EB-5 Regional Center Due Diligence

In light of the SEC fraud complaint against the Intercontinental Regional Center Trust of Chicago (IRCTC) and its owner, people are asking me how to evaluate a regional center (RC) and conduct due diligence. This consists of two types of analysis. The first type concerns the economic risk of inadequate financial return or business failure. The second type concerns the immigration risks or likelihood that the RC will not provide an adequate basis for the investor to achieve the immigration goal of obtaining an unconditional green card. 

I am an immigration expert and cannot advise on the economics of a project. Evaluating the RC immigration risk is quite complex, as it involves the following:

·         analysis of job creation, including economic input/output models and the factors used for those inputs;

·         the application of targeted employment area (TEA) regulations;

·         review of the business plan for verifiable data to support the economic analysis, proper use of EB-5 capital and other requirements; and

·         an analysis of the business instruments to ensure there are no disallowed provisions.

Usually this type of analysis can only be done by a very experienced immigration attorney with the EB-5 category.

Here are some, but not all, of the due diligence factors the investor can evaluate and should consider:

1.      Is the RC approved by the USCIS or is the application pending? If the RC is approved, the investor should obtain a copy of the approval.

2.      What are the RC’s USCIS approved industries, and do these cover the industries involved in the project? The investor should refer to the NAICS codes and industries in the RC approval letter and ensure they cover those in the business plan, which should match those in the economic analysis.

3.      Is the project in an approved targeted employment area (TEA) at the time of investment? (Check for a state certification letter.  Otherwise, there should be documentation from the Bureau of Labor Statistics or the Census Bureau, which should be reviewed by an economist or attorney familiar with TEA calculations.)

4.      Does the economist report of direct and/or indirect job creation project sufficient jobs for all EB-5 investors? Is there a safety net margin?  Is the economist experienced with EB-5 matters?

5.      When are the jobs forecast to be created? Within 2.5 years of the      I-526 approval?

6.      Has USCIS “approved” the project in an I-924 or another I-526 petition decision? Any I-829 approvals?

7.      How many investors have invested to date?

8.      What is the regional center’s track record with prior projects?  (The investor should obtain the resumes of RC principals and/or developers.

9.      What is the expertise and experience of the RC in the project’s industry – i.e., is the project’s management experienced?

10.  Is there non-EB-5 capital invested in the project?  Look at the investment documents and if possible, verify the investment.

11.  Is the project’s business plan detailed and reasonable?

12.  Does the RC have enough assets to reimburse the investor if the I-526 is not approved?  If not, are the investor’s funds securely in escrow until I-526 approval?

13.  Does the RC employ a successful and experienced EB-5 attorney?

14.  How much is the RC paying migration agents, and is this amount reflected in the regional center’s investment documents, such as the offering memorandum, or disclosed otherwise?

15.  Research the RC owners on the internet.

16.  Ask for current photographs of the project.

17.  Are the financials for the project reasonable?  In the IRCTC case, the costs per room were far in excess of the industry standard.

18.  If you cannot conduct your own due diligence analysis, hire a risk analyst, accountant, or business attorney to perform the due diligence for you.

19.  Consider hiring an experienced immigration lawyer to assist you rather than solely relying on migration agents in China.  Have the immigration lawyer review the project and the business instruments to determine whether they are compliant with USCIS policies.

20.  If possible, visit the project and talk to the regional center owner.

EB-5 News 02/05/2013

Canadian Competition Again?

There is a rumor that Canada may again open its popular investor immigration program, creating competition with the U.S. EB-5 program.  There was a backlog of about 26,000 applicants for the Canadian program when it was closed in the middle of last year.  The Quebec program may open for about 2,300 investors.  Agents in China are soliciting investors for this program.  I am told the minimum investment amount may be $2 million, which requires the investor to have $4 million in assets.

Processing Times Have Slowed

USCIS has recently told me that the I-526 processing time is now 10 months! New Regional Center applications (I-924s) were about 6 months for initial review but that time may be slipping.  I hope to know in a few weeks.  Some I-829s are slow in processing and some are decided in 6 months.

One lawyer told me he has an adjustment application for an investor (I-485) pending a year which seems far beyond my experience of 4-6 months, and one I just filed was granted in 2.5 months.

USCIS Ombudsman Meeting

The USCIS Ombudsman has scheduled a meeting on March 5th on EB-5 issues.  I will be attending and discussing a number of issues, including the delay in deciding I-526s, I-829s, Regional Center I-924 applications and amendments, and our difficulty in getting answers to our policy questions.

EB-5 Conference

A senior associate at Lawler & Lawler, Estelle McKee, was invited to speak at an EB-5 immigration conference in Miami, Florida.  She discussed I-829 petitions and job creation.  Her presentation was very well received.  

Martin

www.aboutvisas.com

EB-5 News 01/28/13

Q: If a Regional Center’s designation by USCIS only includes the economic model IMPLAN, must the Regional Center ask USCIS to amend its designation if the Regional Center wishes to use RIMS II on its next project?

