Although the EB-5 Immigrant Investor Visa program began in 1990, it wasn’t until the 2008 repression negatively affected developers, impacting their ability to obtain funding for their ongoing projects, that the program experienced a surge in popularity and participation. While foreign nationals have realized since the inception of the EB-5 program that the easiest route to gaining citizenship for entire families was through investment, developers’ interest in the program opened the doors for new money to flood in.

Unfortunately, the overall climate surrounding immigration continues to become chillier and less welcoming, even for investors able to commit as much as $1,000,000 to new commercial enterprises that boost the economy while generating new jobs. Since 2015, Congress has debated the merits of and concerns about the EB-5 program, with regular discussions about transforming the program to create even higher thresholds for qualification than are currently in place. In March 2018, it once again approved an extension of EB-5 (until August 2018) instead of taking any definitive action.

While the current program continues to gain extensions, developers and other investment managers are already working under the expectation that future funding through EB-5 may become restricted. With the economy finally showing renewed strength and potential, lenders are reappearing, giving borrowers new options for obtaining the financing they need for future deals. While EB-5 funding has not been crossed off the list, entrepreneurs have the opportunity to shop around and compare their various financing choices.
This new situation has also created three new concerns investors and project managers are watching closely to see how they develop or how they change the EB-5 landscape.

The Uncertainty of Future EB-5 Projects

The combination of inaction by Congress and its distaste for the current EB-5 structure have both investors and project managers prepared for the worst. Those who carefully monitor proposed changes and modifications to the EB-5 program hear a similar message from politicians, especially concerning raising the investment limits from their current minimums of $500,000 for Targeted Employment Area investments and $1,000,000 for all other EB-5 investments.

Not surprisingly, many developers are placing new projects on hold until Congress acts; others are already exploring new sources for financing their future developments. In contrast, developers already working with EB-5 funds know the value and importance of this source of financing and appear to be moving forward with little hesitation.

The Possibility of Fewer Future EB-5 Investment Programs

Developers who prefer to carry on with new projects instead of pausing while Congress makes up its mind are already seriously considering different pathways to funding their projects. While they understand that EB-5 investors have been significant contributors to projects in the past and will likely continue to be in the future, they need the financial agility to access funds under favorable and swift terms.

Interestingly, on projects exceeding $40 million, a larger percentage of funding typically originates through EB-5 funding, while on projects with smaller budgets, EB-5 funds often represent only 20–30% of all funds contributed to the project.

A Push for Cash Infusions by Existing EB-5 Projects

Perhaps on the positive side, this shadow of uncertainty is encouraging developers currently raising funds to pick up the pace and seek even more funding. They are finding that many EB-5 investors who have been undecided are now initiating their applications before the current minimum investment thresholds are increased or other terms are unfavorably changed. By locking in their EB-5 visas under the current, and likely more positive, terms than those being proposed, investors have a clear understanding of the requirements they need to meet to gain permanent residency for them and their immediate family members.

Because the pressure to modify the EB-5 program will continue, foreign investors anxious to remain informed and educated on the EB-5 immigration process are wisely connecting with qualified EB-5 consultants and advisors. Even foreign citizens who are undecided about proceeding with the EB-5 Immigrant Investor Visa program are working with EB-5 professionals to remain current on the ever-changing immigration landscape.

There are many paths to immigration in the United States, but all of them require the individual seeking citizenship to acquire a green card. A green card grants the holder a permanent resident status that expires after five years, at which time the holder is eligible for naturalization.
Some green card holders are given conditional permanent resident status, which means that the foreign national must satisfy certain conditions over the next two years. Once satisfied, the immigrant’s status changes to a permanent resident status with the first two conditional years counting as part of the five-year waiting period for green card holders. Some conditional permanent resident statuses last for two years, at which time the holder becomes eligible for naturalization.

The immigration process is even more complicated than the two types of resident statuses explained above. Experts estimate as many as two out of three applicants who try the process or appeal a decision on their own find their cases denied. In comparison, by working with seasoned and informed immigration experts, those wishing to obtain their green cards significantly improve their odds for success. A qualified immigration advisor will ask the right questions in advance to determine the best route to citizenship and then assist the foreign national through the immigration process.

Green Card Basics

Green cards grant citizens from other nations the right to live and work in the U.S., the same as American citizens. The person requesting the visa is the petitioner; the petitioner needs a sponsor, usually a relative (by blood or marriage) or an employer. There are also circumstances when, instead of relying upon the sponsorship of American relatives or businesses, foreign nationals can essentially “self-sponsor” by starting a new business in America and using that as their sponsor through the EB-5 Immigrant Investor Program.

