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No more EB5 job creation through tenant-occupancy models: New USCIS policy reduces availability of immigrant investor funds to create jobs for Americans

On May 15, 2018, USCIS revised its Policy Manual, effective immediately. The agency will no longer count the jobs created for US workers through tenant occupancy of EB5 properties. The result of this change is to reduce the amount of immigrant investor funds available to create jobs for US workers.

“EB5” refers to the US employment-based fifth preference immigrant visa. EB5 is a program (sometimes called “traditional EB5”) Congress created in 1990 to stimulate the US economy through job creation for US workers using investment by foreign investors. In 1992, Congress created the Immigrant Investor Pilot Program (regional center EB5), a temporary program that Congress has repeatedly extended, most recently through September 30, 2018. (See our previous posting “EB5 immigrant investor visas are available again”).

Both types of EB5s generally require that at least ten full-time equivalent new jobs for US workers be created by each immigrant’s investment. A key advantage of a regional center EB5 is that “indirect” and “induced” jobs are included in the job creation count (in addition to “direct” jobs), whereas a traditional EB5 counts only direct jobs.

Direct jobs refer to US workers employed directly by the business that received the EB5 investment. Payroll tax records show direct jobs. Indirect and induced jobs refer to employees of other business as a result of EB5 investment. The calculation of indirect and induced jobs is based on an economic analysis using models accepted by USCIS.

The “tenant-occupancy” model counts job creation by independent tenant businesses that lease space in buildings developed with EB5 funding. In the past, USCIS accepted the tenant-occupancy model.

USCIS’ skeptical attitude toward the tenant-occupancy model can be traced back to early 2012 when it rolled out a Request for Evidence (RFE) template for tenant occupancy seeking evidence that the projected jobs attributable to prospective tenants would represent only newly created jobs, and not jobs that had merely been related from another location. In December of that year, USCIS issued “Operational Guidance for EB-5 Cases Involving Tenant-Occupancy,” which clarified that to claim tenant jobs, the economic analysis must project the number of newly created jobs that would not have been created but for the economic activity of the EB5 commercial enterprise. In making that projection, the claimant must use economically and statistically valid forecasting tools. USCIS made determinations on a case-by-case basis and would generally require an evaluation of the verifiable details provided and the overall reasonableness of the methodology as presented.

The 2012 memo suggested two ways to demonstrate a causal relationship between the EB5 investment and tenant jobs:

  1. “[M]ap a specific amount of direct, imputed, or subsidized investment to such new jobs” (i.e., “show an equity or direct financial connection between the EB5 capital investment and the employees of the prospective tenants”); and
  2. Utilize a “facilitation-based approach,” seeking to “demonstrate that the economic benefits provided by a specific space/project will remove a significant market-based constraint” and “result in a specified prospective number of tenant jobs that will locate in that space.”

Beginning in 2013, USCIS modified its tenant-occupancy model position. The agency’s RFE template identified the following three distinct areas of concern:

  1. Will there be tenants to occupy the space once construction is completed?
  2. Will the tenant jobs be “new jobs” and not “merely relocated”?
  3. Are the job creation estimates based on a reasonable and transparent methodology?

Over the years, practitioners in the EB5 field have reported that in tenant-occupancy cases, USCIS, when issuing RFEs or Notices of Intent to Deny, tended to require EB5 immigrants to either (i) remove tenant jobs from the job creation calculation; or (ii) submit additional evidence that shows by the preponderance of evidence (more likely than not) that the tenants will be there to occupy the commercial space when the project is finished, that the tenant jobs are not merely relocated from another commercial space within the same geographical area, and that the estimated number of tenant jobs is a reasonable estimate.

Given the lengthy adjudication time, the capital at stake and the uncertainty involved, many EB5 immigrants gave up claiming tenant jobs. Subsequent formulations of EB5 projects largely steered away carefully from the tenant-occupancy methodology to avoid potential issues.

Now, USCIS has formally rescinded its previous guidance and will no longer consider tenant-occupancy methodology. The agency will continue to give deference to Form I-526 and Form I-829 petitions directly related to previous approved projects, absent material change, fraud or misrepresentation, or legal deficiency of the prior determination.

