By Carolyn S. Lee
Scenario: The EB-5 loan has a 5-year maturity and the note is due. The project has been successful and is completed. All the jobs have been created, sufficient for all the EB-5 investors in the project. The new commercial enterprise (NCE) fund manager would like nothing more than repay the EB-5 investors, but most are Chinese nationals and are not yet in conditional residency. With current visa backlogs, it will likely be many more years before investors reach the end of their sustainment period. What is the NCE manager to do with the repaid loan proceeds? Specifically, is the NCE manager required to “redeploy” the repaid proceeds, and if so, in what manner?
Before the June 14, 2017 revisions to the USCIS Policy Manual, no one was sure. With the June 14, 2007 revisions, there is now some guidance, but it is unclear. This article summarizes what we know and what we yet do not know about redeployment. It will cover the simplest of redeployment scenarios where the project is complete and the loan has reached maturity. It will not discuss the more complex situations involving incomplete job creation or prepayment.
IS “AT RISK” THE RIGHT LEGAL STANDARD FOR REDEPLOYMENT?
The “at risk” requirement relates to the agreement between the investor and the new commercial enterprise. This is because “invest” is defined the investor’s capital contribution to the NCE.  This investment must be “at risk.”  To the extent the USCIS redeployment guidance reaches beyond the investor-NCE relationship, the law of “at risk” investments should not apply. This is because any relationship beyond the investor-NCE relationship is not “investment” and therefore “at risk” analysis has no place.
The Policy Manual nevertheless couches redeployment in terms of maintaining the “at risk requirement.”  So unless and until USCIS rearticulates its rationale, we must work with the “at risk” language the Policy Manual currently uses.
WHAT KIND OF REDEPLOYMENT MEETS USCIS GUIDELINES?
The Policy Manual says that EB-5 capital has to be kept at use “in a manner related to engagement of commerce … consistent with the scope of the new commercial enterprise’s ongoing business.” 
This is not easy to define. The Policy Manual gives two examples. One example involves where the NCE originally loaned EB-5 funds for residential building construction. Here, the Policy Manual says that the NCE may further deploy the repaid capital to “one or more similar loans to other entities.”
In the second example, the NCE may redeploy into “certain new issue municipal bonds”. This is very different from residential construction. So how can we evaluate whether redeployment is “consistent with the scope” of the NCE?
START BY REVIEWING THE NCE PARTNERSHIP OR OPERATING AGREEMENT
The NCE’s ongoing business would best be described in the NCE operating agreement or limited partnership agreement. Therefore, start with a review of this agreement as filed with investors’ I-526 petitions (the “NCE Agreement”).
Within the NCE Agreement:
Look for any provision(s) dealing with the scope of the NCE’s business or activities. This may be found in the “purposes” section, the “powers” section, and/or in a definition of the project, sometimes defined as the “Project” or “Qualifying Investment”.
If the original NCE Agreement states a specific purpose, plan the redeployment to be in “similar” investments. For example, if the original use is specifically stated as constructing a hotel on a certain parcel, plan the redeployment to be constructing a hotel or similar asset in either a near or comparable area.
If the original NCE Agreement does not state a specific purpose but instead only states a broad scope, the redeployment may be allowed in new issue bonds. The Policy Manual does not answer the question of whether an NCE without a specific scope may redeploy in other areas.
ENGAGE CORPORATE COUNSEL TO REVIEW
Corporate counsel can help interpret the NCE Agreement on the scope of the NCE’s ongoing business. Corporate counsel familiar with the original loan may also assist in determining whether the proposed redeployed use is “similar” to the original loan.
It is advisable for NCE managers to keep as part of the NCE compliance record, all the advice memoranda and opinions obtained by counsel, other advisors, and third parties relevant to choosing the reinvestment.
“AT THE TIME THE PETITIONER FILED THE IMMIGRATION PETITION BY ALIEN ENTREPRENEUR”
Redeployment must follow the NCE scope in existence at the time of the I-526 petition filing. If the NCE scope of business changed after I-526 filing, redeployment into a loan similar to the changed scope may not be qualifying redeployment.
