EB-5 Updates

May News and Information

Now to tear myself away from the exciting work of writing business plans and assisting with RFEs, and comment on what’s new in EB-5.

• Everyone wants to know whether USCIS has issued any further rumblings on the tenant occupancy issue. So far as I know, we have nothing except the Operational Guidance letter that repeats Director Mayorkas’ statement from the 4/27 meeting. No word on when and if we will get the engagement with the USCIS economists promised “ASAP” at the 4/27 meeting. (UPDATE: an engagement on 6/26 has been announced.) Some applicants did file RFE responses at the beginning of May, despite the extended deadline, and I look forward to seeing how USCIS reacts to the various fact-specific arguments presented in those responses. Angelo Paparelli and Brandon Meyer have written an article that discusses the issues involved and includes many useful links. See Immigration-Agency Lawbreaking Revealed: USCIS’s EB-5 “Tenant-Occupancy” Scandal.
• As of May 31, we have 122 days remaining until the Regional Center program sunsets. The word on the street at the IIUSA conference last month was that Congress would probably reauthorize the program at the last minute for a limited period of time, possibly three years. However, there has been recent activity in the House and Senate, including a bipartisan bill introduced by Senator Leahy last week to permanently authorize the program. You are encouraged to join the advocacy effort by writing to your Congressperson.
• According to the USCIS EB-5 Regional Center page (as updated 5/30), actual I-924 processing times are 7 months for the I-924 Initial Application and 9 months for the I-924 Amendment Application as of 4/30/2012. Amendments are generally simpler than initial applications, so I suppose that relative volume of amendments must be behind the longer processing times.
• The I-924 form is shortly up for revision, and you have the opportunity to help improve it.
• The State of California has added to the TEA drama by posting a letter listing counties, MSAs, and cities that qualify as TEAS and announcing that there will be no other areas or subareas designated and no new customized designations. In other words, no Census Tract designations. See the State website, and additional perspective in a posting at the Hotel Law blog.
• And a few more recent EB-5 articles that the cool kids are reading:
  • Joe Whalen’s EB-5 Roundup from the 4/27 EB-5 Investment Summit
  • What is a “Reasonable Investigation” of a Regional Center Project? from the EB-5 Due Diligence Blog
  • Top 10 Ways to Make the Immigrant Investor Program Work from the AILA Leadership Blog
  • Making Visas-for-Dollars Work from the New York Times
  • More Wealthy Chinese Said to Prepare Exits from the Wall Street Journal

“Operational Guidance” for the Tenant Occupancy Issue

The USCIS Office of Public Engagement just released a brief letter of “Operational Guidance” with the promising subject line: “Guidance on EB-5 Adjudications Involving the Tenant-Occupancy Methodology.” The letter treats the issue of deference to prior adjudications, and echoes the statement that Director Mayorkas made at the April 27th engagement.

Mayorkas Statement on Tenant Occupancy

Today’s “Conversation With The Director – Tenant-Occupancy Economic Model” proceeded much as I expected, with participants airing concerns and confusion and Director Mayorkas maintaining that issues in the “tenant occupancy RFE” reflect fact-specific questions, not new policy. The Director made a useful opening statement, which I have transcribed below.  Pay attention to his comments on the specific types of previous approvals that may be given deference. Director Mayorkas promised that a follow-up engagement involving the USCIS-contracted economists will be arranged ASAP, with a tip sheet of econ analysis guidance to follow. He also agreed to inquire into the possibility of getting the RFE deadline extended to allow more time for those who want more guidance before responding.

Transcription of the opening statement by Director Mayorkas 
We are focused this morning on the tenant occupancy economic methodology. We appreciate the fact that there is a lack of certainty in the community with respect to how our agency is addressing EB-5 applications and petitions that are predicated on that methodology to prove the required job creation. We thought we should have this engagement to address the uncertainty.
Our intention this morning is to clarify for you what we have done and are doing with respect to cases that are predicated on the tenant occupancy methodology. It is not, I should say at the outset, it is not my intention to discuss the intricacies of the economic methodology itself, though we will certainly listen to your concerns and address them as and when appropriate.
First, if I can provide you with some assurances. We well understand the law, that there is no requirement to present a particular methodology in support of a petition. Rather, the law requires a “reasonable” methodology. Whether or not the tenant occupancy methodology is reasonable in proving job creation in a particular case is a fact-specific and fact-dependent inquiry. We have not changed any policy with respect to the tenant occupancy methodology, nor have we changed the applicable criteria.
This is, instead, what we have done. In response to the request of adjudicators and your — stakeholders’ – request – and a very appropriate request — we have hired full time economists and business analysts to improve the analysis of EB-5 petitions and the quality of our work. I should note also that we have announced or are about to announce other positions as well such as a hiring of corporate attorneys to interpret the many legal documents that petitions often include. Our new experts have reviewed cases, not previously adjudicated, that are predicated on the tenant occupancy methodology, and based on the specific facts of those cases have raised questions as to whether the evidence presented proves the required job creation, or instead merely establishes job relocation, for example. We have issued Requests for Evidence to obtain additional evidence that our experts will review and analyze.
A decision, as I mentioned, on the economic methodology presented in the EB-5 case, including the tenant occupancy methodology, is very fact specific. Consistent with our deference policy, we are communicating to our adjudicators that they are to accord deference to prior adjudications. Our adjudicators should rely on a previous determination that the economic methodology is reasonable when the economic methodology is presented to us in later a proceeding based on materially similar facts.
For example, if we approved a Form I-924 Regional Center Application based on a specifically-identified project, including the specific locations and industries involved, we will not revisit the determination that the economic model and underlying business plan were reasonable when adjudicating related Form I-526 petitions, Form I-485 applications, or Form I-829 petitions. If we approved an I-526 petition for an immigrant investor based on a specifically-identified project, not associated with a Regional Center, we will not revisit the determination that the business plan was reasonable when adjudicating the investor’s related I-485 or I-829 petition. If, however, the facts underlying the application of the economic methodology have materially changed, then we will conduct a fresh review of the new facts to determine whether the petitioner or applicant has complied with the requirements of the EB-5 program, including the job creation requirement.