The sponsor is required to be either a permanent U.S. resident or U.S. citizen (except for “self-sponsoring” EB-5 cases). More leniency is provided to U.S. citizens than to permanent residents—while only a spouse or unmarried child of a permanent U.S. resident qualify for a green card, siblings, children (married or unmarried), and parents of U.S. citizens qualify.

Spouses of permanent U.S. citizens who have been married for less than two years can get a green card with conditional permanent resident status. This expires in two years and the petitioner can then apply for permanent resident status. This waiting period intends to ensure that the marriage was not designed to evade the legal immigration process.

Forms Associated with Green Cards

There are several governmental forms an applicant will use during the process of obtaining a green card and ultimately exchanging it for permanent residence status. To initiate the green card process, petitioners file form I-485 (Application to Register Permanent Residence or Adjust Status) with the US Citizenship and Immigration Services (USCIS).

Those applicants wishing to work in the U.S. while holding a green card must file form I-765 (Application for Employment Authorization). Once approved, an Employment Authorization Document (EAD) is issued; this proves that the holder is authorized to legally work in the U.S. An EAD is normally valid for one year, so green card holders need to renew their EAD at least once during their two-year waiting period.
At the end of five years, permanent resident green card holders file form N-400 (Application for Naturalization). Once the form has been reviewed and approved, the petitioner is officially a U.S. citizen. Green card holders with a conditional permanent resident status go through a different process, using different forms.

Spouses of U.S. citizens or permanent residents file form I-751 (Petition to Remove Conditions on Residence) within 90 days of the green card’s expiration. After this form has been submitted and approved, all remaining conditions are removed from the permanent residency status. The spouse of the petitioner is required to appear for the final interview; this standard process discourages the illegal practice of marriage visas (marrying only to become a US citizen).

Green card holders participating in the investor visa (EB-5) program use a different exit process. They file form I-829 (Petition by Entrepreneur to Remove Conditions on Permanent Resident Status), which removes their conditions on their residence.

The Green Card Interview

The final stage of obtaining a green card involves the interview. Although some applicants find themselves nervous during this last important step, the interview is designed to confirm the information that has been previously examined and approved. Depending upon the reason for requesting a green card (marriage, work, investment, etc.), different questions will be asked, and different information will need to be provided.

Common questions and information include:

• Stating your full name
• Providing identification with photo (passport, identity card, etc.)
• If employed, show your EAD as proof of working legally
• If there are any criminal convictions, documents must be presented

In the situation of a petitioner seeking a green card based upon marriage to a U.S. citizen or permanent resident, the spouse must also attend the interview. Additional questions pertaining to their marriage would demonstrate intimate knowledge of the spouse, such as:

• When did you two first meet and where was it?
• Where were you married and on what date?
• What is your spouse’s birthdate and email address?
• How many siblings does your spouse have?

Proof of marriage in the form of documents is also required. Examples include marriage certificate, pictures and videos from the wedding, birth certificates of any children from the marriage, and financial documents like bank accounts, insurance policies, and trust deeds.
Considering the number of petitions to be filed, the documents to collect and present, and the types of green cards that can be sought, only by working with professionals familiar with the intricacies of the immigration process can an applicant wend their way through this complex maze with confidence and increase their chance for a successful petition.

Now almost 30 years in existence, the EB-5 Immigrant Investor Program has proven to be a winner both for immigrants seeking citizenship in the U.S. and for the American economy. Begun in 1990, this program has been responsible for driving billions of dollars into the economy while also generating much needed new employment across the country. In fact, the basic tenet of the EB-5 Immigrant Investor Program is to boost the economy while creating new jobs from that effort; as a reward, the immigrant investor and immediate family members (spouse and minor children) can earn permanent residency in the United States.

The 1992 Expansion of the EB-5 Immigrant Investor Program

Just two years after its beginning, Congress decided to expand the EB-5 program by adding the Immigrant Investor Pilot Program, more commonly called the regional center program. Prior to this introduction, foreign investors had one investment option: a direct investment of funds into a new commercial enterprise. While the direct investment approach is ideal for those persons with a knowledge of and an ability to manage their own business, many other investors who had assets to invest did not have the experience to start their own commercial enterprise, thus passing on the EB-5 opportunity.

The regional center program changed all that. Regional centers are usually structured as a limited partnership, where the foreign investors are limited partners and business and real estate developers act as the general manager. For those investors uncomfortable taking on the ongoing responsibilities of managing a business, the regional center was the perfect alternative.

