The Long and Winding Road: Successfully Forming and Representing Regional Centers under the Eb-5 Program

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Although the Regional Center Pilot Program was enacted almost 20 years ago, it has hardly been used for most of its existence. In the past five years, however, the EB-5 immigrant investor program has attracted significant interest among real estate developers, hotel brands, restaurateurs, manufacturers, alternative energy companies, and even municipalities as a non-traditional source of capital.

In fact, the number of regional centers has expanded exponentially; USCIS indicated during its January 23, 2012 Stakeholder’s Engagement that there are now 194 USCIS-approved regional centers operating in 40 States, including the District of Columbia and Guam. USCIS Stakeholder’s Presentation, AILA Infonet Doc. 11121965 at slide 4 (January 23, 2012). In the first quarter of the government’s fiscal year 2012 alone, it was reported that 2,364 Eb-5 visa numbers had been used, putting the program on track to potentially use the full 10,000 visas available under the Eb-5 category for the first time ever. Id.at slide 14.

Now that the word is out that investors are accepting lower rates of return on an investment in exchange for a chance at a green card, many U.S.-based companies are seeking representation to become an approved regional center. It seems like easy money, right? Just the opposite. The I-924, Application for Regional Center Designation, denial rate is now almost 60%. Id. at slide 6. Creating an approvable regional center and then successfully advising it is now quite difficult.

First, the basics: the EB-5 program was implemented in 1990 as a program to provide legal permanent residence status to investors who invest $500,000 or $1 million (depending on the geographical area) in a business that creates employment for 10 full-time U.S. citizen or permanent resident employees. 8 U.S.C. § 203(b)(5). For various reasons, especially the fact that most businesses do not commence early operations with 10 full-time employees, Congress created the regional center pilot program in 1993. Department of Commerce, Justice and State, the Judiciary, and Related Agencies Appropriations Act of 1993, Pub. L. No. 102-395, §610(c), 106 Stat. 1828, S. Rep. No. 102-918 (1992). A regional center is “any economic unit, public or private, which is involved with the promotion of economic growth, including export sales, improved regional productivity, job creation, and increased domestic capital investment.” 8 CFR § 204.6(e).

The major advantage of a regional center investment is that the investor’s Eb-5 petition can be approved as long as the regional center project creates 10 direct or indirect jobs. Pub. L. No. 102-395 at §610(c). This allows regional centers to use economic forecasting models to predict indirect and induced employment created as a result of a capital investment project. See 8 CFR §204.6(m)(3)(v). Thus, there is no requirement to document the exact amount of jobs created, or the companies at which they were created. Because indirect job creation can be utilized, over 90% of all Eb-5 applications are associated with a USCIS approved regional center. There is very sparse guidance on how to become a USCIS approved regional center. The regulations at 8 CFR §204.6(m) provide a brief list of what should be shown in a regional center designation application, including:

1. Describing how the regional center focuses on a geographical region of the United States, and how it will promote economic growth through increased export sales, improved regional productivity, job creation, and increased domestic capital investment;
2. Providing in verifiable detail how jobs will be created indirectly through increased exports;
3. Providing a detailed statement regarding the amount and source of capital which has been committed to the regional center, as well as a description of the promotional efforts taken and planned by the sponsors of the regional center;
4. Containing a detailed prediction regarding the manner in which the regional center will have a positive impact on the regional or national economy in general as reflected by such factors as increased household earnings, greater demand for business services, utilities, maintenance and repair, and construction both within and without the regional center; and
5. Be supported by economically or statistically valid forecasting tools, including, but not limited to, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and/or multiplier tables.

Additional sparse guidance can be found on the Instructions to the Form I-924. See www.uscis.gov/forms. The form instructions contain a general list of documents that should be submitted with an I-924 application, including: an economic report, a business plan for an actual or exemplar capital investment project, a regional center operations plan, any securities offering documents for the capital investment project, and any other corporate documents showing the structure and control of the regional center and the new commercial enterprise.

