A Perspective of EB5
Beyond filing immigration forms for the foreign investor
A
program under the immigration laws known as EB-5 is a hot topic in the
construction world as developers learn how to fund projects through foreign
investment capital. EB-5 (short for the fifth preference employment based
category for immigrant investors) has been around since 1990. Coined as the
“Million Dollar” visa, Congress created the program to stimulate the U.S.
economy and to generate U.S. jobs. The creation of this program marked the
first time in the history of immigration law that a foreign national could
acquire Lawful Permanent Resident Status (“Green Card”) through investment.
In
order for a foreign national to qualify under the EB-5 Program, the investor
must demonstrate that he or she has invested, or is actively in the process of
investing in a new commercial enterprise within a government-designated
Regional Center. The required investment is $1 million of foreign capital
unless the investment is made in an area experiencing high unemployment or in a
rural area (collectively known as Targeted Employment Areas (TEA.) Investments
located in a TEA are reduced to $500,000. Additionally, whether the area is a
TEA area or not, the investment must be shown to benefit the U.S. economy and
create at least 10 full-time (35 hours) jobs.
As
an adjunct to the EB-5 program, Congress later created a Pilot Program under
the EB-5 mantle allowing foreign nationals to invest the required capital in
government-designated commercial enterprises known as “Regional Centers.” A
Regional Center is any economic unit, public or private, engaged in the
promotion of economic growth, improved regional productivity, job creation, and
increased domestic capital investment.
Fortunately,
EB-5 Regional Centers (as opposed to the basic EB-5 program where jobs must be
direct jobs only), have significant latitude in calculating job creation. That
is, jobs may be either direct (those jobs that establish an employer-employee
relationship; indirect jobs (these jobs include employees of the producers of
materials, equipment, and services that are used by the commercial enterprise)
or induced jobs (those jobs created when direct and indirect employees go out
and spend their increased incomes on consumer goods and services.) All EB-5
investors must prove the source of the investment funds, and put those funds at
total risk. If the project fails, the investor’s loses the investment. Or, if
the investment does not result in creation of the required ten jobs, the
investor does not obtain the green card.
There are a variety
of ways to structure a Regional Center. In the typical structure, investors are
offered the opportunity to purchase a Limited Partnership interest in the new
commercial enterprise within the Regional Center. As a Limited Partner, the
investor receives all the rights and obligations entitled under the Uniform
Limited Partnership Act of the particular state where the investment is made.
In reality, without a Limited Partnership arrangement, it would be difficult,
if not impossible, for a group of EB-5 investors to participate in large EB-5
projects. Essentially, without the presence and participation of a General
Partner and the structures imposed by a Limited Partnership, nothing would get
accomplished. This is common practice in commercial settings. Rights of Limited
Partners are, in fact, limited, and the EB-5 law specifically
acknowledges this arrangement because of Congress’ recognition that without
such partnerships, large EB-5 Regional Centers would be dysfunctional and would
ultimately fail. If a foreign investor’s objective is to direct and control his
or her own majority share in a new commercial enterprise, that investor is
better off steering away from the Regional Center Program and pursue another
avenue to obtaining green card status.
Another
point to be made is when a Regional Center forms a Limited Partnership; the
Regional Center must comply with federal and state laws in conducting the
offering of securities. In light of the fact that the investor’s focus is on
the EB-5 for the purpose of attaining the green card, often the parties
involved, including the investor and the principals within the Regional Center,
have no idea that the Regional Center is offering a security with implications
under the Securities Exchange Commission (SEC.) The Securities Act requires that
al securities sold must be registered with the SEC, unless exempted by the
rules. The good news is the Limited Partners may claim exemption from SEC
registration requirements so that no formal registration statement needs to be
filed with the SEC in connection with the EB-5 offering.
This
exemption is found in what is known as Regulation D, which says that if all
investors are “accredited” investors then there are no informational
requirements. An accredited investor is defined as a person whose: (1) individual
net worth, or joint net worth including that person’s spouse, at the time of
the purchase of the securities exceeds $1 million; (2) individual income
exceeds $200,000 in each of the two most recent years and who expects to reach
that income level in the current year; or (3) joint income including that
person’s spouse exceeded $300,000 in each year of the two most recent years and
who expects to reach that income level in the current year.
Notwithstanding
the benefit of the exemption, foreign investors should recognize that the
investment does involve a securities offering and that not every investment in
a Regional Center is safe, and that not every investment will actually result
in a green card. Because of this and due to the large amount of capital to be
put at total risk, prospective investors are strongly encouraged to make an
independent examination of the books, records, and other documents of the
Limited Partnership, alongside of questioning the appropriate officers and
directors to the extent necessary so they may analyze the risk elements and
clearly understand each and every element of the offering presented to them. In
fact, the wise EB-5 investor should turn to independent professional advisors
before taking any action whatsoever or making any final decisions with respect
to the Limited Partnership.
