On October 11, 2023, USCIS published long-awaited guidance on the sustainment period for EB-5 investors — the period during which an investor must maintain their investment at risk in order to qualify for an EB-5 visa.
This new guidance applies only to investors who file an I-526 or I-526E petition on or after March 15, 2022. The sustainment period for earlier investors has not changed and is still the two-year conditional residence period.
The EB-5 Reform and Integrity Act of 2022 (“RIA”) added language specifying that an investment must be contemplated to last at least two years. The RIA also removed the statutory language requiring an investor to maintain their investment through the end of the two-year conditional residence period.
Unfortunately, the law itself does not specify which two-year period now applies. Industry stakeholders have been asking USCIS to publish guidance since March 15, 2022, and on October 11, we finally got what we asked for.
The new guidance specifies that the investment period is two years from the date of investment.
Is the required period actually two years?
But is really just two years? The short answer is probably not.
The new guidance specifies that the two years is not just from the time the money is invested into the New Commercial Enterprise (“NCE”), but when it is deployed to the entity most closely responsible for job creation (the “JCE”).
Where the NCE and JCE are the same entity, then the period might actually start on the date of investment. Where the NCE and JCE are separate, the clock does not start to run until the money is deployed to the JCE.
Additionally, the guidance specifies that the investment must be sustained until the jobs are created, even if that is more than two years, and that if the investment happened more than two years before the petition is filed, the investment should be maintained until after filing even if the jobs have been created.
Regardless of the current law or USCIS policy, investors continue to be bound by the terms of the investment agreements they enter into. If those agreements provide for a longer investment term, that term governs the investment. It may be substantially longer than two years.
Finally, regardless of what the law and investment agreements say, an NCE or JCE must have money to return to investors in order for anyone to get repaid. This may or may not happen in two years.
In the fashion that we have become long accustomed to from USCIS, the guidance raises at least as many questions as it answers.
For instance, what happens when jobs are created before the investment is made? An EB-5 investor can count jobs resulting from all investments in a project, not just the EB-5 investment, so it is possible that a project has created jobs with non-EB-5 money prior to receiving EB-5 funds.
EB-5 funds may, in certain circumstances, replace bridge financing used to pay job creating costs prior to the investment of the EB-5 capital. We don’t know that USCIS will not create a different rule for job creation in this context.
How will this policy affect the bridge financing policy in general? If an EB-5 investment is only expected to last two years, how long can a bridge loan be to still be short-term and temporary?
We think that the answer varies in the real world, and could be one, two, or more years and still be short-term and temporary.
For example, we believe that a construction loan is always short-term and temporary and intended to be replaced with more permanent financing, but a construction loan may be longer than two years, and despite repeated requests for clarification from the industry, USCIS has not provided any guidance.
Do investors really want a two-year investment period?
Aside from the uncertainties above, the commercial reality is that real two-year investments may be rare, especially in EB-5, where there is a job-creation benefit for projects where construction lasts more than two years.
Projects beyond a certain size often take more than two years to complete. Many types of projects, such as hotels, restaurants, or other businesses, need a period of time after construction to ramp up to what we call stabilization- the time when the business reaches its projected revenue level consistently.
Prior to this period, it may be difficult to sell or refinance a project. Without selling or refinancing the project, the developer may not have the cash to repay an EB-5 loan.
We typically see businesses projected to reach stabilization two to three years after completion. Developers of these projects realistically do not want EB-5 money for two years. They need it for longer.
Certain types of projects may work with a two-year investment horizon. Fixing and flipping houses and developing condos (provided you can sell them at the time they are completed) come to mind. But even this often takes more than two years.
Some businesses that may need money for two years include cash-strapped developers that are running out of money halfway through a project, or projects that have run significantly over budget and need cash to finish. These can be risky investments, as these are distressed projects, and may have limited upside or limited ability to repay all the debt.
While we think that the change in the law was intended to protect investors from unforeseen circumstances like visa backlogs and USCIS processing delays which led to much longer-term investments under the prior rule than many investors had contemplated, we advise caution.
The investment term is not exactly two years under the rules. The investment term is governed by contract as much as by the law and USCIS policy.
Finally, a developer or project promoter may simply be unable to deliver on a promised two-year time frame.
The bottom line is an investor must still carefully evaluate all aspects of a prospective EB-5 investment. The promised investment horizon is only one factor. It does not help the investor if the money comes back in two years but the investment does not comply with the EB-5 requirements.
Similarly, read the investment contract carefully. There may be (and in fact should be) exceptions to the two-year time frame.
Finally, evaluate the economic and immigration risks of the project and the likelihood that any promised investment horizon will be met.
For more information, schedule a consultation with Klasko Immigration Law Partners.
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