As there is relatively little guidance in regulations and USCIS policy memorandums for the formation of regional centers, much of the law has evolved through recent adjudications of regional center applications and general, non-binding policy statements during USCIS Stakeholder’s Meetings. With little guidance for these applications, it can prove challenging to submit an application for an approvable regional center. This article focuses on five practice pointers for successfully forming and then representing a USCIS-approved regional center.

Practice Pointer #1: Help Define the True Scope of the Regional Center

When you begin working with a regional center client, it is important to help the client define a realistic scope for the regional center. The pertinent questions are:

1. What will be the geographic scope?
2. What industry clusters will be the focus of the capital investment projects?
3. How many capital investment projects does the regional center wish to accomplish?
4. How large are the capital investment projects that are seeking Eb-5 investment and how many investors are needed?
5. Does the developer understand the responsibilities of being a regional center and are they committed to it for the long haul?

It is important to address each question with the client at the outset, and advise the client of the true cost and tasks involved in undertaking a regional center designation and successfully maintaining the ongoing business of it. We will discuss each in turn.

The Geographic Scope of the Regional Center

Most developers and businesses seeking Eb-5 capital have a specific capital investment project in mind before they approach immigration counsel to form a regional center. Based on the location of the initial project(s) that need funding, the immigration attorney and the economist can help the client define the geographic scope of the regional center. The I-924 application and supporting documentation must “clearly describe how the regional center focuses on a geographical region of the United States…” 8 CFR §204.6(m)(3)(i). The Form I-924 Instructions, carrying the force of regulation, require that the geographic area “must be contiguous and clearly identified in the application by providing a detailed map of the proposed geographic area of the Regional Center.” See Form I-924 Instructions, available on www.uscis.gov/forms at 1.

Practice Tip: The economist can help define the scope of the geographic area by providing expert testimony that the boundaries of the regional center constitute a regional economy as shown by statistical evidence including: regional commuting patterns, geographic sources of goods and services for the region, important shipping routes and ports connecting the region, and movement of exports from the regional economy.

NAICS Codes: What Industries Can Be Approved for Capital Projects?

The capital investment project planned by the regional center also will help define the industry scope for the regional center designation application. The Form I-924 Instructions say only that the application should “provide the industry category title and the North American Industry Classification System (NAICS) code for each industrial category.” See Form I-924 Instructions, at 2. In practice through adjudications and the issuance of requests for evidence, USCIS has required a certain level of specificity for the NAICS code that goes beyond a 3 digit NAICS code. In practice, USCIS also requires a business plan and a corresponding economic report for each NAICS industry code listed on the I-924 application.

By requiring a business plan and economic report for every NAICS code requested on the I-924 application, the regional center application now needs to include a fairly specific business plan for a capital investment project. The Form I-924 instructions require that the “job creation analysis for each economic activity must be supported by a copy of a business plan for an actual or exemplar capital investment project for that category.” See Form I-924 Instructions, at 2. According to USCIS, the “business plan that is required…is the road map to determining whether the capital investment has been made, that the proposed capital investment project is feasible, and that the requisite number of jobs have or can reasonably be expected to be created at the Form I-829 petition stage.” USCIS Stakeholder’s Presentation, www.uscis.gov (December 14, 2009). The business plan must comply with the guidelines found in Matter of Ho, 22 I&N Dec. 206, 213 (AAO 1998).

The immigration attorney must focus the client on the first project(s) that the regional center will facilitate, and get a detailed business plan ready for the project(s) for inclusion in the Form I-924 application. The business plan included in an I-924 application for a capital investment project must include “valid and reasonable inputs” that will be used by the economic forecasting tools for prediction of job creation. See Form I-924 Instructions, at 2. These inputs “must demonstrate that the proposed project is feasible under the current market and economic conditions.” Id.

Practice Tip: Any input that will become a factual basis for the economic report must be found in the business plan, including but not limited to: construction expenditures, ongoing business revenues, square footage, direct employees or salary expenditures, tenant occupancy, lease revenues, hotel occupancy and/or visitor spending. The plan must include detailed construction and operational timelines, five years of financial projections, and a description of the feasibility of the project within the regional economy.