That is, in summary, what we have done, and what we have not done.

I have uploaded my recording of the meeting to Dropbox, for the convenience of those who would like to re-listen for insights or actionable points that I missed.

RC Application Materials Posted!

I have sighed through the part of  EB-5 stakeholder meetings when a newbie calls in to ask  about the availability of example actual Regional Center applications, and receives the usual and obvious answer that such documents are full of proprietary business detail that USCIS has no right to share with the public. But I sighed too soon. Joseph Whalen just alerted me to the fact that USCIS has released application materials for several Regional Centers in connection with FOIA (the Freedom of Information and Privacy Act). The file for each RC runs to many hundreds of pages — many of the pages blank (redacted) but also many pages offering bits of actual business plans, offering documents, Requests for Evidence, and responses to RFEs. The EB-5 Related Documents posted by USCIS are as follows:

• Alabama Center for Foreign Investment Regional Center
• American Redevelopment Regional Center
• Bay Area Regional Center
• CMB Summit LLC Regional Center
• California Military Bases Export LLC Regional Center
• California Wineries & Vineyards LLC Regional Center
• Chicagoland Foreign Investment Group Regional Center
• Florida Overseas Investment Center
• American Life

A note of caution. These materials will be of interest to voyeurs and historians, but not so useful to those who mainly want an example to copy. Most of the materials are at least three years old, and applications filed in 2012 are subject to different expectations. Also, the heavy redacting means that it’s hard to put these materials in context. For example there’s no way to tell whether the segment of business plan copied on page 652, with many blank pages on either side, represents part of the initial application or an amendment, whether USCIS accepted or challenged that segment, and whether or not the RC actually implemented that aspect of the plan. So I wouldn’t suggest relying on these documents for any guidance, though they are a trove for the curious.

Tenant-Occupancy Request for Evidence

6/23 Update: Note that I have set up a page collecting information on this issue, including details on the conference call with USCIS economists.
3/23 Update: Note that the comments to this post offer interesting discussion and useful insights.
3/1 Update: Peter Joseph of IIUSA, who has been collecting redacted RFEs, confirms that this is indeed the common language, and that applications using a variety of methodologies (including IMPLAN, RIMS II, and REMY) have been affected.

In the past week I have seen three new RFEs on initial Regional Center applications. Each application involved a different economist and attorney and different types of real estate development projects, but each RFE includes identical language related to the “tenant-occupancy” issue.  Since this language was applied to three such different cases, it’s evidently not case-specific and USCIS should have released it to the community at large. The fact that they didn’t, but instead released an evasive Public Engagement email while hiding the specifics in individual RFEs, suggests that they are uncertain and open to change based on feedback. And they will get feedback. Let’s not panic, but instead hunker down to create a solid response that addresses the root concerns and clarifies the misconceptions reflected in the following request, and prevents it from being repeated in future RFEs or official guidance.

Upon further review, it appears that __RC is using EB-5 capital to construct commercial buildings. The job creation estimates employed in this application are based, at least in part, on the assumptions that direct employees of the future tenants of the buildings can be utilized as inputs into the applicable input-output model. However, USCIS has concerns that the attribution of these direct jobs to the EB-5 investment may not be based on reasonable economic methodologies, and therefore do not demonstrate in “verifiable detail” that the requisite jobs will be created. Rather, contemporary economic methodologies appear to indicate that such jobs would be more appropriately be attributed to the tenants themselves and not to __RC because the demand for labor precedes the decision about where to house that labor as a general economic principle. For example, if a federal agency determined that additional federal employees needed to be hired to fulfill the agency’s mission at a particular location, the federal agency would see to hire the requisite number of employees and as part of that process, would also take steps to lease the appropriate physical premises to provide sufficient workspace for the new hires. In this instance, it is the federal agency that is creating the jobs through its decision to hire more employees, not the landlord who will ultimately lease the workspace to the federal agency.

