wishing that the roster had included someone with direct regional center experience. Darrell Issa did request that a letter from IIUSA be included in the hearing record, and this may provide additional perspective.

In sum, the House hearing’s answer to the question “Is the investor visa program an underperforming asset?” seemed to be “Yes, it is underperforming Congressional intent to attract investment to and create jobs in areas of greatest need.” This hearing did not have much to say about anti-fraud/abuse measures or increased oversight (the focus of the Senate hearing), but expressed concern that EB-5 isn’t getting the best “bang for the buck” because investor funds aren’t being directed for maximum economic and job creation benefit.

Filed under EB-5 Law & Policy

2/3 USCIS EB-5 Stakeholder Engagement

February 3, 2016 Leave a comment

2/12 UPDATE: You can now visit the USCIS’s 2/3 engagement page and download copies of the opening statements by Nicholas Colucci, Julia Harrison, and Lori MacKenzie, which were the most informative part of this engagement. Ron Klasko and Jessica DeNisi have a good summary on the IIUSA blog of significant content.

I’ve uploaded my recording of today’s EB-5 Immigrant Investor Program Stakeholder Engagement with USCIS, though I do not particularly recommend it. If you want an interesting and information-rich update, look at IPO Chief Colucci’s written testimony for yesterday’s judiciary committee hearing. We appreciate having stakeholder engagements with open Q&A, and practitioners will benefit from reviewing the updates and the answers that were given and withheld, but overall I didn’t learn much from the meeting. The next EB-5 engagement will be held on April 25 in Washington DC, with opportunity for in-person attendance.

Filed under EB-5 Events

2/2 Senate Hearing Detail

February 2, 2016 Leave a comment

If you are involved in the regional center program, you should review what happened today in the Senate Judiciary Committee Hearing on “The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed?” We heard testimony from IPO Chief Nicholas Colucci and SEC Division of Enforcement Associate Director Stephen Cohen, statements by Senators Grassley, Leahy, and Feinstein, and an extensive question and answer period that brought in Senators Cornyn, Schumer, Flake, Blumenthal, Tillis, Sessions, Perdue, and Klobuchar. The judiciary committee website link above currently has video of the hearing and written statements by Grassley, Leahy, Colucci, and Cohen. (After watching the video be sure to read the statements, as they are very informative and include content beyond what their authors said in the hearing.) In case the video disappears, I’ve also uploaded my audio recording of the hearing. (Also, see this post for more on the letter from DHS Secretary Jeh Johnson, which was frequently referenced in the hearing.)

I don’t know whether Senator Grassley came away from this hearing with further clarity on the character and prospects of regional centers, but we definitely get a fascinating view of the thinking and activities going on behind the scenes now at USCIS, at the SEC, and in Congress relative to the RC program. The senators present largely advocated for fixing not nixing (or mending not ending) the program (except for Senator Feinstein, who called for an end and also pressed her odd belief that USCIS and the SEC should specially investigate the victims in a fraud case). The senators expressed general commitment to reform while differing in their diagnosis of the nature and magnitude of problems, and in their visions for what the RC program should be. Perhaps most interesting, the senators drew out Chief Colucci to discuss specific integrity measures and program changes that are already in place and in the pipeline at USCIS, regardless of legislation.

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

RC Hearing, RC List Update

January 29, 2016 1 Comment

2/2 Hearing on the Regional Center Program
The Senate Judiciary Committee/Senator Grassley have titled next week’s hearing “The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed?” Good heavens! No wonder journalists started calling me yesterday wondering what’s blowing up in EB-5, and disappointed to discover that this insider knows a thousand boring little problems but no big story of pervasive failure to justify such a hearing title. But tis the season for politics, and EB-5 can appear as a golden opportunity to bash immigration plus the wealthy plus real estate developers plus Commies plus New Yorkers all in one rabble-pleasing blow. And Regional Centers may just have to get in line with police officers and Muslim Americans as victims of our politicians’ inclination to profile entire communities based on a few isolated actors. If I were a typical regional center innocently engaged in unremarkable project finance, I’d be worried about a powerful Congressman asking “do you have a future and can you be fixed?” while under the impression that I’m failing and am inherently likely to be facilitating terrorist travel, economic espionage, money laundering, and investment fraud. Hopefully the hearing will call speakers who provide our leaders a more accurate impression of what’s actually going on in the regional center program. The hearing will stream live on the Senate Judiciary Committee website at 10 am EST on Tuesday Feb. 2.

