What Every Foreign Investor Should Know Before Risking Their Capital In An EB-5 Project

December 2009 – In 1990 Congress created the immigrant investor program as the fifth preference within the employment-based category commonly referred to as the EB-5 Program. This was the first time in the history of immigration law that the Immigration and Nationality Act made lawful permanent resident status available to foreign investors. This employment-based preference category allots 10,000 visas to qualifying investors, their spouses, and children under the age or 21.

The EB-5 process begins with the prospective investor filing the Form I-526, “Immigrant Petition by Alien Entrepreneur,” with the U.S. Citizenship and Immigration Services (USCIS.) The I-526 petition must be accompanied by documentation demonstrating that the investor has invested, or is actively in the process of investing, lawfully gained capital in the amount of $1 million in a new commercial enterprise within the United States, or $500,000 in a designated targeted employment area. Additionally, the petition must be supported with proof, usually in the form of an economical analysis, that the investment will create 10 full-time jobs for U.S. workers.

Upon approval of the I-526 Petition, the immigrant investor is granted lawful permanent resident status (“green card”) for a conditional period of two years, after which the condition may be removed if the investment was sustained over the two year period and the requisite number of full-time permanent jobs were created.

Initial participation in the EB-5 program was low because of investor uncertainty combined with a flawed adjudication process. Thus, in 1992, in an attempt to invigorate the program, Congress created the Immigrant Investor Pilot Program as an adjunct to the EB-5 Program. The pilot program allowed immigrant investors to invest the required capital in government-designated Regional Centers established to promote economic growth and job creation. Regional Center projects are held to a modified job-creation requirement inasmuch as the job creation may include indirect or induced employment, rather than direct employment.

Because of the Regional Center’s less stringent job creation requirements, together with the marketing efforts of private sector promoters, by 1996 EB-5 filings rose with investors’ willingness to go forward on Form I-526 Petitions. Still, the EB-5 Program’s success was compromised by the fact that so many of the filings failed because the financial arrangements turned out to be debt investments or investments that really did not put the investor’s capital at risk, as required under the statute. Now, in 2009, there has been a sharp increase in the number of Regional Centers designated by the government alongside of the number of successful petitions. Knowledgeable immigration lawyers, reputable private sector marketing companies, and wisely educated investors are realizing that the EB-5 program can, in fact, be a viable track to the green card.

M. Keil Hackley, Senior Partner, Hackley & Robertson, P.A. is the Former Deputy Chief Counsel of the Immigration and Naturalization Service (now Department of Homeland Security.)

As discussed in Part I of this series, in 1990 Congress created the Immigrant Investor Pilot Program as an adjunct to the EB-5 Program. The pilot program allows immigrant investors to invest the required capital in government-designated Regional Centers established to promote economic growth and job creation. The first question most often asked by the prospective investor is “What is a Regional Center?” The legal definition is any economic unit, public or private, engaged in the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment. But what does that mean in plain English? It means that the investment must be made in a commercial enterprise which focuses on a geographical region within the United States. The commercial enterprise must be formed for the ongoing conduct of lawful business, including sole proprietorships, partnerships (both limited and general;), holding companies, joint venture, corporations, business trusts, and other entities publicly or privately owned.

The structure of each Regional Center will vary as well as each project within the Regional Center. The savvy investor will want to pursue EB-5 investment opportunities which are low risk, demonstrate a solid business plan for economic growth, an economic analysis which fulfills the job creation requirement. Besides looking for a return on their investment, the investor should inquire about an exit strategy demonstrating how the Regional Center intends to return their money in 5 to 6 years. By way of example, let’s take a resort and land developer engaged in the development of a parcel of land upon which a $1.5 million dollar hotel and entertainment complex will be built. In this hypothetical, the developer has acquired some bank financing. The developer believes the infusion of foreign based capital will catapult the project to completion within the next couple of years. Having become aware of the EB-5 Program, the developer seeks an opinion from his team of advisors.

Before advising the developer to seek Regional Center status, the advisors will likely review the boundaries of the project to ensure the geographic area constitutes an area of high unemployment. This is critical because unless the project is located in a targeted employment area (where unemployment is at least 150 percent of the national average rate or in a rural area) the capital investment is $1 million dollars. That required investment is cut in half if the investment is deemed to be in a targeted employment area. A reduction in the investor’s capital outlay to $500,000 is likely to increase the number of interested investors and likely to increase the overall success of the project.

Assuming the project is within targeted employment area boundaries, advisors will next evaluate the strength of the enterprise’s business plan and whether it sufficiently proves the need for at least 10 qualifying employees. This means the business plan must contain in verifiable detail a description of the business and its objectives, a comprehensive market analysis, and among other documents, an economic report using reasonable methodologies demonstrating how the project will create at least 10 full time jobs (direct or indirect) for each $500,000 invested.

Should the developer desire to proceed with Regional Center designation, it will be through the combined efforts of knowledgeable and experienced corporate counsel, immigration counsel, and other qualified advisors, that an application to the Department of Homeland Security will be made. Once the project is approved as a Regional Center, the developer’s team will begin to identify qualified foreign investors and evaluate each prospective investor’s eligibility for an EB-5 immigrant visa.

M. Keil Hackley, Senior Partner, Hackley & Robertson, P.A. is the Former Deputy Chief Counsel of the Immigration and Naturalization Service (now Department of Homeland Security.)

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