Currently,
there are many Regional Centers across the U.S., a list of which is found on
www.HackleyRobertson.com. Of course, the old adage “Buyer Beware” comes into
play here because all Regional Centers are not created equally. As noted above,
savvy investors will look into the inner workings of several Regional Centers
with an eye toward the low risk projects which clearly demonstrate a realistic
plan for economic growth and job creation. This means Regional Center
administrators must retain impeccable records and be prepared to answer
investor questions and be ready and willing to produce documentation related to
their financial projections, capital structure, accounting policies, market share,
cost structure, marketing sales, distribution forecasts, and other similar
documentation.
Upon
weighing the risk of financial loss against the immigration benefits to be
derived, investors are increasingly opting to immigrate through EB-5 Regional
Centers so long as they are well structured, sound, and low risk. Let’s take a
look at a simple hypothetical. A developer engaged in the development of a
parcel of land upon which a $1.5 million mixed-use hotel complex will be built.
In this hypothetical, the developer has acquired some domestic funding, but is
of the belief that the infusion of foreign-based capital will catapult the
project to completion within an approximate five year period. Having become
aware of the mutual benefits offered by the EB-5 Program, the developer
requests advice from an immigration lawyer as to whether the proposed project
meets the EB-5 Regional Center requirements.
Before
the lawyer may formulate a legal opinion, he or she must consider a variety of
factors, such as the nature of the business, the construction budget, and make
other critical preliminary assessments. For instance, the lawyer will contact
an experienced EB-5 economist to determine whether the geographic area
surrounding the project constitutes an area of high unemployment. This is
essential because unless the project is located in a TEA (where the
unemployment is at least 150 percent of the national average or in a rural
area) the required capital investment is no less than $1 million. That
investment is cut in half if the investment is situated in a TEA. A reduction
in the investor’s capital outlay to $500,000 will obviously increase the number
of interested investors and in turn increase the overall success of the
project. In fact, the consensus amongst EB-5 experts is that investments
requiring the $1 million will fail miserably and the Regional Center will
ultimately lose its designation for failure to fulfill its obligation to
stimulate the economy and create jobs.
Let’s
next assume that our hypothetical project is situation within targeted
employment area boundaries. The immigration lawyer will make a preliminary
evaluation of the strength of the enterprises’ business plan, and the amount of
foreign capital needed to assess the likelihood the project will ultimately be
able to show the required jobs for each investor. If the project fits the EB-5
requirements, the immigration lawyer will set the plan into action. First, the
lawyer will select and quarterback a professional team to include (1) an
experienced EB-5 economist to prepare the job impact analysis using reasonable
methodologies forecasting the number of direct, indirect, and induced jobs
expected to be created as a result of each $500,000 invested. The economic
analysis should also contain the time-frame before expiration of which the
requisite jobs are supposed to be rated because the requisite job cannot be
created after the investor receives his or her green card. Of course the
analysis must demonstrate that the project is located in a Targeted Employment
area; (2) an attorney well versed in Securities and Exchange law who will draft
the Limited Partnership Agreement, Private Placement Offering, the Subscription
Agreement, and other documents required under the securities law; and (3) an
expert business plan writer who will prepare the comprehensive business plan
which demonstrates in verifiable detail the nature of the business, full market
analysis, construction costs, how and when the project will create jobs,
projected timeframes, and an understandable exit strategy.
With
these documents in hand, the immigration lawyer will write a detailed
Memorandum of Law demonstrating how and why the project meets the EB-5 Regional
Center requirements. The attorney then files the Application with the USCIS
where it will undergo thorough scrutiny by well trained Adjudication Officers
who will hand down a decision approximately four months from the filing. If the
project is approved and receives Regional Center designation, the next step is
to identify accredited foreign nationals. There are a multitude of promotional
and marketing companies who refer accredited investors to Regional Centers.
While it is beyond the scope of this article to review how SEC laws affect
marketing strategy, suffice to say that Regional Centers will want to check out
the practices of such promoters to ensure that their methods are in compliance
with the applicable securities laws.