New RCs
Meanwhile, USCIS continues to process EB-5 applications and petitions. The average posted I-526 processing time jumped to 15.5 months as of 11/30/2015 (up from 12.8 months reported as of 10/31). USCIS has also updated the regional center list, and posted a new PDF file that gives the identification number for each regional center. I can’t think how this could possibly help anyone (what we need, USCIS, is for you to please post the designation letters that show who’s behind these RCs and what you’ve approved them for), but the list with ID numbers is there FYI.

Additions to the USCIS Regional Center List, 1/14/2016 to 01/28/2016.

  • Ashcroft/Sullivan New England Economic Development Center (Massachusetts, Rhode Island): aseb5.com
  • Liongate Regional Center, LLC (Washington)
  • MCFI Nevada (Nevada):www.mcfiusa.com

Renamed:

  • Central Western Regional Center LLC (former name USA Midwest Regional Center LLC) (Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Ohio, Pennsylvania, Wisconsin)
  • Green Card Solutions Regional Center (former name Shrimp House US LLC) (Florida)

Filed under EB-5 Law & Policy, New RC

Thinking about RC legislation (with comparison chart)

January 27, 2016 1 Comment

The Regional Center Program has just eight months before it needs another authorization from Congress. Significant EB-5 legislation may be unlikely this election year (I hear people hoping for another short-term extension by 9/30/2016), but we can foresee future directions in the flurry of reform proposals. To help visualize where we are, I’ve made a chart of EB-5 bills that are or were recently on the table. My chart is idiosyncratic (limited to provisions that particularly interest me as a business plan writer) and oversimplified, but it gives a handy overview. I’ve generously uploaded my original to Google docs, in case you’d like to enlarge the font or edit a new version with your own favorite nuances. (NOTE: the Google docs version linked above is now more updated than the chart image below.)
lucidcompchart
The comparison chart highlights areas of consensus and difference, and helps us think about what changes we should prepare to accept (or take action to forestall). Besides the rows dominated by “yes” (likely directions) and the rows full of differences (points of open debate), I’m particularly interested in the left-most columns: S.2415, because it’s the most recent proposal, and the Discussion Draft/S.1501 update, because it came nearest to enactment. These two bills are superficially very similar; S.2415 is a partially defused version of S.1501. S.2415 omits two of the most disruptive changes proposed in S.1501 – changes to TEA definitions and the qualifying EB-5 investment amount – and neatly clips difficult integrity measures by means of three simple terms: “affiliated,” “involved,” and “associated.” The integrity measures in S.1501 (and others) are hard because they would make regional centers responsible for the actions of parties often (in current practice) outside RC control. S.2415 reduces those proposed responsibilities by replacing “job-creating entity” in S.1501’s integrity proposals with the more limited “affiliated job creating entity” (with “affiliated” defined as controlled, managed, or owned by people involved with the regional center or new commercial enterprise) and by adding term definitions that limit who would count as “parties associated” or “persons involved” when it comes to compliance matters involving enterprises, agents, promoters, and attorneys. (To see for yourself, compare the term definitions on p. 29, 37, and 61 of S.2415 with those on p. 30, 37, and 76 of the Discussion Draft, and follow use of those terms.) S.2415 retains the basic shape of S.1501’s regional center integrity measures and program improvements, keeps the reforms that only inconvenience USCIS (additional reports and tasks) or that mainly hurt small regional centers (ie the annual fee), and cuts no corners when it comes to protecting against hypothetical national security threats. I don’t know whether S.2415 retains enough similarity to S.1501 to get any smiles from Senator Grassley (who is on the warpath, judging by quotes yesterday to RadioIowa in advance of his coming hearing on the EB-5 program), or whether it’s modified enough to have EB-5 community support broader than the interests represented by Senator Flake (and Cornyn and Schumer). I wait with impatience to hear legislative updates from people who know what’s happening right now on Capitol Hill. I’m also looking forward to 2/9 in San Francisco, where I’ll be part of a panel that NES Financial has organized to “discuss integrity measures and compliance requirements that have remained consistent through recent drafts of EB-5 legislation, and highlight solutions and strategies that will allow issuers to prepare for these changes.”