USCIS observes that the tenant-occupancy methodology (that the direct jobs created by future tenants are intended to be attributable to the EB-5 investments) is not economically reasonable on the facts as presented. To allow for the existing methodology would require USCIS to credit the prospective EB-5 investors in the new commercial enterprise with the employment impacts created by the unrelated business ventures of future tenants (even though such tenants might engage in business activities within the requested industry categories and NAICS codes). After reviewing the tenant-occupancy methodology presented thus far, USCIS observes that the nexus between the investment and the job creation is either too attenuated or too incomplete to constitute a reasonable economic methodology. Consequently, the existing record presents USCIS with a justification to recognize only those employment impacts that could be attributed to __RC, such as those resulting indirectly from the construction activity and, if applicable, the ongoing building management activities that will be required to maintain the building.

However, USCIS does not foreclose the possibility that __RC might present additional evidence to demonstrate an economically acceptable nexus between the EB-5 investment and responsibility for the job creation asserted in the application. Accordingly, __RC may present additional evidence to demonstrate that the proposed methodology is economically reasonable.

To help illustrate the factors that USCIS finds central to adjudicating the fundamental reasonableness of this particular economic methodology, USCIS requests that any response address the following points:

1. Evidence that there is excess demand for the specific types of tenants (various tenants as indicated in the business plan and economic analysis) to your construction project and business plan. Please provide a data-based assessment, and the source of data utilized by the assessment. To show such excess demand, the assessment should:

a. Analyze: whether prospective tenants which would locate in the commercial space that will be constructed and/or renovated under the proposed project are currently suffering from a lack of a unique or specialized business space, that, in economic terms, such prospective tenants are “constrained” from commencing or expanding their businesses by a lack of unique or specialized business space.

b. Provide a data-based analysis, including the source of data, which establishes whether there is “pent-up” demand for the specific professional and business services relevant to your project. Such data-based analysis should include:

i.      Evidence of congestion externalities as demonstrated by a low vacancy-unemployment ratio pursuant to specific space and businesses seeking to expand, respectively; and

ii.      Evidence of upward wage and rental pressures in specific regional sectors that are likely to be attracted to the proposed project space.

1. The jobs that become located within the tenant space of the project should be shown to be a result of an expansion in specific services driven by your project as opposed to tenant shifting and/or relocation of already-existing jobs. Please explain how it will be verified that the jobs that will become located within the tenant space of the project can be considered “new” jobs.

Alternatively __RC is afforded the opportunity to provide business plans and an economic impact analysis for any industry categories and NAICS codes to demonstrate employment creation which is not based on tenant occupancy.

I-924 Processing Times Published

The EB-5 Regional Center page on the USCIS website now includes a table reporting I-924 Regional Center application processing times. Here is the current report:

Processing for the I-526 and I-829 petitions are still reported at 8 months and 6 months respectively (as of the 12/31/2011 California Service Center processing times report).

Economic analysis problem revealed!

2/27 Update: see my post including generic text seen in several recent RFEs.

The USCIS Office of Public Engagement has just sent the following email:

Dear Stakeholder,

In our last stakeholder call regarding the EB-5 immigrant investor program, a number of stakeholders raised questions with respect to our adjudication of petitions that for purposes of the job creation requirement have utilized what has been commonly termed a “tenant-occupancy” methodology. In light of the number of questions we received on this subject, we thought that providing clarification of our approach was warranted.

The “tenant-occupancy” methodology seeks credit for job creation by independent tenant businesses that lease space in buildings developed with EB-5 funding. USCIS continues to recognize that whether it is economically reasonable to attribute such “tenant-occupancy” jobs to the underlying EB-5 commercial real estate project is a fact-specific question. Each case filed will depend on the specific facts presented and the accompanying economic analysis.

USCIS is now moving forward with the adjudication of certain pending I-924 Applications For Regional Centers Under the Immigrant Investor Pilot Program that are supported by the “tenant-occupancy” economic methodology. Our newly-hired economists and business analysts will be bringing expertise to these new adjudications, and requests for evidence will be issued to certain applicants and petitioners to address any questions or issues we have about the economic methodologies employed in their specific cases. Our adjudications will continue to be made on a case-by-case basis and we do not intend to revisit factual findings. I-526 Immigrant Petitions by Alien Entrepreneurs and I-829 Petitions by Entrepreneurs to Remove Conditions will have predictability in connection with early regional center adjudications.

Our retention of experts with economic and business analysis expertise is part of our ongoing efforts to improve our administration of the EB-5 program. We are taking other steps to both improve the efficiency of the program as well as to ensure its integrity. We look forward to keeping you informed of these improvements.

Kind Regards,

Office of Public Engagement
U.S. Citizenship and Immigration Services
http://www.uscis.gov

The caginess of this phrasing is nice in that it avoids undercutting previous approvals, but gives no guidance for how we should deal with “tenant-occupancy” jobs going forward and what will and won’t be acceptable. This is huge. I hope that Requests for Evidence issued will provide further hints.