The Scope of the Capital Investment Project

The immigration attorney also must guide the scope of the capital investment project, making sure all important details translate to the Matter of Ho compliant business plan. How large will the project be and how many investors are needed? Those questions are answered by first determining the total project cost to the developer and an estimate of the economic benefits of the project. Once the tentative project cost and economic benefits are established, the economist can do a preliminary report as to the predicted amount of job creation for the project. The project will need to create at least ten (10) direct or indirect jobs per alien investor. 8 CFR §204.6(j). See also 8 CFR §204.6(g)(2). Thus, the preliminary job creation numbers help establish the maximum amount of capital that can realistically be raised through Eb-5 investors.

Practice Tip: The maximum Eb-5 capital raise should be determined in conjunction with the composition of the total capital stack of the project; that is, how much of the total project budget should be comprised of Eb-5 funds, not just could be comprised of Eb-5 funds? While there is no immigration regulation or policy guidance on this issue, the simple fact is that a project is not marketable to foreign investors if it is comprised entirely of Eb-5 capital. Investors want to know that the developer has some interest in completing the project as outlined in the business plan so that the requisite jobs will be created and permanent green cards can be obtained.

The immigration attorney also should give advice regarding any project timelines that affect the scope of the capital investment project because the development timelines are constrained by immigration timelines. Detailed construction timelines should be found in the Matter of Ho-compliant business plan. Id. at 213. Timelines relating to ongoing operations also should be included, such as lease-up dates for mixed-use spaces and projected dates of stabilized occupancy and/or revenues for leased spaces and hotels.

These timelines must be squared with the USCIS rules on timing of job creation. USCIS has stated that the Matter of Ho business plan and the economic report for the capital investment project must show that 10 jobs per investor will be created within 2 ½ years of I-526 approval. Donald Neufeld, “Adjudication of Eb-5 Regional Center Proposals and Affiliated Form I-526 and I-829 Petitions; Adjudicator’s Field Manual Update to Chapters 22.4 and 25.2 (AD09-38) (December 11, 2009). The jobs must be created by the time of I-829 adjudication (or will be created within a reasonable time) for the conditions to be removed on permanent resident status. 8 CFR §216.6(a)(4)(iv). See also USCIS Eb-5 Immigrant Investor Program Stakeholder Questions & Answers at 7-8 (June 30, 2011), AILA InfoNet Doc. 11050462. Therefore, it is important to stress to regional center clients that the timelines contained in the business plan should allow for reasonable project delays and that aggressive schedules should be avoided to minimize the risk that jobs are not created in time for investors to remove the conditions on their status.

Finally, the Eb-5 capital investment projects do involve the sale of securities. Securities counsel will draft a Private Placement Memorandum, Limited Partnership/LLC Operating Agreements, Subscription Agreements, and/or Escrow Agreements. These documents should be included in a regional center designation application. See Form I-924 Instructions at 3. These documents contain information regarding the capital investment projects. It is important for immigration counsel to review these documents for immigration-related provisions. For example, the offering documents cannot contain any guaranteed redemptions at a set price if the I-829 petition is denied. Matter of Izummi, 22 I&N Dec. 169 (BIA 1988). The offering documents also should be reviewed for consistency with the business plan and economic report.

Regional Centers as Businesses

It is easy to get caught up in the details of the capital investment projects when forming a regional center. It is equally important, however, to focus on the regional center’s ongoing business operations and its duties to immigrant investors. The regulations require the regional center to “provide a detailed statement regarding the amount and source of capital which has been committed to the regional center, as well as a description of the promotional efforts taken and planned by the sponsors of the regional center.” 8 CFR §204.6(m)(3)(iii).

As the immigration attorney, you must advise on the business of being a USCIS designated regional center. The regional center will require advice on regional center administration and staffing, due diligence on investors, immigration petition assistance for alien investors, and ongoing compliance with USCIS reporting requirements. The Form I-924 Instructions require a “regional center operations plan” that discusses the following:

1. Ongoing marketing and promotional activities, including a budget for those activities;
2. How investors will be recruited;
3. How prospective investors will be screened for lawful source of funds;
4. The ownership structure and control of the regional center entity; and
5. The fees, profits, surcharges, or other like remittances that will be paid to the regional center or any of its principals or agents through Eb-5 capital investment activities. See Form I-924 Instructions at 2-3.

