How to Achieve Success Obtaining the EB-5 Green CardOctober 20, 2021
True Success in the EB-5 Green Card Pursuit: Removal of Conditions
The marketing efforts of regional centers trying to stand out from the crowd can sometimes blur the most important objectives of any hopeful immigrant investor. In a traditional business investment, success may be defined by ROI. But from an EB-5 immigration perspective, true success is achieved with the removal of conditions on the investor’s conditional permanent residence (“Green Card”) through the I-829 petition process. After all, achieving the milestone of unconditional Green Card is the reason any immigrant investor even considers making an EB-5 investment.
Investors should truly understand that USCIS approval of a regional center may be based on a general plan for promoting EB-5 investment, and that even USCIS approval of the I-924 application for a specific EB-5 “project” is based on a plan for intended future investment and business activity. USCIS consideration of the investor’s I-829 petition for removal of conditions is inherently different, because USCIS reviews what actually occurred with the investment and business and necessarily involves consideration of successful execution of the investment plan. This fact reveals that investors need to consider not just general plans for investment and business, but also the roles, responsibilities and competence level of the various players involved in execution of the plan. In turn, investors should consider that regional centers and the services they provide can be very different.
Some regional centers are issuers and aim to align their upside with that of the investor by engaging in substantial pre-investment due diligence and oversight/monitoring of business activities, other regional centers are raising EB-5 capital to help fund their own development projects, and still other regional centers do none of the above. Whether it is the regional center or a different entity that claims to be looking out for the investor’s interests, the investor must consider that the individuals and organizations issuing and managing regional center investments are very diverse and have varying levels of experience and expertise. It is crucial to understand that ultimate success at the final I-829 petition stage is not the automatic outcome produced by an afterthought; instead, the investor, the investor’s counsel, and all stakeholders committed to the investor’s success must consider the I-829 petition process before the investor ever makes the investment.
Where there is I-829 petition success, there typically is found also an experienced and professional team that is committed to the investor’s success. Assembling that team before an EB-5 offering is made available to the marketplace can help make the I-829 petition process smooth and easily executable. USCIS approvals of I-924 applications and I-526 petitions are great, but because those approvals are only based on prospective and projected fact patterns, a team that can prove their ability to execute on their plan and navigate the challenges of a project under development as well as the evolving landscape of USCIS policy is an invaluable asset to the investor focused on the ultimate immigration objective.
A conservative approach to EB-5 program compliance in the structuring of the EB-5 offering is far more likely to aid the investor’s immigration quest. Placing your trust in experienced economists using approvable job creation models, maintaining a limited reliance on direct job creation for regional center projects, and avoiding the overleveraging of EB-5 as a funding source can all be ways to mitigate failure at the I-829 stage. Past industry failures have seen projects fall short on job creation or have their job creation methodologies challenged due to improper application, in many cases trying to stretch the overall job creation attributable to a project. These are things that can be the difference between an investor living their American dream or facing deportation.
In EB-5 compliance, documentation is key. Building a Matter of Ho compliant business plan serves as the road map for success at the I-829 stage. Properly identifying the intended uses of EB-5 funds, identifying a clear nexus between the EB-5 capital to the job creation, and properly structuring and identifying the mechanics of any bridge funding to be replaced by EB-5 capital can serve as the blueprint for supporting job creation at the I-829 stage. Over the years, the use of bridge financing strategies has become more and more prevalent, but regional centers and investors should proceed with caution. Many apparently think that the easy path to ensuring removal of conditions is to invest into a project where the jobs have already been created at the time of their investment. Doing so may present several challenges that need to be carefully thought out in advance. The bridge financing policy of USCIS could be very narrowly applied. USCIS will certainly consider how strongly related the EB-5 investment is to the jobs that have been created.
