Advising on EB-5 Projects
Updated by Anthony Korda and staff
The EB-5 immigration attorney plays an integral role in the EB-5 investor’s path to a green card and citizenship. Because the success of an investor’s petitions hinge on a successful project, it is important that you know what to look for when advising your EB-5 investor client.
EB-5 Statistical Snapshot
The following statistics provided by United States Citizenship and Immigration Services suggest that the EB-5 visa program has been a very successful immigration initiative:
- In 2016, 14,147 I-526 petitions were filed, and 7,632 were approved, 1,735 were denied and 20,804 remained pending at the end of the fiscal year.
- In 2017 12,165 I-526, and 11,321 were approved, 922 were denied and 24,992 remained pending at the end of the fiscal year.
- In 2018 6,424 I-526 petitions were filed, and there were 13,571 approvals, 1,551 denials and 14,394 remained pending at the end of the fiscal year.
A total of 9,602 EB-5 visas were issued in 2018 (including dependents), a significant increase from 3,463 EB-5 visas that were issued in 2011.
Prior to 2007, there were very few regional centers and even fewer viable projects. The choice was fairly narrow, and, with most of what was on offer, a certain degree of faith and trust was required.
However, with the explosive growth of EB-5 Regional Centers between 2007 and 2019, there are many more options for investors. With a plethora of choices, EB-5 investors are becoming more demanding and more scrutinizing.
The Rush to Invest
In 2015, it was anticipated that there would be significant changes to the EB-5 Visa program. The anticipated changes, which ranged from regulatory rules, to minimum investment increases, and Targeted Employment Area designation were discussed but did not materialize. Between July 2015 and November 2019, the program was extended several times without change. Eventually, Congress tasked USCIS to develop regulations that would achieve changes to the program, that Congress was unable (or unwilling) to make. Effective Nov. 21, 2019, the minimum investment amounts were increased from $500,000 to $900,000 (if the project is located in a Targeted Employment Area) and from $1,000,000to $1,800,000 (if not). Since March 2022, the minimum investment amount is $1.05 million and will be reduced to $800,000 for investments in Targeted Employment Areas (TEAs). Given that the prior investment amounts have remained unchanged since the program’s inception in 1990, these amounts were determined to keep pace with inflation. Other significant changes also include Targeted Employment Area Designation. This will now be determined by USCIS, and not by the individual state agencies, using more conservative calculations. The new regulations have not made changes to the “at risk” requirements, nor to the length of time that investments must be maintained.
If investments must be maintained “at risk” until the end of the conditional residence period, invested funds cannot be repaid for periods that are significantly longer than many subscription and loan terms had envisaged. Projects have had to modify their approach and incorporate “re-deployment” provisions so as to re-invest investor funds, thereby avoiding early redemption issues at the I-829 stage. Investors, especially those from China, India and Vietnam must, therefore, be counseled as to the following issues:
- processing times are lengthy
- there may be further visa wait times
- funds will be tied up for significantly longer than the five-year loan period that many projects advertise.
Advising Your EB-5 Client
Balancing clients’ expectations against the reality of the EB-5 Immigrant Investor Visa Program has become significantly more difficult. Clients should be cautioned that the entire process may now take many years, costs significantly more, and that funds may not be returned until the end of a period that far exceeds any loan or subscription terms.
Assuming that there will still be interest in the EB-5 program, immigration attorneys still have an important role in the due diligence process. Although immigration attorneys must try to avoid the role of investment adviser, there is nothing wrong with scrutinizing a project, helping the client with due diligence, advising the client on the kind of information and details to request from a prospective investment, and ultimately, advising a client not to invest in a project that appears to be unable or unwilling to satisfy reasonable requests for information.
However, immigration attorneys should be careful not to advise clients to invest in a particular project, unless they are otherwise qualified to do so. Given the interest of the U.S. Securities and Exchange Commission in EB-5 matters, some immigration attorneys are registering with the Financial Industry Regulatory Authority and taking various exams to qualify as brokers or investment advisers.
Whether qualified or registered as investment advisers or not, immigration attorneys have a duty to act in their client’s best interests and so must walk the fine line between not providing investment advice, while still helping clients to make an informed decision.