Filed under EB-5 Law & Policy

SEC Priority Review, RC List Update

January 18, 2016 Leave a comment

SEC Review of EB-5 Offerings in 2016
The Office of Compliance Inspections and Examinations at the Securities and Exchange Commission has named EB-5 in its list of Examination Priorities for 2016. Specifically OCIE promises that “We will review private placements, including offerings involving Regulation D of the Securities Act of 1933 or the Immigrant Investor Program (“EB-5 Program”) to evaluate whether legal requirements are being met in the areas of due diligence, disclosure, and suitability.” To remind yourself of the particular due diligence, disclosure, and suitability requirements that pertain to a private placement, see the article Private Placements Under Regulation D published at investor.gov. This article gives a short and clear summary overview as well as links to government sources with additional information. Be sure you review your offering for compliance before the SEC does. For links to EB-5-specific commentary from consultants, see the Securities Issues & EB-5 section of my Resources page.

USCIS Regional Center List Updates

Changes to the USCIS Regional Center List, 12/22/2015 to 1/14/2016

Newly Designated:

  • American Lending Center New York Regional Center, LLC (New Jersey, New York, Pennsylvania): www.usa-rc.com
  • American Pioneer Regional Center, LLC (Illinois, Indiana, Wisconsin)
  • Americas Green Card Regional Center (Maine, Massachusetts, New Hampshire): www.americasgreencardcenter.com
  • Colorado Headwaters RC, LLC (Colorado)
  • Florida EB-5 Quantum Investments, LLC (Florida)
  • Future American Now Regional Center, LLC (Florida)
  • Savannah World Trade Center for Investment, LLC (Georgia)
  • VR EB-5 Express, LLC (Connecticut, Massachusetts, New Hampshire, Rhode Island)
  • West Virginia EB-5 Regional Center, LLC (West Virginia): eb5affiliatenetwork.com

Renamed:

  • Immigration Funds LLC (former name United States Investors Regional Center) (Maine, Massachusetts, New Hampshire)
  • Mebo Property Development Regional Center, LLC (former name Mebo Property Development LLC ) (California)
  • New England Family Regional Center LLC (former name New England Federal Regional Center) (Connecticut)
  • Golden Gate Global (former name San Francisco Bay Area Regional Center) (California)

Terminated:

  • Chicago Regional Center (Illinois)

Filed under EB-5 Resources, New RC

EB-5 Timing Issues: Not a Fast Track

January 12, 2016 13 Comments

October 2017 Update: I now have a new post specific to the process and wait between I-526 and the conditional green card.

May 2017 Update: I’m demoting my original post from January 2016 to an attachment, as people keep consulting the post but all the numbers I used to try calculating timing have changed significantly since then. It’s hard to answer the question “how long will the EB-5 process take.” It depends on where the investor was born, when the investor filed I-526 relative to filing surges, how many petitions and applications get denied or abandoned, how processing times change, how demand changes, and whether Congress agrees to make changes to visa numbers or allocations or the filing process. The bad news, in short, is that the sheer number of people already in line for an EB-5 visa, plus the annual visa quota and per-country limitation, currently means that new China-born investors could be waiting a decade just to get a visa number for conditional permanent residence. Just a few years ago, companies could think in terms of a 5-year exit strategy to comfortably cover EB-5 investors through I-829 approval, but that could look more like 15-year exit strategies in today’s bad-case scenario. But the bad case won’t be reality for everyone — or maybe no one, if legislative proposals are enacted. Or the bad case could get even worse (as it did since I first wrote this post in October 2016, when the visa backlog looked about six years long), if surges in I-526 petition filing continue without other changes. Here is a spreadsheet with my ongoing attempt to calculate the backlog effect. Note that this simplistic approach does not model the influence of filing surges that create different time horizons for investors from different periods. And of course, it doesn’t reflect the fact that new legislation could change the picture entirely. For background on visa timing — the main wild card in the EB-5 process — see Robert Divine’s article The Realities and Implications of Chinese EB-5 Investors’ Wait for Visa Numbers (January 4, 2016).