A: USCIS’s March 2011 PowerPoint and its Executive Summary of the January 2012 EB-5 Stakeholder’s meeting both cite the I-924 instructions to answer this question.

The March 2011 PowerPoint simply states that an amendment is required and links to the I-924 instructions. The January 2012 Executive Summary at first appears to state that an amendment is required, but a closer look reveals that USCIS is not actually addressing that question. It is addressing a question that already assumes an amendment is required:

Q: Please clarify the documentary requirements for a Regional Center amendment filing if the amendment is solely to (a) change industry code; or (b) change geography; or (c) change economic methodology. USCIS’s response indicates that it is taking the question to mean a change of economic analysis for an already approved project: Depending on the nature of the change, however, we may need to see a revised business plan as well. (USCIS obviously cannot see a “revised” business plan unless it has already seen an original business plan.)

Toward the top of page 7 in the January 2012 Executive Summary USCIS brings into question whether an amendment is needed at all, again citing the I-924 instructions:

Q: Please clarify how clear requests, such as geographical expansion, new economic models, and additional NAICS codes, can be quickly approved through an I-924 amendment.

A: Please see instructions on the I-924 Form for a description of the changes that require the filing of an amendment and ones that do not require an amendment filing. . . . The I-924 instructions indicate that a Regional Center should file an amendment only if it changes the economic methodology for an already approved project:

An Amendment may be filed to seek approval of changes to the Regional Center’s:

1. Geographic Area;

2. Organizational Structure or Administration;

3. Capital investment projects, to include changes in the economic analysis and underlying business plan used to estimate job creation for previously approved investment opportunities and industrial clusters;

4. Affiliated commercial enterprise’s organizational structure and/or capital investment instruments or offering memoranda. [Emphasis added.]

Taking all of the above together, it seems a Regional Center needs to file an amendment to change the economic methodology for an already existing project that uses another economic analysis. However it does not need to file an amendment to use a new economic methodology for a brand new project.

Martin

EB-5 News

USCIS Director Mayorkas has announced that Robert Cox, a former immigration lawyer, will be the new, interim EB-5 Program Director when the program moves to Washington D.C. We will see if this new director and the relocation of the EB-5 unit will make a difference in the flow of information, the time it takes to get an application decided, and the reasonableness of its rules. Mayorkas also announced that USCIS will issue its long-awaited, comprehensive EB-5 policy memorandum in one to two weeks, although some believe this may just be another draft rather than the final version. Martin

EB-5 News

The New Year is starting out with some exciting news from the last few days of 2012. Press On December 30, the New York Times ran a prominent article about Jay Peak's EB-5 program. This article was one of the most emailed articles on its website. The link to this excellent, positive article is http://www.nytimes.com/2012/12/31/us/31vermont.html?_r=0. New "Tenant Occupancy" Policy On December 20, 2012, the USCIS issued an Operational Guidance memo on its "tenant occupancy" policy for counting jobs. Some of it is written in economist jargon and is thus difficult to understand. It is also vague and provides few examples to demonstrate how USCIS will apply its new policy to projects. However, it does have some helpful points. Here is my understanding of this memo -- it is based on my own initial analysis as well as consultation with several EB-5 economists who have briefly reviewed the document and have given me their first impressions: The USCIS has identified two paths for approval of tenant jobs. • The first involves capital invested in the tenant business from EB-5 investors either directly, through another entity (such as a Limited Partnership owned by EB-5 investors), or as a subsidy. • Second, one can count what USCIS calls a "facilitation-based approach" that does not require any direct financial connection between the EB-5 capital and the tenant's employees. This approach requires applicants to demonstrate that the EB-5 project will "remove a significant market-based constraint." USCIS states that one way to do this is to show how the project will "correct market imperfections and generate net new labor demand and income." "Market imperfections" appear to be anything that interferes with trade, which would conceivably include a lack of commercial space, for example. Therefore, it appears that an applicant could rely on the tenant occupancy model for job creation by providing commercial space that would enable a tenant business to create more jobs and generate more income than it takes away from any competing businesses. • USCIS singles out high unemployment areas, stating that in such areas applicants should "generally indicate how a specific project will fill an existing investment void . . . to generate new demand for the tenant business." This is speculation, but possibly if it can be shown that a new building with a tenant grocery store where there are few in the poor area – the TEA – and it will provide a new economic benefit to the TEA, the grocery store jobs may be allowed. • The overall deficiency of the memo is that there is still uncertainty in how to count the jobs until the USCIS decides a regional center's I-924 Amendment or an investor's I-526 Petition. However, it is clear USCIS will not count jobs that already exist in businesses that are merely moving across town into the EB-5 project. According to USCIS, these are not new jobs. The key is going to be to figure out what the yardstick is for proving that tenant jobs meet the new standard. Material Change USCIS provides guidance regarding what a "material change" is in this memo. Specifically, even if the actual type of tenant differs from what was originally planned or the occupancy rate is lower than anticipated, an exemplar I-526 project can be approved and will not require a full review when individual investors' petitions are filed. Likewise, an I-829 petition can still be approved in these circumstances. For example, if the exemplar I-526 is based on a restaurant tenant and instead a retail tenant moves in, USCIS will not deem this a "material change" and will still defer to the original project preapproval except to ensure that the new economic analysis shows that the retail tenant will still create sufficient jobs. The same policy applies to occupancy rates – the job creation must still be enough for the individual investors. At the same time, the exemplar I-526 application must still define the type of tenant that is anticipated. This is necessary on a practical level as well since the economic job creation forecast requires an industry to forecast indirect and induced jobs. USCIS's memo confirms that the tenant's anticipated direct jobs can be used as an input into the economic employment forecast. Other Points: • This memo leaves in place the USCIS's illegal and inappropriate 2.5-year time frame (for I-526 approval) for job creation (which it does not always apply). Your lobbying against this policy is encouraged. • The new memo reiterates what we have seen since February that USCIS wants "verifiable details" to support project economics and job creation. Others may take a more pessimistic view of the Operational Guidance memo, so I look forward to obtaining more clarification from USCIS. As I receive more information, I will let you know. Have a great 2013. Martin

