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EB5 INVESTORS MAGAZINE

I-829 Standards

by Henry Liebman

What is the correct standard for job creation to remove conditions in multi-tenanted projects?

USCIS recently denied I-829s on the grounds that the required number of jobs did not exist at the time of I-829 adjudication. In fact, the denial excluded jobs created by a tenant that signed a lease, made a deposit and was making tenant improvements but had not moved in yet. Build to suit projects, such as hotels, are exempt as they do not have many of the issues discussed in this article.

The regulations governing removal of conditions, in general, require that jobs must exist or be reasonably certain to exist. Any fair interpretation of the regulations suggests that if the jobs do not exist the inquiry shifts to whether the jobs will eventually exist in the context of the particular project and economic conditions. In other words, if the project is substantially following the business plan included in the I-526 petition, or has a good excuse for delay, the I-829s should be approved.

USCIS is taking a very different approach. They are asking for a new jobs report based on the existing tenants. Notably, the original jobs report, which was the basis of the I-526 petitions, was created before the project started. The jobs report is a prediction of the project’s employment potential, not a promise of creation of a certain number of jobs at a certain point in time. In fact, none of the economic models have a time component for when job creation occurs. The models simply detail, “build this project, and at some time in the future there are X jobs created.” The promoter relies on the I-526 job creation estimate to raise capital.

When USCIS then asks for a new job report based on actual tenancy, they are consequently telling the promoter and the immigrant investor that, not only must you build the project, but you must predict what actual types of tenants there will be, and when the tenants will move into the building. I wish it was that good. Note, the tenant mix changes over time, so the first jobs report prediction of a particular tenant mix may only be correct for a short time, if at all.

USCIS created an impossible standard and no investor would take such a chance with his or her visa. The “correct” standard is to interpret the initial jobs report as only a prediction of the project’s employment creation potential, without a time limit. As long as the project substantially complies with the I-526 business plan, the I-829s should be approved.

The “correct” standard makes sense in light of the I-526 requirements for regional center applications. Jobs must be created or retained for two years in the cases of troubled businesses or direct, non-regional center investments. There is no time component for job creation in I-526 regional center applications. This dovetails with the I-829 regulations, allowing for jobs — reasonably certain to exist — to be created after the I-829 adjudication. The omission of a time requirement for job creation is also consistent with the fact that none of the economic models measure when jobs occur. Therefore, it is reasonable to say that the omission of a time requirement in I-526 regional center regulations and the allowance for the likelihood of future job creation was not an accident.

The purpose of the Regional Center Program is to encourage the pooling of capital for job-creating investments. This is particularly true in TEAs, where job opportunities may be low and unemployment high. The idea behind lowering the investment amount was to encourage immigrant investors to take a chance in higher risk investments within TEAs in order to obtain their green cards. By narrowing the interpretation of the jobs in existence at the I-829 adjudication stage, and forcing the promoter and investor to predict the tenant mix and the timing of occupancy, USCIS contravenes the plain wording of the regulations, as well as the statutory intent. The result of USCIS’ current stance on I-829 adjudication would effectively constrain the EB-5 Visa Program, not just to projects that can be completed and rented within the I-829 adjudication period, but to projects in that category that also have known tenants or operators (such as a small hotel or something like a mini-market). I think we all agree the scope of EB-5 projects was not intended to be limited solely to projects that can be built and stabilized, with an identified tenant, in approximately three years.

Those of us in the development business understand that from the first day the project starts until the day the project is stabilized, one is looking at a four to five year time frame. To meet the USCIS time constraints, the developer would need to use their own funds to start the entitlement process, well ahead of receiving EB-5 capital, in the hope that they can have visa approvals to release funds from escrow, all in time to finish the project. Good luck to those who try! Few people would take this risk.

 

Henry Liebman

Henry Liebman

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