Stages in the EB-5 Process

STAGE CONSIDERATIONS ESTIMATED DURATION
 (A)  Planning, paperwork, investment Must commit investment and meet other requirements before filing I-526
 (B)   File I-526, receive priority date, and wait for USCIS to process I-526 petition Can’t make material changes to the petition or depart materially from the business plan during this period In 2015-2016, average processing time ranged 13-17 months (USCIS target is < 6 months)
 (C)  Receive I-526 approval, wait for visa interview or I-485 status adjustment (may include waiting for visa number) Can’t make material changes to the petition or depart materially from the business plan during this period From a few months to about 10 years from I-526 filing, if waiting for a visa number (variable depending on whether China-born, where in queue, and whether visa numbers or allocation change). This spreadsheet has the quantitative factors that I know of.
 (D)  Receive green card; begin two-year conditional permanent residence period Investment must be sustained and at risk; job creation must occur; material change may be ok 24 months exactly (file I-829 after Month 21)
 (E)   Wait for USCIS to process I-829 petition For petitions processed in 2015-2016, average ranged 12-29 months
 (F)  Receive I-829 approval and conditional permanent residence No longer subject to EB-5 program requirements

Notes on EB-5 Stages

  • Investment and Escrow: During Stage (A), the EB-5 investor’s full investment must be committed to the enterprise (in the enterprise account, escrowed, or otherwise contractually committed). If escrow is used, investor funds must be released to the enterprise at latest before (D) begins.
  • Sustaining Investment: The investment must be sustained from (B) through (D) and must be actively deployed in job-creating activities at least during (D). USCIS is drafting new policy to address how exactly funds need to be deployed during (D), but has not finalized it yet. (In the meantime, the industry has tried to figure out reasonable redeployment policies.) The EB-5 investor may not recoup or draw down his investment before (E) and may be wisest to wait until (F) to exit.
  • Material Change: The deal needs to be planned and structured carefully during (A), as the petitioner will have limited opportunity to fix any deficiencies after filing I-526. The EB-5-funded enterprise must closely follow the I-526 business plan at least during (B) and (C), when material changes are not permissible.  USCIS allows some flexibility to depart from the business plan during (D). (See also my post on what material change means.) Note that proposed regulations and proposed legislation both offer to relax the material change policy and protect priority dates in light of long waits.
  • Job Creation: The investor can claim job creation that occurs from (B) to (D), and following his investment in (A). Under limited circumstances, he can also claim jobs created before the date of his investment or after the date that he filed I-829. In principle, he should be able to claim jobs that no longer exist when he files I-829 provided that the jobs were created and sustained for more than two years.
  • Planning Horizon: USCIS policy requires the I-526 business plan to show that jobs can be created within 2.5 years of I-526 approval.  However, businesses and investors should keep in mind that investors might not actually be verifying job creation until a decade after I-526 approval, considering the visa backlog and retrogression effect for EB-5 investors, not to mention processing times. EB-5 investment must be sustained throughout the conditional residence period (D), so premature exits must be avoided and exit strategies should consider realistic timing. Five years used to be a standard target for investor exit, but can be dangerously early for the average investor today.

Potential changes that would affect the EB-5 process and wait times

  • Increase the EB-5 visa quota: I list this because it’s the most obvious/simplest solution for the current dire picture, but I’m told that it is a political impossibility. Increasing the EB-5 visa quota would require increasing the total US visas and/or reorganizing how the total visa pie gets divided among different types. That would require comprehensive immigration reform — something that’s not on the table at all now and not expected any time soon.
  • Increase EB-5 visa availability by counting investors only toward the EB-5 quota, not spouses and children. This is a live possibility, included in several versions of EB-5 reform legislation and suggested to DHS for revised regulation (see p. 22-29 of the EB5-IC comment). And indeed, there’s a good argument for this being the original intent of Congressional representatives who designed the EB-5 program. If about 10,000 investors can get visas per year, then about 30,000 people can get cleared from the backlog per year (average 3 visas per investor), and wait times would shorten dramatically. Currently, just over 3,000 investors get visas per year, with family members taking the remainder of EB-5 visas.
  • Increase EB-5 visa availability by allowing EB-5 to recapture unused visas (see p. 22-29 of the EB5-IC comment)
  • Lighten the burden on China-born EB-5 investors by removing the per-country cap for visas. This has been suggested by a couple recent bills. It wouldn’t speed up the visa queue overall, but would mean that China-born investors don’t get held back by retrogression, and other investors don’t get to jump ahead i.e. would share/mitigate the long wait.
  • Use visa set-asides to incentivize Targeted Employment Area investment. This has been proposed in several EB-5 reform bills, and would shorten the visa wait time for new TEA investors while pushing other investors even further back in line. However, it’s likely that most set-aside visas would shortly return to the general pool (since the reform bills make TEA status difficult to achieve and the set-asides temporary) and thus the impact could be limited.
  • Change the filing stages: Several legislative proposals suggest allowing investors to file I-829 after having sustained investment and job creation for at least 24 months, even if they are still waiting for a visa number. In this way, when they finally receive the green card, it can be permanent rather than conditional permanent residence (skipping Step D in the table above). Several EB-5 bills have also proposed to allow concurrent filing of I-526 and I-485.
  • Mitigate the negative impact of long waits by adding more flexibility to the material change policy: Several legislative proposals and revised regulations provide more options and recourse for investors in case of material change, recognizing that such changes are inevitable over the course of years.
  • Mitigate the negative impact of long waits by adding protection for children who would otherwise age out: Several legislative proposals offer to do this.
  • Improve petition processing times: IPO continues to reaffirm its commitment to bring down processing times through staffing and efficiencies. I-829 petition times in particular should see improvement soon, as IPO has launched a new team devoted to I-829 adjudication.