From the perspective of the investor, preparation starts with pre-investment due diligence. Understanding the reasonableness of the “inputs” to the job creation model (that is, future construction expenditures and/or future operating revenues), and identifying the ongoing roles and responsibilities of the individuals entrusted with project execution and oversight should be paramount in the due diligence exercise. Many believe that evidence of entitlements and construction permits, non-EB-5 funding sources, construction contracts, etc., are all due diligence items needed in order to receive the initial I-526 approval and they are. USCIS looks for these items to determine the likelihood that jobs will actually be created and so should investors. However, I-829 petition approval is a different matter. Unforeseen construction delays due to permitting and financing shortfalls are things that can stall job creation, and timely job creation is vital evidence for the I-829 stage. Further, identifying who is responsible for monitoring the project during construction, the use of the EB-5 funds, and the use of those funds for ongoing job creation should all be outlined ahead of time.
In the scenario where the regional center-sponsored entity raises EB-5 capital and makes a loan to a developer or project, the clear delineation of the responsibilities of the job-creating enterprise (“JCE”) may be the difference between a risk mitigated project and a project set up for failure. The offering documents as well as the loan or operating agreements governing the funding of the JCE should clearly outline how the funds can be used and the requirements for completion of the planned project. Requiring third-party fund control agents and a draw review process can provide transparency during construction and can allow the regional center to analyze EB-5 job creation progress in real time. The documents should also clearly state who will be responsible for cost overruns, completion guarantees and the process of subordination should additional debt funding be required for the project to reach completion or to navigate operational challenges. During and after construction, several reporting requirements should be stated in the documents to not only provide a clear understanding of the project’s performance, but also to address the EB-5 job creation as envisioned, whether it be through spending and operating revenue models or direct job creation when applicable.
In today’s EB-5 program, adjudication and visa availability backlogs have created new challenges to prepare for. Planning for redeployment of EB-5 investor capital should also start with the initial structure of the EB-5 offering. Part of the removal of conditions stage is not only demonstrating job creation, but demonstrating that the investor’s capital remained fully invested and at risk throughout the 2-year conditional permanent residency (“sustainment period”). Over the years, it has been clear that only a few regional centers have anticipated this need and have developed cogent plans for accommodating this possibility. Unfortunately, many other regional centers have belatedly scrambled to adjust their documents to best navigate these challenges. Combined with evolving USCIS policy, an ill- prepared group could mean the investor’s immigration aspirations are clouded by immense uncertainty and haphazardly conceived strategies.
Finally, it should not be undersold that the adjudication timelines for I-829 petitions have grown steadily over the years. As of late August 2021, USCIS processing times for I-829 petitions ranged from 32.5 to 63 months – or, 5 years. USCIS policy allows for the investor to become eligible to receive the return of their capital investment with the completion of their sustainment period. This could be roughly the same time in which the investor will file their I-829 petition. Meaning, it is possible under USCIS policy that the investor could exit from the investment, even though the I-829 petition could remain pending for many more years. But does the agreement for investment permit an exit, or is the exit depending on I-829 petition approval? This is an important consideration for pre-investment due diligence.
During pre-investment due diligence, investors should ask how the critical project information and job creation results will be shared with themselves and their filing attorneys for the preparation of the I-829 petition. Knowing that the group you’ve placed your trust in is an experienced team of professionals to take on these tasks will allow you peace of mind that your removal of conditions process will be organized and smooth. Also keep in mind the need for ongoing assistance with documents may extend beyond the time the investor remains an owner, if USCIS should issue a request for further evidence sometime after the investor has taken advantage of an exit provision in the governing documents.
USCIS policies and adjudication trends may change. In addition to having a team that can monitor the project, the regional center should also remain a student of the industry throughout their investors’ immigration life-cycle. Regional centers and their counsel should study notable court decisions, should analyze case studies on notable EB-5 successes and failures, and should remain aware of the most recent USCIS adjudication trends. Doing so will allow the regional center to remain knowledgeable of any potential pitfalls and prepared to address changes in the documentation process that can be addressed well prior to the point in which the investors file their I-829 petitions.
Careful planning and diligent follow through goes into preparing each investor for the removal of conditions phase. All involved must keep their eyes on the prize each step of the way. For investors, it is important to understand that there is no expedited processing or promised rate of return that can overshadow the importance of proper due diligence and placing your trust in a regional center with a proven track record at the I-829 stage.
Original Posting IIUSA Magazine October 2021 pages 37-38