The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.
In my last blog, I delineated my thoughts on the most important insights to be gleaned from the February 26 stakeholders meeting. This blog will focus on some of the most important issues that went unanswered.
For at least the third time during the period of the last two years, USCIS stated that it has not formulated its position on a critical issue that arises on many EB-5 projects. What if a developer wants to refinance after the completion of construction with the result being that the loan to the new commercial enterprise is repaid? What if the project is sold with the same result? Let’s assume that the NCE either uses the money to invest in another project or holds the money. In either event, no money is released from the NCE to the investors until they remove conditions. USCIS has again stated that it is “currently reviewing” this issue.
In my opinion, this event should not prejudice the EB-5 investors for reasons of both law and policy. From a legal perspective, the key issues for condition removal are whether the investment has been sustained and whether the jobs have been created. The investment that must be sustained is the investment in the new commercial enterprise. In these examples, the investment in the NCE is sustained. The jobs that must be created have presumably all been created (especially assuming the jobs in question are construction jobs). From a policy perspective, developers should not be precluded from making normal business decisions after all jobs have been created. USCIS should not be creating policies that result in the potential removal of investors who sustained their investments, especially where the investments have accomplished their job creation purposes.
Another issue that USCIS stopped just short of answering is the question of whether there is any temporal limitation on the use of EB-5 money to replace bridge financing or equity. USCIS restated its policy as articulated in the May 30, 2013 Policy Memorandum that EB-5 money can get credit for job creation if it is issued to replace debt or equity that is temporary in nature. At one point during the call, USCIS seemed to indicate that it does not matter how late the EB-5 money comes in to replace the bridge money, even if the construction is completed by that time. However, on a follow-up question, USCIS seemed to backtrack, indicating that USCIS will decide if additional clarification or guidance is needed to deal with a scenario where all of the jobs are created before any EB-5 money comes in. Especially with the increasingly lengthy processing time for I-526 petitions, it will be more and more frequent for EB-5 money to come into projects to replace bridge money after construction is completed. USCIS should state clearly and unequivocally that there is no time limitation as long as the EB-5 money is replacing temporary debt or equity.
USCIS responded to a question whether there is any violation of the “at risk” or “no guaranteed redemption” requirements if a developer or general partner – but not the investor – has the option to redeem the investment at a fixed amount. It appears to me that this question is appropriate for a direct answer – that this scenario creates no guaranteed redemption or at risk problem. Unfortunately, USCIS did not provide a direct answer to the question. USCIS stated that it would review the evidence to determine if there is a risk of loss and a chance for gain. This is certainly a true statement, but it does not answer the question.
Finally, USCIS confirmed that geographical expansion of a regional center must be to an area “contiguous” to the already-approved area. However, USCIS did not confirm how wide the geographical area expansion can be other than to state that it cannot extend from New York to California. USCIS should confirm that expansion can be to an area that may be a significant distance from the already approved area as long as the expansion includes all contiguous areas necessary to connect the new area with the original area.
Hopefully, USCIS will address these and other critical issues at the next stakeholders meeting scheduled to be held in late spring or early summer.