Another advantage of the regional center option was a looser definition of job creation requirements. Under the original direct investment plan, the investor/owner was tasked with creating at least 10 new jobs for their $1 million investment; those new hires (called direct jobs or hires) had to be within the new commercial enterprise and were required to be fully documented before the immigrant investor would earn green cards for the entire family. The regional center option changed all of that by including indirect and induced hires on top of direct hires.

Indirect and induced hires reflect the fact that a new commercial enterprise often is responsible for creating new employment outside its own doors. A classic regional center project takes advantage of this fact in many ways: one example would be a real estate project that hires construction workers (direct hires) to construct a new hotel, which is then sold to an independent hospitality firm. When the new hotel owner hires staff, those are considered indirect hires. Finally, during the construction phase, an enterprising catering business may appear and serve meals to the construction workers, thus acting as an induced hire—the caterer saw the opportunity of new customers thanks to the construction project and was induced to serve the hungry workers.

Finally, regional centers can raise huge amounts of money for their projects. With each immigrant investor committing $1 million, and with upwards of 1,000 investors, regional centers can easily raise $500 million to $1 billion dollars and take on large projects. As compared to direct investments, where many investors own 100% of the business, a $1 million regional center investment may represent less than a 1% ownership interest. Many investors enjoy the sense of safety in numbers, and with such large sums to put to work, there is likely greater diversification of funds among multiple projects, which tends to lower the risk factor. America as well has benefited significantly from regional center investments, as it opened the floodgates for extensive multi-million and multi-billion-dollar projects which brought positive and strong economic results.

The Targeted Employment Area Opportunity

Congress added another enticement to the EB-5 program that many foreign investors have taken advantage of: reduced minimums for investments in a Targeted Employment Area (TEA). As the name implies, TEAs define areas around the country that suffer from higher than average unemployment rates and encourages foreign nationals to choose an investment in a TEA by cutting the $1 million commitment in half, to $500,000.

The obvious reason for such a dramatic drop in the investment requirement is to persuade investors to infuse capital into areas most in need of economic improvements and new employment. Although some investors remain wary about committing money to poorer pockets of America, many investors see the added potential for increased returns on their investment thanks to a recovered community boosting property and business values.
There are two types of TEAs, rural and urban, and each has its own rules for determining eligibility. Rural TEAs are those areas, including entire counties, that lie outside of a Metropolitan Statistical Area (think cities with populations exceeding 50,000) or sections of counties’ outlying towns with 20,000 or more residents. The US Census Bureau offers information detailing the MSAs for each state.

Urban TEAs identify areas experiencing levels of unemployment greater than 150% of the national average (based upon employment data from the previous year). The most common areas defined as urban TEAs are census tracts (or groups of them) within an MSA, but special circumstances can also outline zones within census tracts as a TEA.

In their effort to ensure that a fair share of foreign investors select a TEA-designated EB-5 project, 30% of all EB-5 Visas authorized annually are earmarked for projects operating in TEAs. Investors preferring to commit fewer funds through an EB-5 project in a TEA can find many worthy offerings from experienced developers and operators by performing standard due diligence.

EB-5 Immigrant Investment and Employment Requirements Explained

Regardless of whether an investor opts for a TEA-designated EB-5 project for $500,000 or a regional center or direct investment for $1 million, there are certain requirements that apply to every foreign national.

Investment funds can be in the form of cash, property, inventory, equipment, and secured loans, but assets other than cash are normally used only for direct investments. In the case of regional centers, individuals need to be prepared to have cash or equivalents available to invest. The investor must also provide documentary evidence detailing their sources of funds to prove they were legally acquired.

When an investment is selected, the funds must be actively “at risk.” This means that investors cannot be guaranteed any return of their funds beyond those which accrue from market forces in play during the operation of the commercial enterprise. They also cannot treat their funds as loans with preferential returns ahead of other debtors, as this also mitigates risk and protects the investment normal gains and losses.
Investors cannot use any of their investment funds to pay fees to attorneys, investment managers, tax consultants, accountants, administrators, or any other consultants assisting the investor. In some situations, investment funds are placed within an escrow account and must equal the minimums outlined for normal or TEA-designated projects. Documentation must demonstrate that funds were properly used to meet the requirements of the EB-5 Immigrant Investor Program; advisory and legal fees are not part of EB-5 investment requirements.

