When can sales of assets begin after acquiring EB-5 funding?
If a developer acquires EB-5 funding for a project, how long before he/she can commence sales of assets (after development)? One source indicated that NOTHING could be sold for five years, while others have stated otherwise. Does this vary by state? By EB-5 office?
The variance may be due to the unclear nature of the EB-5 policy. Investments must be sustained until the investor removes conditions to their permanent residency. Selling off assets of the project may be seen as the project no longer supporting the investment.
The EB-5 law and regulations are federal, so there is no variance from state to state. EB-5 capital must be at risk and sustained in the new commercial enterprise for the entire period of conditional lawful permanent resident status. If the EB-5 investment capital initially was used to purchase assets for the business and the business sells those assets, the EB-5 capital may not be at risk if the asset sale proceeds repose uncommitted in the new commercial enterprise's bank account. Of course, if the proceeds are returned to the EB-5 investor or the investor's K-1 form otherwise shows a diminution from the original $500,000 or $1 million, then the funds definitely will no longer be at risk. Another question the USCIS might have is whether the asset sale was contemplated in the business plan and if not, what changed from the original business plan such that the sale became necessary.
It all depends, but the key is that the EB-5 funds must be fully invested and the investment must be maintained for each investor until the conditional residency is removed. Thus, it would not be feasible for the developer to commence a sale of assets until after the investors have been successful in removing their conditional residency. This does not vary state by state as this is a federal office nor does it vary between EB-5 offices.
It varies per the terms establishing the limited partnership in question or that you are dealing with (i.e. the terms under which the partnership you are dealing with is set up or terms of incorporation). Virtually all circumstances and state laws control limited partnership agreements. Advisably, consult an attorney.
Sales of assets, returns, and the like are often discussed in placement memorandums, etc. The typical time is going to be at least after the period when you would receive your 10 year lawful permanent residence. Remember, your investment must always be "at risk."
The simplified rule of thumb is to hold onto the project that is supposed to create jobs until all the EB-5 investors obtain I-829 approvals. However, depending on how the jobs are to be created and how they are to be documented for the I-829 process, the issue could be addressed differently. You do not want USCIS to find that there was a material change from I-526 documentation by selling too soon. This is a complex issue that requires a detailed analysis by an experienced EB-5 expert.
The key issue is will there be a material change to the business plan and to the job creation? If all the assets are sold, one would certainly need to be ready to show there will be no change in regard to job creation. The safest position of course is to say no sale of assets should be allowed until the I-829 is approved.