USCIS is accepting comments on the new policy until May 29, 2018.

Full text of the agency’s Policy Alert can be found here. Dentons represents regional centers, EB5 investment programs and individual investors on both traditional and regional center EB5 programs. Please contact your Dentons lawyer for more information.

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No more EB5 job creation through tenant-occupancy models: New USCIS policy reduces availability of immigrant investor funds to create jobs for Americans

EB5 Escrow FAQ

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The employment-based, fifth preference immigrant visa (EB5) is an increasingly popular way for foreign nationals to immigrate to the United States by making a business investment that creates jobs for American workers.  EB5 is also an important source of business investment for local governments and entrepreneurs in search of funding for business development.  Lengthy processing times by US government agencies and the types of escrow terms used on many projects have delayed the creation of jobs for American workers, and increased the likelihood of denial of the EB5.  Now is the time to better understand and re-evaluate the EB5 escrow.

Here is a list of frequently asked questions regarding EB5 escrow intended to help Regional Centers, developers, and foreign investors to better understand how use of an escrow can hurt the chances of getting conditional residence and getting the condition removed two years later for the permanent residence.

Frequently Asked Questions – EB5 Escrow

What are escrow provisions for EB5?

For those EB5 projects that have escrow provisions, the escrow typically works as follows:

First, each immigrant’s funds are held by a financial institution and are not directly received by the new commercial enterprise (NCE) in which the immigrant invested.  The funds remain there and cannot be accessed by the NCE to create the jobs for American investors required for EB5.

Second, the immigrant’s investment funds are released to the NCE only after the US Citizenship and Immigration Services agency (USCIS) finally completes its long, slow process to make a final decision on the Form I-526 immigrant petition.

This process is repeated for each individual immigrant.  The result is that funds trickle into the NCE slowly.  USCIS processing times vary, but are always very slow. The USCIS web site reports an average processing time of 13.4 months as of June 30, 2014, but that only reflects how long it takes before the agency begins to work on a petition.  The USCIS also reports that investor petitions awaiting adjudication are at an all-time high.  Requests for Further Evidence (RFE) are very common and the time it takes for the agency to prepare the RFE, for the immigrant to prepare a response to the RFE, and for the USCIS to then make a final decision often means the I-526 approval often takes 2 years.  If funds are held in escrow during that time, then the funds are unavailable to create the jobs and the project is delayed for all investors.

There are many reasons why an RFE may be issued, but one of the most common is because the USCIS wants further documentation to show how the funds will be used to create the required jobs.  In cases where the funds are immediately available and job creation starts sooner, it is easier to minimize the risk of an RFE and to successfully respond to an RFE by showing how the funds are already being used to create jobs.  In contrast, the USCIS has delayed/denied I-526s where a business plan timeline is substantially delayed, even though the delay is a result of funds being held in escrow longer than intended due to slow USCIS processing times.

Does US law require escrow provisions for EB5?

No.

The USCIS regulation 8 Code of Federal Regulations Section 204.6(j)(2) requires documentation that the required amount of capital be placed at risk and actually committed to the NCE.  There is no endorsement or requirement of escrow provisions in the statute or regulations.

Can escrow provisions hurt the chances of obtaining approval of the conditional or permanent green card?

Yes.

Escrow provisions delay the release of funds that NCEs need to create the jobs for American workers that are required for EB5 success.  Ten new, full-time equivalent jobs for American workers are generally required to be created for each immigrant.

These jobs must be created before (or reasonably soon thereafter) the USCIS will grant the Form I-829 petition for the removal of the conditional residence and approve permanent residence.  If all ten jobs are already created before the I-829 is filed, then the petition is much easier and faster for the USCIS to approve.  If a delayed release of funds slows the required job creation, then the USCIS is more likely to deny the I-829 and then resident status can be lost.

Can escrow provisions be waived?

Yes.

An immigrant can waive escrow provisions and authorize the escrow agent to release funds to the NCE at any time. The NCE can then apply the funds to the required job creation activities and issue documentation faster.  The documentation can then be submitted in support of the I-526 when it is filed, used to supplement an I-526 already pending and/or used to better respond to an RFE.

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EB5 Escrow FAQ