What is the current market in China for marketing an EB-5 offering with an early release of escrowed funds prior to each Investor''s I-526 approval? Is it necessary to wait for each Investor''s I-526 to be approved before releasing their funds from escrow? Are there plausible compromise solutions such as 1. Waiting for the 1st I-526 approval from a subscriber before releasing all Investors'' funds in escrow (to demonstrate USCIS project approval) and/or 2. Releasing a portion of the escrowed funds, such as 80%, and keeping the remaining 20% in escrow until each individual Investor''s I-526 is approved (in order to have a reserve to repay Investors who have denied I-526s)?
It is fact specific. Some regional center projects employ escrow and do not release funds until, let''s say, three I-526s are approved; other projects do not employ escrow at all when they are ready to go or release funds upon signing an agreement with a borrower.
There are projects across the spectrum in terms of when funds are released. There are still some projects with no escrow and others that release only with each investor''s I-526 approval. The decision on which option and structure will work is fact specific to the project and its marketability.
From a marketing standpoint investors would prefer release of funds once their petition is approved. However, there is no rule that an escrow needs to be utilized at all. You cannot use one investors funds to pay back another, you must use the funds to create jobs. For further information please contact Rahbaran & Associates.
An early release of funds is certainly beneficial to the developer of the EB-5 project. From an immigration point of view, the minimum conditions and hold back features that you describe are not required by USCIS. In fact, release of funds upon or before filing the I-526 is allowed by USCIS. In fact, if the capital investment is made before filing an I-526, USCIS guidance requires them to look at the time of investment for determining whether the project is located within a Targeted Employment Area or TEA. To better understand whether Chinese nationals are receptive to releasing funds early, you should consult a reputable, experienced Chinese marketer who has experience in the EB-5 arena.
There is no statutory requirement to escrow all the funds, it is just good practice. In the current market it provides added security to the investor. Obviously if you can release the funds early the project gets underway quicker, so there is certainly some benefit.
If you are an investor, you want the funds to be released only after the I-526 is approved. On the other hand, if you are the regional center, you want the fund to be released as soon as possible, regardless whether investor''s I-526 is approved or not. Got it?
Philip H Teplen
I cannot answer your question without seeing your plan; however, China is clearly the largest user of EB-5 visas.
Each EB-5 project may have their own business requirements for the release of EB-5 investment funds. The terms of the release haves to clearly stated in the offering documents. The EB-5 regulations state the EB-5 investor may have already invested or be in the process of investing. Based upon the current time delays in the processing of I-526 petitions there is a need by the EB-5 projects to have access to the EB-5 funds as soon as possible and before the I-526 petition is approved.
I do not believe early release of 100% or partial escrowed funds is a marketing plus in China because if the investor''s funds are expended by your project and his or her I-526 is eventually denied, your project has to use the subsequent investor''s capital to pay back the investor whose I-526 was denied. You therefore cannot prove that the subsequent investor''s capital funds will be used to create the required 10 jobs, unless your project has private venture capital reserve that you can use as to pay back the investor.
Most EB-5 projects that I have seen include escrow agreements that authorize release of the investment funds from escrow upon approval of the individual investor''s I-526 petition, without regard to other investors'' I-526 petitions in the same project. I am sure that there are other ways of doing it, including no escrow, or partial release from escrow, as you described. The EB-5 law and regulations do not specifically address this issue, so it is negotiable between the regional center and the investor client (all investors in each project should get the same deal, however, just as a matter of best practices).
Most Chinese investors would prefer that the funds remain in escrow until their I-526 is approved. The holdback situation that you describe is one compromise solution to give you access to at least a portion of the funds prior to I-526 approval. Another option is bridge financing, which can be replaced by EB-5 funds once they become available upon approval of the I-526 petition. Any of these options will work from a USCIS perspective and really only matter with respect to convincing an investor to invest in your project.
Many of the Regional Centers are doing early release of escrow funds to keep up with the project demands. Often they will release on a particular schedule or after first 3 filed I-526s are approved.
This would depend on the agreement the investor has with the project/invested company/Regional Center. It also depends on whether the project has alternate financing so that they can wait to release the funds from escrow upon approval of the I-526 Petition. If we were representing the Investor, we would advise finding a project that would have the provision in place for releasing the funds from escrow upon approval of the I-526 Petition, since there is no advantage as far as USCIS is concerned to early release of funds.