As generating new employment is a major requirement, attention and focus should be given to this goal from the outset. Investors should carefully weigh the benefits of direct investments versus regional center projects because of the vast difference when counting new employment. Since regional centers can include direct, indirect, and induced jobs, as compared to direct investments only counting direct hires, many investors prefer the regional center solution to more easily attain their goal. Another benefit with regionals centers is that general partners usually give investors the documentation they need to prove they met their job growth goal, saving the investor time and money.

Initiating the EB-5 Petition Process

Once a foreign national has decided that the EB-5 program meets their immigration needs, there is groundwork that needs to be completed before filing the initial I-526 Immigrant Petition by Alien Entrepreneur, which formally starts the entry process. Most investors find that working with experienced and knowledgeable experts versed in the intricacies of the immigration process, especially EB-5 Visas, saves them much frustration and avoids repeat interviews.

Another service that EB-5 specialists regularly offer is advice about different investment options, and they often know of reputable and successful regional center operators to give newcomers a head start in their own investigations. They also guide foreign nationals through the important process of due diligence, where they can do their own homework and learn more about the investment they are considering.
Most important is distinguishing between direct investments and regional center projects. While regional centers appear simpler and easier to understand, investors have very little say after they have invested their funds. Because of this, it is even more important to scrutinize any regional center offers under consideration.

Filing Petitions

After the foreign national chooses the best course of action, EB-5 specialists are essential for navigating the key petitions that are filed and require approval to ultimately earn permanent residency in the U.S. In addition to completing the forms accurately, qualified advisors will assist the investor in compiling the documentation that must accompany the forms. There are three key petitions that are filed during the immigration process: I-526, I-485, and I-829.

Form I-526, the Immigrant Petition by Alien Entrepreneur, is filed with the US Citizenship and Immigration Services (USCIS). This is the declaration by the petitioner demonstrating the intent to invest required funds into a new commercial enterprise, or to document a qualified business already funded and in operation.

The investor must be prepared to demonstrate the following:

• Suitability of the project
• Evidence funds have been invested or are in the process of investing
• Documentation trailing source of funds invested, proving legality of origin
• Business plan outlining the plan for creating 10 new jobs
• Level of investor involvement (direct investment versus regional center)

Once the I-526 petition has been reviewed and approved, the investor files form I-485, the Application to Register Permanent Residence or Adjust Status. This initiates the process of getting green cards for all family members, granting conditional permanent resident status.
Petitioners and all qualified family members must provide standard proofs of identify, including:

• Current passports
• Birth certificates
• Marriage certificates (when applicable)
• EB-5 Visa
• Medical records
• Vaccination history
• I-797C notice (approval from USCIS on I-526 petition)

If an applicant has a prior criminal record, documentation about it must be provided. All applicants provide recent color photos, are fingerprinted, and sign the petition.
The final petition occurs two years later. At this time, the investor needs to prove the creation of the required 10 jobs and will file form I-829, the Petition by Entrepreneur to Remove Conditions on Permanent Resident Status.

In this final and momentous filing, investors must:

• Deliver green cards for all family members
• Prove funds were directed to a qualified EB-5 project
• Document money was at risk during the two-year conditional permanent residency period
• Present evidence that the job creation requirement was met

Again, fingerprints, photos, and signatures will be required, and if there is any criminal history to be reported, proper legal papers need to be produced.

The many complexities and steps in the EB-5 Immigrant Investor Program demand expert guidance and advice for the foreign national ready to take advantage of all America offers. By collaborating with professionals with full understanding, strong connections, and a long history of satisfied clients, investors can make their journey as smooth and successful as possible.

With foreign nationals from China and other countries facing increasing waits and backlogs for their EB-5 Visas, many are now investigating other options that get their foot in America’s door. One of the emerging options that appears to offer either a good first stage, or simply an alternative, to the popular EB-5 Immigrant Investor program is the E-2 visa.

The Business Aspect of E-2 and EB-5 Visas

Both the EB-5 and E-2 Visas are issued to individuals intending to establish a business in America. In each instance, the petitioner must commit substantial funds into the new commercial enterprise they are establishing in the US.

There is a major difference between the amounts invested through the two visa programs: while the EB-5 program states specific minimum investment amounts ($500,000 for a TEA-designated investment or $1,000,000 for all other types), there is no stated amount required for E-2 visas. Most experts advise a minimum of $200,000 when launching a business under the E-2 petition; in any case, there must be enough money to adequately capitalize the new venture.

Another difference between businesses operating under an E-2 visa as compared to running a company under the EB-5 program is the counting of new employment. Whereas EB-5 investments expect to see at least 10 new workers for each $1,000,000 invested, the E-2 program simply requires enough staff to run the business effectively. This freedom from meeting job creation requirements makes the E-2 visa even more attractive for many entrepreneurs.