The regional center client must understand that there is a commitment of funds required to the regional center, as well as a commitment to staffing the regional center to deal with both prospective investors and subscribed investors. The regional center must conduct due diligence on its investors’ sources of funds. The regional center is responsible for preparing the necessary regional center documents for inclusion into the I-526 and I-829 petitions, and distributing those materials to investors. Moreover, the regional center is responsible for tracking job creation for current capital investment projections, and determining which capital investment projects will be undertaken in the future. All of these issues should be discussed with the client, and incorporated into the regional center’s operational plan.

Practice Tip: Include two separate business plans in the I-924 application: one focusing on a specific capital investment project(s), and the other focusing solely on regional center operations.

Practice Pointer #2: Job Creation Methodologies and Inputs: Planning is Key

As part of the I-924 application process, the regional center will seek approval to utilize a certain economic methodology that will be used to predict job creation and regional and national economic growth as a result of its capital investment projects. The regulations require that a regional center designation application be “supported by economically or statistically valid forecasting tools, including, but not limited to, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and/or multiplier tables.” 8 CFR § 204.6(m)(3)(v).

An I-924 application must contain an economic report that describes several important points:

1. How the regional center will promote economic growth through increased export sales, improved regional productivity, job creation and increased domestic capital investment;
2. Provide in verifiable detail how jobs will be created indirectly through increased export sales; and
3. Contain a detailed prediction regarding the manner in which the regional center will have a positive impact on the regional or national economy in general as reflected by such factors as increased household earnings, greater demand for business services, utilities, maintenance and repair, and construction both within and out of the regional center. 8 CFR §204.6(m)(3).

Practice Tip: Be sure that the economic report discusses more than just the number of jobs that will be created through the capital investment project. The economic report also must focus on the benefits that the regional center will bring to both the regional and national economy as a result of the ongoing capital investment projects with a focus on increased sales, improved regional productivity, increased capital investment, increased household earnings, and greater demand for business services.

USCIS will approve the requested economic methodology for use in predicting the job creation resulting from the capital investment project(s), which will be listed in the regional center designation approval letter. Some of the methodologies commonly utilized by regional centers to predict job creation include RIMS II, REDYN, IMPLAN and REMY. These models project indirect and induced employment generally within the geographic bounds of the regional center. However, although USCIS has equivocated on the issue, it now appears to be recognized through adjudications that indirect and induced employment can be created outside of the regional center geographic boundaries if a credible case can be made as to why other areas of the country will benefit.

In reviewing an economic report in connection with an actual or exemplar Eb-5 business plan, the immigration attorney should focus on the following important points when reviewing the job creation predictions:

1. The economic report must be completely consistent with the business plan. The economic report will be premised upon certain input projections, which must come from the business plan, such as expenditures, revenues, direct employees, square footage, occupancy rate, etc.;
2. The economic report must be “transparent.” In other words, it should be clear from reading the report how the economist extrapolated job projection from the specific foundation facts;
3. As a practical matter, investors will generally want to see that the job creation is far more (20-30% more) than the minimum required; and
4. The immigration attorney should be concerned with overly aggressive “inputs.” If the aggressive estimates are not met, some or all of the investors may not be able to get their conditions removed.

Practice Tip: Equally important to the type of economic methodology selected are the factual inputs that form the basis of the job creation calculation. The key issue in most I-829 petitions is proving and documenting job creation. With most regional center applications, most or all of the projected job creation is based on indirect and induced jobs. In that case, the I-829 filing must document the foundation facts that were contained in the economic report. USCIS Eb-5 Immigrant Investor Program Stakeholder Meeting Presentation and Questions & Answers at 37 (June 30, 2011), AILA InfoNet Doc. 11050462. Depending upon the economic methodology used, the investor may need to prove some or all of the following: expenditures, revenues, direct employees, occupancy rates, etc.