Filed under EB-5 Resources, EB-5 Statistics

The Basics: Direct and Regional Center EB-5 Comparison

January 4, 2016 2 Comments

This post doesn’t break any news, but addresses a basic question: what is the difference between direct EB-5 and regional center EB-5?

In a nutshell, the answer is that a regional center investment is associated with a designated regional center and therefore may count indirect job creation, while a direct EB-5 investment is not associated with a regional center and may not count indirect jobs.

These two differences – regional center affiliation and indirect job creation – are the only fundamental differences between direct and regional center EB-5. The two tracks share the same basic EB-5 requirements: investment of capital in a new commercial enterprise that creates jobs. Contrary to popular misconception, direct and regional center EB-5 have the same minimum investment amounts, the same targeted employment area incentives, and (USCIS claims) about the same average petition processing times.

However, the two fundamental differences between direct and regional center EB-5 have implications that make direct and regional center investments quite different in practice. (Click on the images below to see full-size versions of the comparison charts, or click here for a PDF version.)
comparison chart_Page_1
comparison chart_Page_2
comparison chart_Page_3
Examples
Some common scenarios will illustrate the differences, as described above, between direct and regional center investment:

  • Real estate development projects are the most common investment for regional center EB-5 but awkward-to-impossible for direct EB-5. Indirect job creation allows the regional center investor in a landowner to count construction contractor jobs, indirect impacts of supply purchases, and sometimes even jobs created by the tenants of the completed development. A direct investor who invests in the same landowner could only count the permanent W-2 employees of the landowner – but normally the landowner wouldn’t have any employees. Most construction work gets done by employees of a variety of contractors, none of which “indirect” jobs count for direct EB-5, and any direct employee positions lasting only the duration of the construction project may also be disqualified because they are not permanent.
  • Hotels are a common investment for both regional center and direct EB-5, but subject to different considerations. The regional center hotel investment has the luxury of segregating EB-5 investors in an entity that neither owns nor controls the hotel, but simply exists to raise EB-5 capital and make a debt or equity investment in the hotel. This entity can claim credit for hotel jobs, thanks to indirect job creation. Direct investors, on the other hand, can only get credit for direct jobs and so can’t be segregated, but must have equity interest in the hotel owner/employer. (This can bring up liability issues, and may mean that direct EB-5 investors have to be vetted as owners in the franchising and liquor license process.) It’s no problem for regional center EB-5 if one entity owns the hotel and a separate management company hires the hotel employees, since indirect job creation doesn’t take into account which name appears on payroll records. In direct EB-5, this is a problem. Direct EB-5 can’t separate investment from job creation, and therefore the entity that uses EB-5 capital to develop the hotel needs to be the same entity with new hotel employees on its payroll. (If multiple entities are involved in direct EB-5, they must be essentially united by a wholly-owned subsidiary relationship.) Furthermore, a hotel will be able to claim more job creation as a regional center project than as a direct project. A new-build 120-room Homewood Suites might subscribe two direct EB-5 investors based on a business plan anticipating creation of 23 full-time positions, or twelve regional center EB-5 investors based on an economist’s calculation that hotel construction and operation will result in 130 new jobs. Why are the two jobs numbers so different for the same hotel? First, the direct investor can only count hotel employees while the regional center investor can also count construction-associated jobs and economist-defined indirect and induced jobs (associated with supply purchases and employee spending). Second, the direct investor can only count payroll-record-verified full time positions, while an economic model is relatively generous in counting operating jobs. The economist’s multipliers are based on averages, cannot distinguish between full-time and part-time employment, do not consider who holds the jobs, and are not finely tuned to reflect labor variations among hotels of different flags and scales. The economic model calculates average direct employment for an average hotel with a given verified revenue, and this number usually exceeds the number of discrete, verifiable 35+ hour per week positions at an individual hotel. Finally, I-829 paperwork may be easier for the regional center investment than the direct investment. The hotel with direct investors needs to sign up for E-Verify, take special care that its employees are qualifying, maximize full-time employment, and prepare stacks of payroll records to verify job creation. The offering with regional center investors and an economic analysis using expenditure and revenue inputs can (in theory) not worry about individual employees but rather track expenditures and revenue, and prepare financial statements to verify employment by verifying economic model inputs.
  • Small businesses such as restaurants and gas stations are likely to use direct EB-5. Such businesses tend to require only a couple EB-5 investors and will have sufficient direct jobs to justify those investors without needing to rely on indirect job creation. They can generally accommodate EB-5 investors as equity members and don’t require the complex investment structures only possible for regional center EB-5. No regional center affiliation means no regional center fees, no geographic limitation, and no vulnerability to regional center program changes. Regional center investment could work for these projects too and has the attraction of flexibility. But these projects may not be attractive to regional centers, which are often unwilling to sponsor offerings that only need a couple investors, and direct EB-5 provides a viable alternative.
  • Investments involving multiple layers and diversification can work in the regional center context but not for direct EB-5. If a direct EB-5 case has multiple entities in the flow of EB-5 capital or in the staffing plan, then those entities must be united by a wholly-owned subsidiary relationship. If they aren’t so related, then the case will be denied. For example see OCT022015_01B7203 Matter of H-G- (direct investment in a new commercial enterprise that invests in a separate job-creating business), NOV122014_01B7203 and DEC042013_01B7203 (direct investment and job creation divided among several enterprises), JUN182013_01B7203 and JUN042013_01B7203 (job creation in partially-owned subsidiaries).

