US Clarifies EB-5 Amid Continued Chinese Demand

US Clarifies EB-5 Amid Continued Chinese Demand

A policy memorandum earlier this week from U.S. Citizenship and Immigration Services provides much-needed clarity on how the agency will treat what’s becoming a long temporal gap between an EB-5 project's completion and an investor's receipt of a green card — a gap partly driven by a continuing influx of investors from China, lawyers say.

The memo, which addresses questions of job creation and investment requirements, comes as USCIS receives criticism for its lack of clarity on just how it views jobs and investment during what’s becoming a longer and longer period of review prior to green card issuance.

Investors can commit as little as $500,000 to a project and, provided a job creation requirement is fulfilled, come away with a green card, their principal back, and typically a minimal amount of interest.

The memo said that although the lag is getting increasingly longer, it won’t affect an investor’s chance of getting his or her green card from a job creation point of view.

“In some respects it’s a very helpful clarification,” said Angelo A. Paparelli of Seyfarth Shaw LLP. “There’s a recognition that if the jobs were created but subsequent events — liquidation or bankruptcy — were to occur, permanent resident status would also be attainable. This is a significant development.”

Last year, the government hit its 10,000 annual EB-5 visa quota for the first time, and lawyers say investors, most from China, continue to show interest in the program on the heels of Congress' taking it up for renewal this fall.

An EB-5 rule says no single country can get more than 7 percent of the visas, and after that number is hit, the government defers to applicants from other countries, putting Chinese investors in what’s becoming a longer queue for their green cards.

Of course, China takes roughly 80 percent of the visas, so that 7 percent figure is trumped if there isn’t sufficient investor demand from other countries. But what's happened with Chinese investors is known as retrogression, and Chinese investors are having to wait sometimes a year or longer after the two-year project is complete before they receive their green card.

Such retrogression has created complications as to what’s required of the investment and of the job creation portion of EB-5 after the project's typical two-year period but before the investor receives a green card.

That complication, lawyers say, is what prompted USCIS to issue the memo earlier this week. The agency couldn’t be immediately reached for comment.

“What really jumped out at me was that it does provide for investors who are caught in the retrogression,” said Cyrus D. Mehta of Cyrus D. Mehta & Associates PLLC. “There was this concern, that if the project had already paid back the loan, there would there be a problem [with the investor receiving the green card]. This proposed policy seems to alleviate the concern.”

“If you invested your capital in an enterprise that went bankrupt but jobs were created, that wouldn’t prevent you from getting a green card,” Mehta added.

The program is largely expected to be renewed this fall, although it could see several key changes, including pushing that $500,000 minimum investment higher.

And while that minimum threshold question is left for Congress, lawyers are keeping their eyes on the language USCIS uses in connection with retrogression, as lawyers advise their clients, both those who are in the middle of the process and those who are just beginning, as to what to expect when they hit retrogression.

"Previously it was ambiguous," Mehta said. "Projects may fail. So if it goes bankrupt, you can still expect to get your green card."

Project failures, though, are just one concern investors have had. They have also sought clarity on just what sorts of jobs count toward the required 10 for an investor to receive a green card.

William A. Stock of Klasko Immigration Law Partners LLP noted that if a restaurant creates jobs and a few years later, before the green card has been received, the restaurant closes, the prevailing notion is that such jobs would still count toward the required 10 to satisfy the green card requirement.

USCIS provided some clarity on this point in its memo, although the question is still a tricky point, lawyers say.

“The fact that the restaurant has shut down doesn’t change the fact that the job was created,” Stock said. “They’re walking a line here. A temporary or finite kind of job doesn’t count for purposes of the job creation.”

And another issue USCIS addressed in its memo is what is required of the investment during the retrogression period. While the money has to stay in a so-called at-risk position, USCIS said, the investment can be moved to another so-called commercial enterprise during the waiting period.

“We had hoped that that was true," said Catherine D. Holmes of Jeffer Mangels Butler & Mitchell LLP. "This is the first evidence from USCIS that it is acceptable. To me, that’s very important."

“A number of developers that use EB-5 for financing ... do not want to be required to hold that money for an indefinite period of time. It’s important that we have confirmation that that works,” Holmes added.

The memo, though, does leave some stones unturned and some questions unanswered, lawyers say.

Kate Kalmykov of Greenberg Traurig LLP said more clarity is needed on the question of how exactly developers can redeploy funds to new projects. She also said the memo lacked clarity on what happens to a borrower if a project is sold, and whether in that case the buyer can be assigned the loan.

"How are they going to treat deals that were structured pre-retrogession? I think the memo answers that in some ways, but not in all ways,” Kalmykov said. “It’s good that they issued the memo. They’ve left us without guidance for some time.”

And lawyers also say that while the memo does indeed take on a number of critical questions, it lacks specificity in certain areas.

“There could be some fine-tuning of the document. Perhaps some examples should be introduced into the document,” Paparelli said. “All in all, it is a welcome change.”



  • New York

Securities Disclaimer

This website is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities. Any such offer or solicitation will be made only by means of an investment's confidential Offering Memorandum and in accordance with the terms of all applicable securities and other laws. This website does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for, any securities, nor should it or any part of it form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. LLC and its affiliates expressly disclaim any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in the website, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting therefrom.