How COVID-19 has affected EB-5 projects
By Fredrick W. Voigtmann
The catastrophic toll of the COVID-19 pandemic in terms of loss of life, economic devastation, societal disturbance, and chaos on a personal, familial, national, and international scale cannot be understated and likely will never be fully measured. The pandemic’s long-term effects on EB-5 regional center projects and direct EB-5 projects are similarly difficult to appreciate and measure on a comprehensive level. There are a few areas, however, in which EB-5 cases clearly have been affected, at least in the short term.
At its heart, the EB-5 Immigrant Investor Law is an investment and job creation program. The U.S. government has a significant interest, in good and bad economic times, to promote foreign investment in the United States and to foster job growth for qualifying U.S. workers, particularly in areas with high unemployment. EB-5 is a perfect “quid pro quo” in that the foreign investor receives significant U.S. immigration benefits in exchange for making an at-risk investment and creating 10 full-time positions for U.S. workers.
Who are these EB-5 investors? They are essentially businessmen and women, entrepreneurs, high net worth individuals, and drivers of economic activity. Therefore, since the pandemic created havoc for large and small businesses worldwide, not just in the United States, it stands to reason that the pandemic had similar effects on EB-5 investors’ businesses. When a U.S. business suffers because it must furlough employees, lose significant revenue, follow local or statewide stay-at-home orders, it may have difficulty even keeping the doors open. When an EB-5 business suffers these same effects and as a result is unable to create the jobs it has projected/promised in its business plan, there are wide-ranging immigration consequences for the foreign EB-5 investor.
CHECK-INS WITH REGIONAL CENTERS HAVE GENERALLY BEEN POSITIVE
Overall, most regional center projects have fared well. Repayments to investors continued as scheduled for EB-5 deals that were already matured and thus escaped some of the more severe effects of the pandemic. Most of the active regional center projects that centered on construction of office buildings with significant pre-leasing and infrastructure have handled the pandemic also.
Many EB-5 regional center projects focus on commercial real estate. While Silicon Valley multi-family unit lease rates, for example, are down as much as 40%, commercial leases are usually five years or longer, so landlords can hold the line in terms of pricing.
HOTELS HAVE HAD DIFFICULTIES, MAINLY DUE TO LOW OCCUPANCY
The EB-5 regional center project type that experienced the most impact from the pandemic seems to be those in the hotel industry, but most have continued operating albeit at lower than projected occupancy. We have seen some hospitality and residential projects not doing nearly as well, however, resulting in closures and lawsuits. Many effects seem to be regional/geographic related, depending on the severity of local economic downturns.
Also, hotel statistics from the American Hotel & Lodging Association in November 2020, reflect that approximately 70% of hotels will not be able to last another six months without financial assistance. Banks may be able to provide three to six months forbearance, but that is all. Warmer markets will recover faster with leisure travel, while corporate and group markets that require convention travel will take more time to recover due to the new reality of closing deals virtually without the need for business travel and face-to-face meetings.
SALES OF NEW EB-5 PROJECTS WERE DOWN, BUT ARE PICKING UP
The largest effect experienced by EB-5 regional centers seems to be new sales of projects. It was widely anticipated the 2020 Q1 would be slow, as the market adjusted to the new investment level and the pipeline of leads replenished itself after the investment rush of the previous November 2019 deadline. The uncertainty of the pandemic, combined with no deadline of any sort, significantly pushed back prospective investor clients’ ability to make decisions well into the second half of the year, and even that was a smaller pool of leads. According to one regional center, there has been improvement on this front, as leads have gotten more comfortable deciding to invest, even though some COVID-related uncertainty remains. Like most of us, many prospective EB-5 investors and their families have reached the point where they need to get moving on the things they want to do, even if the pandemic has not completely subsided.
DIRECT EB-5 INVESTORS HAVE FELT THE EFFECTS THE MOST
As for direct EB-5 investors, the causes and effects are similar to regional center project woes, but most direct EB-5 clients seem concerned with just keeping their doors open; depending on what stage they are at in the conditional residency process, their ability to sustain their investment and create the required amount of jobs could be in serious jeopardy. Their very ability to remain in the United States is at stake.
Direct EB-5 investors are concerned with job creation timing, much of which has been suspended during the pandemic due to economic realities. Timetables and business plan projections are “out the window” and this puts stress on direct EB-5 investors who are waiting for USCIS to review their pending I-526 or I-829 and dreading the seemingly unavoidable Request for Evidence (RFE), which will likely require evidence they do not have yet.
These business owners have a myriad of questions about issues like PPP or EIDL loans: do they qualify? Will it affect their immigration case? What if they have had to furlough employees or temporarily reduce hours for full-time employees? The direct EB-5 investors, who are nearly all small business owners, have taken the brunt of the economic effects of COVID-19.