Regulatory Background
What rules underlie the practical differences between direct and regional center EB-5? To quote the EB-5 Policy Memo: “The EB-5 Program is based on three main elements: (1) the immigrant’s investment of capital, (2) in a new commercial enterprise, (3) that creates jobs.” Direct and regional center EB-5 investors share these elements and the requirement to contribute capital (equity not debt) to a (single) new commercial enterprise and create jobs. The difference comes in term definitions. “Employee” for a direct investor can only mean “an individual who provides services or labor for the new commercial enterprise and who receives wages or other remuneration directly from the new commercial enterprise.” The word has an additional sense for the regional center investor: “an individual who provides services or labor in a job which has been created indirectly through investment in the new commercial enterprise.” The EB-5 regulations at 8 CFR § Sec. 204.6(e) define terms:

  • Commercial enterprise means any for-profit activity formed for the ongoing conduct of lawful business including, but not limited to, a sole proprietorship, partnership (whether limited or general), holding company, joint venture, corporation, business trust, or other entity which may be publicly or privately owned. This definition includes a commercial enterprise consisting of a holding company and its wholly-owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. This definition shall not include a noncommercial activity such as owning and operating a personal residence.
  • Employee means an individual who provides services or labor for the new commercial enterprise and who receives wages or other remuneration directly from the new commercial enterprise. In the case of the Immigrant Investor Pilot Program, “employee” also means an individual who provides services or labor in a job which has been created indirectly through investment in the new commercial enterprise. This definition shall not include independent contractors.
  • Invest means to contribute capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the alien entrepreneur and the new commercial enterprise does not constitute a contribution of capital for the purposes of this part.

For additional discussion see my Direct EB-5 Page.

Filed under EB-5 Resources

Updates and RC List Changes

December 23, 2015 4 Comments

Updates

  • IPO Processing Times: Average I-526 and I-924 processing times both show marked improvement in the most recent IPO update from the USCIS website.
    IPO1015
  • New AAO Decisions: A couple more AAO decisions on I-526 cases have been uploaded to the 2015 folder on the USCIS website. DEC042015_02B7203 (Matter of H-Y-) is particularly colorful. The petitioner took a path common to failed EB-5 petitions: apparently trying to put an existing business into a new shell and sell it as a new business with job creation. But she met with aggressive investigation from the USCIS adjudicator, who sorted evidence with a fine-toothed comb and searched out company information online and even called the business and talked to an employee.
  • The U.S. Securities and Exchange Commission has published a 118-page
    Report on the Review of the Definition of “Accredited Investor” (December 18, 2015)
  • EB-5 Legislation: I’ve decided not to give regular legislative updates, assuming that you have your own sources if you care about this topic, and that I should resist the comments I’m tempted to make. (There have been several recent additions to the legislative sausage factory– see the IIUSA blog for links. The EB5 Insights blog discusses a substantive new Manhattan-approved entry in detail.)