A big change may have disqualified the entire project and all the I-526 petitions, because big changes are probably “material changes.” A “material change” before an investor’s admission in conditional residency would result in denial of the I-526 petition or revocation of an approved petition.  In that scenario, redeployment is not needed because the I-526 petition will fail anyway.
The question arises on nonmaterial changes.  Suppose the original business plan contemplates constructing a 20-floor tower. The business plan changes to add 1 floor, and additional capital is secured for the larger budget. There are enough jobs. Assuming that this change is nonmaterial, does this change the “scope of NCE’s ongoing business,” so as to make redeployment problematic?
USCIS should not deem nonmaterial changes to affect redeployment. We have no reason to think USCIS wishes to disqualify redeployment for small changes in the original NCE. 
“COMMERCIALLY REASONABLE TIME”
Although redeployment within a “commercially reasonable time” is crucial to passing the redeployment test, the Policy Manual does not define what period of time is “commercially reasonable.”
“Reasonable period of time” in the EB-5 context to create required jobs for I-829 approval is 1 year, with the exception of “extreme circumstances.” But it does not address whether 1 year is “commercially reasonable.”
“Commercially reasonable time” is generally defined as: “period determined from trade practice, custom, trade practice, or from circumstances like those at issue, as the time required completing a transaction or contract without a specific maturity date.” In essence, this means the time it normally takes to finish similar transactions.
So the NCE manager should engage in the following:
- Identify the relevant trade or business area. What area of fund management is most similar to redeploying repaid EB-5 proceeds? Is it mutual fund management? Family wealth management? There is an argument to be made that the relevant trade is actually EB-5 fund management. Although the EB-5 industry’s practices have not yet ripened on redeployment, the NCE manager may uses particularities of EB-5.
- Plan to reinvest as soon as practicable. NCE managers should plan in advance for loan maturity. When will the loan mature? Will the loan term be extended? What are the notice provisions for loan term extensions? The goal would be to redeploy, prudently, but as soon as practicable.
- Document efforts to be timely. All the reasonable efforts NCE managers undertake to redeploy prudently and timely should be recorded. This would allow the NCE manager’s subjective efforts to factor favorably.
- Deem 1 year as the absolute outside timeframe. Because the conditions removal “reasonable period of time” provides a precedent, the one-year mark may be invoked. However, the goal should be redeployment as much under the 1-year mark as possible.
- Document “extreme circumstances” if needed. Although very limited, extreme circumstances should be taken into account, if available, to determine commercial reasonability. Examples would include hurricanes and other natural disasters.
CONTEMPLATION OF REDEPLOYMENT
Does USCIS require redeployment to have been contemplated in the I-526 petition?
USCIS appears to be generous, if unclear, on the answer. The most important point appears to be that if the business plan and job creation are completed, USCIS will bless redeployment as long as it meets the above requirements of being within the scope of the new commercial enterprise and commercially reasonable time. Such redeployment will be exempt from material change.
If the NCE never contemplated redeployment but rather called for liquidation upon loan repayment, USCIS will freely allow amendment. That amendment will not be deemed material change. Presumably, this change to the NCE scope will not be disqualifying for redeployment purposes.
Best practice following the June 14, 2017 revisions would be to ensure the NCE Agreement expressly allows reinvestment of repaid EB-5 proceeds.
Consistent with this analysis, the Policy Manual allows redeployment after job creation as long as redeployment is within the scope of NCE and commercially reasonable time. The Policy Manual states that further deployment along these lines “will not cause the petition to be denied or revoked.” 
There is even less risk of material change finding for redeployment after an investor is in conditional residency. In that scenario, a redeployment is not tied to the initial I-526. Redeployment may be in areas outside the NCE scope. Also, an NCE can redeploy even if it never contemplated redeployment.
Redeployment before job creation completion is where there is most risk of “material change.”
SHOULD REDEPLOYMENT BE REPORTED TO USCIS?