TIMING IS EVERYTHING WHEN DETERMINING WHAT COVID-19 EFFECTS WILL MEAN FOR EB-5 IMMIGRATION CASES
Early Stage of EB-5 (I-526 Pending)
So, what do all these effects mean for an EB-5 investor whose I-526 is still pending? Unfortunately for the folks at the early stage of the process, the pandemic-related effects on an EB-5 case leave them in the most danger with the most immigration risk. If the new commercial enterprise (NCE), whether a direct project or regional center project, is unable to survive, the likely outcome is that the I-526 will be denied by USCIS. And if investors wish to make new investments and file new petitions, they will have to go to the back of line in terms of their priority dates.
Mid-Stage of EB-5 (Pre-Conditional Residency)
If the I-526 petition has been approved, but conditional residence status has not yet been granted, either through adjustment of status or immigrant visa processing, the subsequent closure of the NCE is more likely to be discovered at an immigrant visa interview than by USCIS during its I-485 adjudication. In either case, closure of the business before conditional residency is granted, if discovered by the embassy/consulate or by USCIS, would be grounds for denial of residency. The “silver lining” for such an investor would be in one of the changes that took effect in November 2019: priority date retention. An investor with an approved I-526 petition, not revoked due to fraud, is able to retain the priority date for any subsequent I-526 petition.
Such priority date retention will be key for Chinese and Vietnamese EB-5 investors with approved I-526 petitions but whose EB-5 projects might not survive the pandemic.
Late Stage of EB-5 (I-829 Pending or Upcoming)
If conditional residency has been granted and the NCE subsequently closes during the sustainment period, the conditional resident EB-5 investor may still be able to remove the condition if the NCE created the required jobs, either direct, or indirect in the case of a regional center, within the conditional residency period.  There is no requirement that the created jobs must be maintained. At the time of their creation, the jobs needed only to have been fulltime and considered permanent (contemplated to last at least two years).
What happens if the investment cannot be sustained, or the jobs have not/cannot be created due to pandemic-related, economic issues with the project? The answer has to do with timing and the reason for not meeting the requirement. If job creation is just delayed, the EB-5 requirements allow for job creation “within a reasonable time” after the conditional period. The USCIS Policy Manual describes this “reasonable time” as being within three years of the grant of conditional residency.
“Jobs projected to be created more than 3 years after the immigrant investor’s
admission in, or adjustment to, conditional permanent resident status usually
will not be considered to be created within a reasonable time unless extreme circumstances  are presented.”
Footnote 10 to this section gives “force majeure” as an example of “extreme circumstances.” Far more than any hurricane, earthquake, or other natural disaster, one of the greatest force majeure events in the past century has been the COVID-19 pandemic. Therefore, if an EB-5 investor can show how the pandemic prevented or delayed job creation by the NCE and provide probative evidence of when the required jobs likely will be created, it seems that the investor will be given at least one additional year, if not more, to meet the removal of condition requirements.
THE MATERIAL CHANGE RULE COULD “SAVE THE DAY” FOR SOME INVESTORS
If the underlying NCE business cannot survive, but the conditional resident EB-5 investor can keep the NCE entity active and change to another business model, the condition still might be removed because of USCIS’ definition of material change in the USCIS Policy Manual. Volume 6, Part G, Chapter 5.C discusses “Material Change,” saying that “an investment may be further deployed in a manner not contemplated in the initial Form I-526, as long as the further deployment otherwise satisfies the requirement to sustain the capital at risk.” The initial business plan/model had to have been filed in good faith, but changes occurring during the conditional residence period, whether caused by the pandemic or not, will not be considered material and therefore, the removal of condition requirements can still be met notwithstanding the change.
In conclusion, the full effects of the COVID-19 pandemic are difficult to measure on a worldwide scale, or even with respect to the state of EB-5 as a whole. Each business, whether a regional center project or a direct project, has its own unique set of challenges in dealing with the economic devastation resulting from the pandemic, and each project manager, investor, and immigration lawyer will have to work together to tailor mitigating strategies, allowing for economic recovery and immigration success.
 Granted, direct EB-5 investors are traditionally more entrepreneurial by nature than EB-5 investors in regional center projects, where there is limited capacity to manage and direct the EB-5 project, but many regional center investors contribute to the U.S. economy in additional ways, most often by purchasing real estate, paying school tuition, etc., but in addition, these individuals often create their own businesses in the United States, since being a regional center investor is hardly a full-time job in itself.
 According to 8 C.F.R. §216.6(c)(1)(iii), the investor must have sustained the investment during the entire two-year investment period, but legal counsel could argue that although the business closed, the investor did not receive a return of the investment principal and thus complied with the sustainment requirement. USCIS likely would take the position that if the business closes during the sustainment period, the invested capital was no longer at risk. The USCIS Policy Manual is not clear on this point, but both the manual and the regulation cite good faith and substantial compliance as meeting the requirement.
 According to the latest USCIS processing time report, see https://egov.uscis.gov/processing-times/, I-829s are taking 37 to 248 months to adjudicate. It is likely that if the required jobs are to be created at all, they certainly would be created by the time USCIS issues an RFE on any given investor’s I-829 petition.