Regional Center List Changes
New approvals and name changes on the USCIS Regional Center List, 12/08/2015 to 12/22/2015

  • American Immigration Group-NYRC (Connecticut, New Jersey, New York): eb5aig.net
  • American Lending Center Georgia, LLC (Georgia): www.usedlc.com
  • New Empire EB-5 Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • QueensFort Capital California Regional Center, LLC (California): queensforteb5.com
  • Seattle Pacific Area Regional Center, LLC (Washington)
  • South Pacific Regional Center, LLC (Hawaii)
  • Texas Coast Regional Center Corporation (Texas)

Renamed:

  • Continental Regional Center LLC (former name USA Continental Regional Center, LLC) (California)
  • Fleet New York Metropolitan Regional Center LLC (former name Federal New York Metropolitan Regional Center) (New York)
  • Invest Midwest Regional Center (former name Civitas Indiana Regional Center) (Indiana)
  • CUCC Business Regional Center, Inc (former name U.S. Business Regional Center Inc.) (New York)

Additions to the list of Terminated Regional Centers

  • Twin Development LLC Regional Center (Washington) terminated 12/8/2015

Filed under EB-5 Resources, New RC

RC Program Extended to 9/30/2016

December 19, 2015 Leave a comment

The Consolidated Appropriations Act, 2016, which includes a sentence authorizing the Regional Center program through September 30, 2016 (in Section 575 on PDF page 285) has been passed by Congress and signed by the President. Now it will become law, and the EB-5 status quo can continue for another few short months. If the alternative draft EB-5 legislation recently under discussion had been enacted instead, we’d now have a higher minimum investment amount for all EB-5 investors, more guarded and complicated targeted employment area parameters, limitations on foreign ownership of EB-5 enterprises, provisions that would curb the big EB-5 users as well as fees and requirements that could all but eliminate the little guys, solid new integrity measures, a heavier paperwork burden on regional centers and USCIS, and a relatively stable long-term footing. As it is, nothing in EB-5 has changed for now except the regional center program sunset date.

What happened is a mixed blessing. I’m glad that the most recent draft reform bill didn’t become law, as it included a few dangerously ambiguous, counterproductive, gratuitous and impracticable points (at least in the last version I saw) in addition to many wise and important modifications. But I’m also sad that we didn’t manage anything substantive or long-term this time around, despite an enormous amount of effort in that direction.

The last-minute clean regional center program extension in the omnibus bill could be interpreted cynically as a victory for a few powerful players who lobbied well to ensure that the trough not move just so long as they’ve got their snouts in it, regardless of long-term program viability and overall health (and as a victory for representatives who can continue to be courted and lobbied/bankrolled so long as they keep issues pending by deferring instead of resolving them). Or the short extension can be viewed positively as a victory for the majority who could benefit from giving Congressional leaders and stakeholders a few more months to come up with what they tried for but didn’t quite manage to produce this year: a really clear and practicable long-term authorization proposal worthy of enactment, something whose well-drafted language and provisions would support solid reform and progress and protect the regional center program’s broad-based benefits. But such a victory would require people to be willing to return to the table and get right back to the hard work of trying to forge lasting solutions. And will they be willing? Many who were at the long-term authorization table have a bitter taste in their mouths right now, disappointed that they didn’t hammer out better legislation in time and suspecting that even if they had the result could still have been preempted at the last minute. But their hope and efforts must be renewed, or the regional center program will not have a future.

For commentary on what happened, where we are now, and what will happen next, see Stephen Yale-Loehr’s article Congress Extends EB-5 Program for One Year Without Changes, Posted 12/16/15 and Senator Grassley’s statement on his website Grassley Vows Continued Push to Reform EB-5 after Fixes Ignored in Omnibus Spending Bill, Posted 12/17/2015.

Filed under EB-5 Law & Policy

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