The Policy Manual does not answer this important question. In the context of material change, the Policy Manual states, “Further deployment of capital that occurs before the immigrant investor becomes a conditional permanent resident must be adequately described in the Form I-526 record.” Although this paragraph may mean more than one thing, it might suggest that reinvestment should be reported to USCIS to be included in the I-526 record. Currently, no process exists to amend a Form I-526 for any purpose, although redeployment documents may be interfiled with a pending Form I-526.
Otherwise, redeployment would be described in the I-829 to satisfy the “sustainment” prong.
IS REDEPLOYMENT MANDATORY OR IS IT OPTIONAL?
The Policy Manual does not clearly answer the fundamental question: is redeployment mandatory or optional? Future guidance must remove all doubt on this question.
The Policy Manual states that after job creation, “at risk requirements [still] apply,”16 but this is not new. Matter of Izummi requires the investor’s investment to be at risk and invested in the NCE with no promise of repayment until after the two year conditional period. However, Izummi never required another round of NCE loans.
Redeployment appears mandatory when the Policy Manual states that USCIS officers “must determine whether further deployment has taken place, or will take place, within a commercially reasonable time and within the scope of the new commercial enterprise’s ongoing business.”18 But these questions remain: when will USCIS test whether further deployment has taken place? What is the consequence of not timely redeploying? Is there a different consequence if the redeployment was timely but not within the scope of NCE’s ongoing business, and vice versa?
On the other hand, redeployment appears optional when it says: “further deployment may be an option during the conditional residence period in various circumstances.”  This part of the Policy Manual seems to say that the NCE may redeploy during the sustainment period,  but isn’t required to.
NOTE FOR INVESTORS
Some investors will want higher gains on their investment while waiting for their visa. Others will be dismayed to incur more risk after the project has been completed. Given the novel use of the “at risk” standard in the Policy Manual, it is doubtful that investors could have anticipated that their investment could be reinvested after job creation in a new “at risk” enterprise.
This article is geared primarily toward NCE managers, but the recommendations to NCE managers can also inform investors about current policy and help investors understand NCE actions. Dialogue about redeployment should be open between investors and NCE managers.
Questions investors may ask their NCEs may include:
- Can you confirm when the EB-5 loan will mature?
- Is an extension allowed on the EB-5 loan? How long is the extension period?
- Who can exercise the extension option – the lender or the borrower?
- When is the period for exercising the extension?
- Will there be an extension, and will investors be notified?
- Will the NCE seek consent of investors to redeploy?
- If not, will the NCE give prompt notice to investors after redeployment?
- Who will advise the NCE on redeployment?
- Will outside third-party advisors be involved?
- How will the investment gains from redeployment be distributed?
- Will the redeployment be liquid enough to assure timely return of capital at the end of the sustainment period?
- What happens if the redeployment results in substantial loss?
- What is the range of risk required?
- What if I get my conditional green card much earlier than expected, due to visa backlog relief, marriage, or other means?
An NCE manager should be prepared to answer these questions.
The “at risk” rationale for EB-5 investments was to make sure that EB-5 investors were taking a chance investing in their enterprise. If it did well, they would do well; if it did poorly, they would too.21 At the point of EB-5 loan repayment, investors have already taken the risk of loss and chance for gain as Congress intended. Having come out on the other end, it seems unfair and contrary to the intent of requiring “at risk” investment to put investors through additional rounds of risk. Moreover, the legal basis simply isn’t there. 
As a policy matter, it makes sense to require the NCE to do some business beyond babysitting repaid loans once the jobs are created. This concept is legally sound and in the definition of “new commercial enterprise” which embodies “ongoing” business activity. The Policy Manual’s redeployment guidance is actually much more closely mapped to the requirement of “ongoing conduct of lawful business” in the NCE definition rather than “at risk” investment definition.
Adopting that sounder legal basis would also permit reinvestments to have very low risk. Under the “ongoing” business rationale, reinvestments may be in U.S. treasuries, bonds or other liquid and safe investments. For investors desiring higher risk and yield, well-managed funds could still be available and offer attractive returns for greater risk.