Once
the accredited investor is identified and introduced to the Regional Center
project through procedures conforming with SEC law, and upon execution of the
relevant subscription agreement, the foreign national will begin the green card
petition process with the USCIS. Under the guidance of an independent
immigration lawyer (not the Regional Center lawyer,) the foreign investor will
file the relevant immigration Petition, known as the Form I-526 supported by
documents to include proof that the new commercial enterprise identified on the
Form I-526 is affiliated with a Regional Center. Critical to the I-526 process
is setting forth proof that the source of the investor’s funds is derived from
a lawful source. EB-5 law mandates that the source of the investment capital is
lawful, and that the capital originated from investor’s personal funds. This
means the Form I-526 must contain detailed documentation regarding the
investor’s financial background for over the last five years. For example, the
Form I-526 may include tax returns, employment earnings, stock sale, gift, loan
proceeds, sale of real property or business, bank statement reflecting outgoing
transfers, and similar tracing background information.
Upon
notification of approval of the Form I-526, the foreign investor will proceed
through the U.S. Embassy located in his or her country of nationality for
issuance of the immigrant visa allowing the investor to be admitted to the U.S.
as a Conditional U.S. Lawful Permanent Resident. Investors already present in
the U.S. pursuant to an unexpired work permit, or other lawful nonimmigrant
status, may petition for the conditional green card directly in the U.S. on
what is called the Form I-485. Whether the investor processes inside or outside
the U.S., spouses and unmarried children under the age of 21 will also receive
conditional green cards. Thereafter the investor has two years to meet the
pertinent requirements to have the condition removed.
In
other words, no sooner than 90 days prior to reaching the two-year mark as a
conditional permanent resident, the now Conditional Permanent Resident must
file for removal of the condition so that their immigrant status becomes
permanent. The removal of the condition is accomplished by filing the Form
I-829 with the USCIS. It is at this point in time that the investor must
demonstrate that their investment was sustained over the full two year period
and that the promised jobs were created.
Initial
participation in the EB-5 program was low because of a combination of investor
uncertainty and a flawed adjudication system. Even after the creation of
Regional Centers, the program meandered for years until positive amendments in
the law allowed Regional Centers to comport with real work commercial
requirements. The year 2009 saw a sharp increase in the number of Regional
Centers alongside of an increase in approved investor petitions. In the year
2010, we are likely to see the program blossom as developers reap the benefits
of foreign capital over bank financing, as investors experience the program as
a viable path to the green card, and as United States citizens enjoy the
creation of much needed jobs.
ALL
Regional centers are not safe or reliable.
The
process for a foreign investor to invest
in an USCIS approved EB5 regional
center still involves great risk, following steps before foreign investor
client should make the investment of $1000,000 or $500,000
- Comparison of the approved Regional Centers;
- Financial projections of the project;
- Experience of the Principals;
- Assessment of business plan and exit strategy;
- Assessment of risk;
- Monitoring client deposits;
- Review of all legal documents;
·
The attorney will also have to do the following due diligence:
- What is the projected return on investment? (in Prospectus)
- Obtain documentation of returns on past EB-5 investment projects.
- How many projects has EB-5 company completed?
- May EB-5 applicant need to invest additional money over and above $500,000 at a later date?
- Does EB-5 project have U.S. investors as well as immigrant investors?
- Does applicant get interest on money until it is spent on EB-5 project?
- When is the return paid? Monthly, yearly, end of project.
- How is the return determined?
- In Subscription Agreement or Purchase Contract, is there a provision for return of money if I-526 denied? How much is refunded?
- Does the investor have to make any deposit or pay any fee for the offering materials?
- What is the amount required to be paid by the investor?
- Does the Regional Center provide regular reporting of the status of the investment to the investors? At what intervals?
- Does a referring attorney get any fee from the Regional Center? How much?
- Has any Regional Center project lost money? Been in default? Investors lost money? Any law suit?
Investors
Immigration Due Diligence
- How many I-526 approvals?
- How many I-526 denials? Reasons?
- How many Conditional Green Card approvals?
- How many Conditional Green Card denials? Reasons?
- How many Removal of Conditions approvals?
- How many Removal of Conditions denials? Reasons?
Investors
Due Diligence of Regional Center. Will Regional Center company and principals
be in business in the future for Removal of Conditions?
- Obtain Bank reference of EB-5 general partner and/or principals
- Obtain Dunn and Bradstreet on general partners and/or principals.
- Any past law suits? (Regional Center, general partners or principals)
- Any past criminal convictions? (general partners or principals)
- When was Regional Center established?
- How long has EB-5 company been doing business? Any previous business?
- When can the investment be sold? When can client get money ($500,000 or $1000,000) back? How many investors have received return of investment?
- How is the amount determined?
- How many years of experience does the general partner or principal in the investment project have in working with immigrant investor programs?
PLEASE CONTACT LAW OFFICE OF HUMA KAMGAR,, ATTORNEY AT LAW
@ 212-323-6887
VISIT: www.asylumanddeportation.com