Before making a decision to invest in a particular project, the client should have completed a due diligence investigation of the project.
Finding the Best Project for Your Client
There are three questions to ask when considering an EB-5 Regional Center investment:
- Will the client’s I-526 be approved?
- Will the client’s I-829 be approved?
- Will the client’s investment be returned, and if so, when and how much?
While 1 and 2 are non-negotiable, EB-5 investors should be prepared to lose some, or all of their investment, or to wait longer than the stated repayment period. If a client invests on the basis that the investment will be refunded in full or on time, the client may be disappointed.
The fact that a project is unable to repay the investment on time, in full or at all, does not necessarily mean that the project has failed from an immigration perspective. EB-5 projects are often over-capitalized. This is to ensure that job creation can be achieved in accordance with the economic projections filed as part of the I-526 petition. Indeed, in the “real world,” many businesses fail because they are under-capitalized and so the amount of capital available to a “new (EB-5) enterprise” will be an important factor in determining success at least from the job creation (and thereby the immigration) perspective.
Another factor to consider is the definition of the phrase “at risk.” All EB-5 investors are informed that the invested funds must be at risk.
USCIS requires validation that all capital investments are classified as “at risk” with no guarantees being made by the project to the investor. This is to confirm that the capital will actually be used for the purpose of creating jobs and profit-generating activity. Proof of actual business activity is also required and the use of capital investment for expenses or reserve accounts unrelated to job creation does not constitute business activity.
Essentially, what USCIS wants to avoid are any guarantees that an investor’s funds will be returned irrespective of the success of the project.
However, oftentimes the phrase “at risk” is deemed synonymous with ‘risky’ and is used to excuse the fact that a project does not have a clear exit strategy.
The hesitation to outline a clear exit strategy for fear of noncompliance with USCIS regulations that the funds be at risk might have been an acceptable explanation several years ago when the program was in its infancy. However, today, such an explanation is unacceptable, and any projects that do not have a clearly defined exit strategy (not the same as a guaranteed exit strategy) should be avoided.
Many attorneys will advise clients that they should consider the track record of a regional center or project promoter. This may be sensible advice, but past performance is not always an indicator of future success.
Obvious questions to ask of a regional center or project promoter would be:
- How many I-526 petitions were filed? How many approved? How many denied?
- How many I-829 petitions were filed? How many approved? How many denied?
- Has any investor received all or part of the investment back? If so, how much was repaid and to how many investors?
However, beyond the above, an investor should carefully consider:
- The offering documents,
- The terms of a limited partnership and/or a subscription agreement,
- The terms of an escrow agreement,
- Whether or not the business plan is realistic and based on sound business principles,
- Whether or not any economic projections are speculative or scientific, and
- Whether or not any security provided is sufficient
- Whether or not the promoter has taken into account (1) the new regulations and (2) the lengthy period during which the investment must be maintained and re-deployed
- Whether or not the project properly qualifies for the lower investment amount.
Other factors, such as the number of subscribers sought and whether the promoters have their own funds in the project, may also be persuasive. The larger a project, the longer it may take to fill a subscription and to begin the project. This may be particularly important to an early subscriber who may be nearing the I-829 petition stage before the subscription is filled.
This is not meant to be an exhaustive list of due diligence questions, merely examples of the type of questions that prospective investors ought to be asking so as to make an informed decision prior to investing in a project.
Clients who are not properly informed about the effect of the changes and delays in processing times, and the length of time their investment must be sustained, may well be disappointed with their legal counsel, while clients who are not able to make informed decisions about the project they have chosen may well be disappointed in due course if their investment does not meet either their immigration or their investment needs or both.
 Immigrant Petition by Alien Entrepreneur (Form I-526) Quarterly Report (Fiscal Year 2019, 3rd Quarter, Apr. 1- Jun. 30, 2019 (https://www.uscis.gov/sites/default/files/USCIS/Resources/Reports%20and%20Studies/Immigration%20Forms%20Data/Employment-based/I526_performancedata_fy2019_qtr3.pdf)