Thus, it is important to focus the client on reasonable inputs. What is a reasonable expectation of tenant occupancy or hotel occupancy? What is a reasonable prediction of ongoing revenues from business operations? What is a reasonable calculation of the construction expenditures? How many direct employees really are required to run the business? The client needs to understand that this evidence must be collected over the lifetime of the project to support the job creation calculation at the I-829 stage for alien investors. The key to winning I-829 petitions for investors in the regional center is planning for the inputs and the job creation from the very beginning of the I-924 process.

#3: The Real Standard of Proof in an I-924 Application: Documenting the Application by Today’s Standards

The standard of proof for an I-924 application is the same as most other immigration applications: preponderance of the evidence. See USCIS Adjudicator’s Field Manual §11.1(c), Burden of Proof and Standard of Proof, available at www.uscis.gov/laws (revised January 11, 2006); See also U.S. v. Cardozo-Fonseca, 480 U.S. 421 (1987) (defining “more likely than not” as a greater than 50 percent probability of something occurring). With an I-924 denial rate of almost 60%, however, it is very important to document every aspect of a regional center application. Specifically, evidence should be included that relates to the regional center’s administration, marketing, funding and immigration oversight and also evidence that relates to the capital investment project(s).

Gone are the days when a regional center could be approved with a general plan regarding the industries that would be targeted along with a general economic impact report on the benefits to the regional economy. To meet the burden of proof in an I-924 application under today’s standards, generally the documentation submitted with an I-924 application will include most or all of the following:

Documents Relating to the Regional Center Administration

• A detailed map illustrating the contiguous geographical area of the proposed regional center, together with an explanation regarding the economic interdependency of the region;
• NAICS code for each industrial category sought;
• Economic Report;
• Operational plan for the regional center;
• Marketing plan and hard copy of any marketing materials;
• Organizational structure and budget of the regional center
• Corporate documentation for the regional center;
• Statement from the principal of the regional center that explains the methodologies that the regional center will use to track the infusion of each investor’s capital into the job-creating enterprise and to allocate the jobs created;
• Procedures the regional center will use to perform due diligence on the source of funds of the investors; and
• Plans to remain in compliance with ongoing USCIS monitoring requirements.

Documents Relating to the Capital Investment Project

• A business plan for an actual or exemplar capital investment project;
• Feasibility studies and/or other market analysis studies that have been undertaken in furtherance of the project;
• Documentation of the Targeted Employment Area (TEA);
• Draft Private Placement Memorandum;
• Draft Subscription Agreement;
• Draft Escrow Agreement;
• Proof of the investor’s involvement in the business; and
• Documentation of community or political support, and zoning approvals.

Practice Tip: It may be smart to advise your regional center client to obtain a feasibility study to bolster the Matter of Ho business plan for the capital investment project. The feasibility study should discuss the ability of the project to be successful under “current market and economic conditions.” See Form I-924 Instructions at 2. See also 8 CFR §204.6(m)(3)(v). The feasibility study can discuss the specific market conditions in the regional economy and the need for the particular project within that economy. Specifically in cases utilizing job creation through tenant occupancy or hotel visitor spending, it is a good idea to obtain a specialized market or feasibility study to prove a current or expected future demand for the project within the regional economy. The feasibility study can help connect the capital investment project to net new jobs created by tenants or visitors.

At the same time as the regional center requests designation, it can also file an application for pre-approval of its initial project. See Form I-924 Instructions at 1. This procedure is completely optional, and investors can file I-526 petitions without project pre-approval. Also, project pre-approval can be filed independently for subsequent projects. If the regional center opts for project pre-approval, it must file a complete package containing everything that would be required in an investor’s I-526 petition except the investor’s source of funds and path of funds. The advantages of project pre-approval are the possibility of avoiding multiple adjudications of projects and a clear marketing advantage. The disadvantages are that project pre-approval can add significant time unless it is filed concurrently with the I-924. Also, USCIS examiners often disregard the pre-approval.