EB-5 Job Creation

In February 2012, the USCIS began issuing Requests For Evidence (RFEs) questioning whether a project’s job creation may include new jobs created by a project’s tenant, such as a new business in an office building or retail mall. Generally speaking, the USCIS’s new position is that such jobs cannot be counted except in exceptional circumstances, such as where there are no other spaces available for the new business to start up or expand. This is called USCIS’s “tenant occupancy” policy. Since then, USCIS has issued some project denials, but on other technical grounds, not tenant occupancy. One of these project denials has been reopened on order by a judge. In another denial based on technical grounds the USCIS said: USCIS is currently studying whether this model is economically sound or whether it provides a reasoned basis for determining that a petitioner is able to meet the job requirements under the statute, regulations, and precedent decisions. Deferral of this issue at this time does not preclude USCIS from examining the use of such methodology in subsequent decisions concerning this NCE or any particular alien's investment. This is curious language and it seems the USCIS is unsure of its policy on the new tenant job creation counting toward the 10 jobs each investor must create. USCIS has scheduled “A Conversation with Director Mayorkas” on Dec. 3, and we believe Mr. Mayorkas will discuss the tenant occupancy issue in that meeting. Martin

EB-5 Information

In October, in Washington, D.C., I attended the IIUSA (EB-5 Regional Center Trade Association) meeting and the USCIS EB-5 Stakeholder’s meeting. China Quota The biggest news came from the Department of State (DOS). It allocates visa numbers to the American Consuls and USCIS offices in the U.S. for each EB-5 investor and each dependent immigrating. There have been many EB-5 cases approved in the past year and the investors and their families are immigrating to the U.S. and using visa numbers. The DOS predicts it will start rationing the 10,000 EB-5 visa numbers most likely in fiscal year 2014 but possibly as soon as this winter for Chinese investors. This means that DOS will establish a cutoff date and allocate visa numbers by priority date (date the I-526 was filed) but only for Chinese investors. The DOS Visa Bulletin issued every month will contain the cutoff date which usually (not always) advances each month until about August when the numbers are exhausted for the fiscal year and closes to open again October 1, the beginning of the new fiscal year. This also means a few things: * The EB-5 visa category is not closing. The backlog only applies to China and the China quota will not close. * I spoke to Charles Oppenheim of the DOS who said he made this announcement to give people time to plan and so any retrogression of the China quota would not be a surprise. He said his estimation of visa usage is still uncertain. If demand for visas is strong, possibly in January he would set a cutoff date of November or December 2011. This means Chinese investors with I-526s filed in November or December 2011 or before can continue to immigrate without any delay (people with more recent priority dates may have to wait for their date to show up on the visa list). He emphasized his estimate is preliminary but thought, based on current demand, that in FY2014 there would be a backlog/cutoff for China EB-5 visas. * Chinese investors’ immigration will take longer. How much, we will have to see. At this point it is months not years. * We all thought that jobs had to be created within 2 years of the investor’s immigration. On June 17, 2009, the USCIS issued a Neufeld Memo creating, out of whole cloth, a policy that the jobs should be created within 2½ years of the approval of an I-526. So, if immigration takes longer due to a shortage of visa numbers, the jobs should still have to be created within 2½ years of the I-526 approval which may be substantially before the I-829 is filed. The USCIS can approve the I-829 if the jobs have not been created but will be created “within a reasonable time” (i.e., beyond the 2½ years of the I-526 approval. Other News From the October Washington, D.C. Stakeholder’s Meeting * There have been some changes in the USCIS personnel that supervise the EB-5 unit. We will see if it runs better under their command. * The meeting was well run by a USCIS attorney who discussed some of our questions and seemed to listen. At least we were not stonewalled as was the case at the Laguna Niguel meeting in the spring. * USCIS adjudications of new Regional Centers (I-924 forms) and amendments have slowed, but some have recently been approved. * USCIS is revoking some dormant Regional Centers. * I asked a detailed question regarding job creation and the methods for measuring indirect jobs. I have not received a reply, but will follow up with the USCIS. Martin