1. Tenant Occupancy Job Methodology
Since February of 2012, USCIS has taken the position that jobs created by tenants cannot be given credit as EB-5 eligible jobs and may not be used to satisfy the ten job per investor requirement. Previously, a real estate developer could construct a space to be occupied by tenants such as an office building, a mixed use retail space, etc… and be given credit for all jobs created based on the understanding that the tenant business would not have a place without the new construction. USCIS has stated that while they will give deference to previously approved regional centers/ projects using this methodology, they will not permit it going forward. Possible exceptions to this new interpretation were outlined in written minutes of the May 2012 USCIS EB-5 Stakeholders meeting, as well as Operational Guidance issued on 12/20/2012. However, definitive guidelines on when this methodology can by used continue to elude stakeholders. Some factors may include situations where:
- Tenants receive loans from the development
- Tenants receive free rent or rent deductions
- Tenants receive equity investments from the development
These situations are appropriate provided the developer can demonstrate that the loan/rent reduction/equity investment is a substantial investment in the tenant’s business and that all jobs created are actually new jobs and not merely jobs transferred from another location. Special purposes building in areas of low vacancy and high demand may also meet the criteria.
2. Creation of Net New Jobs
USCIS is very concerned with the concept of job displacement and seeks to ensure that an EB-5 project is creating net new jobs rather than simply shifting jobs from one geographic location to another. An example of this would be the construction of a new five star hotel. USCIS would want to see that the employees hired are new to the area, rather than ones that simply move to work at the hotel from an older hotel in a nearby location because of higher pay or better working conditions.
3. Market/Feasibility Studies
The USCIS is increasingly asking for more details in feasibility studies. For example, RFEs are asking for demand and competition data for industries and localities, detailed timelines and budgets for projects, proformas, and other evidence that projects will move forward in a manner that allows jobs to be created.
4. Bridge Financing
In the written minutes of the May 2012 USCIS EB-5 Stakeholders Meeting, USCIS confirmed that it would accept the use of bridge financing in the form of either debt or equity. However, RFEs on bridge financing focus on requesting documentation to evidence that bridge financing was taken in contemplation of EB-5 funds, thereby establishing a nexus between the bridge funds and the created jobs.
5. Guaranteed Redemption Agreements
USCIS is carefully reviewing offering documents to ensure that they do not contain guarantees to repay EB-5 funds back to the investor. In loan structures, USCIS focuses on ensuring that the loan does not call for guaranteed repayment. In equity models, USCIS has questioned language where it appears that a put or call option is required. Likewise, RFEs point to the timing of exit strategies and seem to require language making it clear that funds are irrevocably committed until I-829 adjudication.
6. Matter of Ho Compliant Business Plan for Exemplar Requests
USCIS has begun to reach beyond the traditional confines of Matter of Ho in examining business plans for exemplar requests. Developers become accustomed to the rules set forth in the December 2009 Neufeld Memorandum, noting that any material change in a business plan could result in a denied petition. While this requirement appears to be loosening to a degree, using conservative projections remains the safest means of obtaining approval and avoiding RFEs.
7. Transparency in Economic Studies
Regardless of the complexity of the report, USCIS expects to clearly see all of the underlying assumptions of and inputs into economic studies. Some details that increase transparency include the precise inputs used in the chosen economic models, dates on which websites were viewed and citations to resources and experts used for guidance.
8. Regional Center Operational Plans
USCIS RFEs request proof that the Regional Center provide them with information on center operations, including:
- How they will market their projects
- Proof of capitalization
- Proof of funds expended to date on seeking the Regional Center designation
- Processes and procedures that the Regional Center has implemented to monitor and track investors
- Information on Regional Center compliance with EB-5 program requirements
- Information on the Regional Center principals
9. Purchase of a Regional Center
According to Form I-924, applicants must file an amendment to the petition to purchase a regional center. In reviewing regional center purchases, the USCIS generally expects to see the originally designated company step into the shoes of the regional center. Thus, applicants should be cautious of asset purchases or reorganizations that result in the formation of a new company.
10. Geographic Areas and Industry Codes
The USCIS uses the geographic areas and designated industry codes to provide information to stakeholders about beneficiaries of EB-5 investments. Accordingly, the USCIS frowns upon overly broad geographic areas and expects the chosen region to be fully supported by economic data. Likewise, the USCIS has made clear that four to six-digit NAICS code generally provides sufficient specificity about impacted industries, while a two-digit code does not.
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