Practice Pointer #4: Advise after Designation: Guide the Regional Center through the Business of Immigration

After an I-924 application is approved and a regional center has been officially designated by USCIS, pat yourself on the back because an approval is quite a feat. Then, get ready for round 2 of your representation: advising on the ongoing business aspects of dealing with immigrant investors and USCIS’ ongoing regional center requirements. This part of the representation is just as important as preparing and winning an I-924 application because many regional center principals have no experience in the business of immigration and dealing with foreign nationals.

Once approved, the regional center will market its capital investment projects to alien investors, and you may need to assist with questions from marketing agents. Once investors are identified, you can assist in the due diligence screening of investors and responding to investor questions. You can advise on regional center staffing and training, including assisting in developing systems to track data for prospective investors, I-526 filings, children age-out dates, RFEs, approvals, etc. The attorney can assist the regional center with developing template I-526 petitions for distribution to investors and responding to project-related RFEs on I-526 petitions.

Moreover, the attorney will need to give guidance to regional center staff on preparing for I-829 petitions, including developing systems and methodologies to monitor job creation, developing systems and methodologies to monitor information and documents necessary for preparation of I-829 condition removal petitions, developing systems to track condition removal dates, developing systems to track I-829 filings, RFEs, approvals, etc., dealing with material change issues and job delay issues, and responding to project-related RFEs on I-829 petitions.

In addition to dealing with investors, regional centers have ongoing reporting requirements. Every year, the regional center must file Form I-924 A providing, inter alia, the total amount of EB-5 capital invested; the amount of job creation; the industry focus; the number of approved and denied I-526 petitions; and the number of approved and denied I-829 petitions. See Instructions to Form I-924A, available at www.uscis.gov/forms. Each designated regional center must file the Form I-924A for each fiscal year (October 1 through September 30) within 90 days after the end of the fiscal year (on or before December 29) of the calendar year in which the fiscal year ended. Id. at 1. You can assist with annual reporting, including systems to track requested information on the Form I-924A. You also can assist with reviewing potential new capital investment projects that the regional center may develop or adopt.

Practice Tip: It is important to discuss all of the ongoing administration issues and immigration-related responsibilities up front. The amount of time and capital required to start the regional center and operate it are directly affected by these issues. Moreover, the regional center operations plan and the regional center budget are influenced by all of these considerations. Planning for the long-term administration of the regional center should be done up front as part of the I-924 and then implemented upon filing of the application.

Practice Pointer #5: Now I Need an Amendment? Know when to Notify USCIS of a Change

Certain changes in regional center operations could result in a need for a regional center to seek an amendment of its designation on Form I-924. Under current guidelines found in the I-924 Form Instructions, these include:

• Changes in the geographical boundaries of the regional center;
• Changes in the organizational structure or administration of the regional center;
• Adding new industry designations;
• Changing economic methodologies; and
• Changes to affiliated commercial enterprise’s organization structure and/or capital investment instruments or offering memoranda. See Form I-924 Instructions at 1.

Making the call on whether an amendment to the regional center designation is required can be difficult. USCIS has not definitively answered what factual scenarios require amendments, save for the list above. It is important to remember that if the regional center wants to undertake a new capital investment project, you must advise whether (1) the new capital investment project is within the approved NAICS industry clusters of the regional center; (2) whether the economic report prepared in support of the new capital investment project utilizes the same economic methodology; (3) whether the project will occur within the bounds of the regional center as it is currently approved; and (4) whether the new commercial enterprise associated with the project utilizes the same capital investment instruments (such as loaning money to a job creating entity, i.e. the “debt” model, as opposed to taking an equity stake in the job creating entity, i.e. the “equity” model).

In any event, it is important for counsel to be involved in the decision process for making changes to the regional center designation or adding new capital investment projects within the purview of the regional center. If USCIS finds an amendment was required but was not sought (or was sought but is not yet approved), I-526 petitions filed by aliens could be denied.

The regional center EB-5 option is a classic win-win-win program. Developers are able to move forward with projects that otherwise might not have sufficient financing; jobs are created; and investors get green cards. This has spurred the rapid growth of USCIS-approved regional centers. Filing a successful I-924 application is only half the battle. Competent and ongoing representation of the regional center also is necessary. By following these practice tips, you will be playing a part in improving the regional and national economy and assisting investors obtain the American dream.