Developers Apply For EB-5 Regional Center Designation As A Viable Alternative To Traditional Bank Financing

As published in Construction Ink, Winter 2010

by M. Keil Hackley and Summer Robertson

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 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.

For a list of the USCIS approved Regional Centers – Click here

M. Keil Hackley, Senior Partner, Hackley & Robertson, P.A. is the Former Deputy Chief Counsel of the Immigration & Naturalization Service, Miami (now DHS.) Summer L. Robertson is the managing partner of Hackley & Robertson, P.A. For further information please call (954) 349-4994 or email Keil or Summer