Advantages and Benefits of E-2 Visas

While the E-2 visa is not a green card, it offers some special features that make it an attractive option for foreign nationals desiring entrance into the United States. Perhaps the greatest benefit of the E-2 visa is that the processing and approval time for this visa is one of the shortest, often taking less than three months from application to issuance. Even better, there is no ceiling on the number of E-2 visas that can be issued, which is a tremendous relief for those immigrants facing the lengthy delays for some countries waiting for approval of their EB-5 petition.

While this visa expires in two years, E-2 visa holders can request two-year extensions without limit. Even though this requires the E-2 visa owner to watch their calendar carefully and stay on top of their renewals, the process is easy and quick to complete every two years.
Immediate family members also benefit from E-2 visas. They are not granted their own E-2 visa, but both the spouse and children under age 21 will be issued derivative E-2 visas which allows them to accompany the petitioner and live in America. Children may attend public schools and even qualify for state tuitions for college admission. The spouse of the E-2 visa holder may seek gainful employment, but children are not allowed to work as dependents of the petitioner.

Another advantage of E-2 visas are that key employees are eligible to apply for the visa. In such instances, those executives and other non-owners qualify for an E-2 managerial visa; as with the standard E-2 visa, spouses and dependent children can have derivative E-2 visas issued to them.

Differences Between E-2 Visas and EB-5 Visas

The main difference between the E-2 and EB-5 Visas is the permanent residency feature that is granted to EB-5 Visa holders. While the E-2 visa does provide the holder with much of the freedoms that permanent residents have, they hold a pure visa with no possibility of gaining US citizenship through it.

Another difference between the two visas has to do with the percentage of business ownership. Due to the size and scope of many EB-5 projects, especially those invested in regional centers, there are usually more than 100 investors in a project; this means that each investor owns a small percentage of the overall investment, sometimes less than 1 percent. Conversely, E-2 visa holders must own 50 percent or more of the business they are operating.

Holders of EB-5 Visas must satisfy residency requirements; this means they must reside for at least half of their time in the States. Failure to adhere to this directive could result in abandonment of their permanent residency status unless a two-year re-entry permit is obtained. Individuals holding an E-2 visa will find much more lenience regarding their physical location during the year. Because the E-2 visa grants entry, but not residency, holders of this visa have no minimum or maximum periods of time to spend in the US.

How visa holders are taxed is another area where differences can be vast. For EB-5 Visa holders, income is declared on their US tax return and appropriate taxes are levied; this includes income earned outside the US. E-2 visa holders face an unusual situation, because they must first run a “substantial presence” test to determine if they are treated as a resident alien and pay taxes just like EB-5 Visa holders or if they qualify for a non-resident alien status.

The substantial presence test uses a formula to determine if the resident alien status is applied. The E-2 visa holder will be deemed a resident alien if that individual physically resided in the US for at least 31 days during the most recent calendar year and if the total number of days lived in the US over the last three years is more than 182 days, adjusted as follows:

1. Count all days lived in the States in the most recent year;
2. Add 1/3 of the days lived in the States for the previous year; and
3. Add 1/6 of the days lived in the States for the year before that.

A simple example illustrates how this is calculated: assume an E-2 visa holder lived in the United States for 120 days for the previous three years (2015-2017) (which is an actual total of 360 days, well over the 183-day threshold). To determine if this person is a resident alien, the total days lived are adjusted for 2015 and 2016 as follows:

• For 2016, 120 is divided by 3 for a total of 40 days, and
• For 2015, 120 is divided by 6 for a total of 20 days.

The adjusted total is 180 days, which classifies the E-2 visa holder as a non-resident alien for 2017. This further means that the E-2 visa holder avoids paying US taxes on worldwide income earned, which can add up to a huge savings.

E-2 Visas for Citizens of Treaty Countries Only

So far, E-2 visas sound like ideal alternatives to an EB-5 visa, or to use while waiting to be approved for an EB-5 petition. The final hurdle for qualification is determining the nationality of the E-2 applicant. The E-2 visa will only be issued to citizens whose nation is considered a Treaty Country; a list of eligible nations can be reviewed here on the US Department of State website.

For those citizens whose country is not listed as a treaty country with an E-2 classification, there are still options. Because the E-2 visa is based upon the country of citizenship of the individual instead of the country of birth, some enterprising immigrants are opting to change their citizenship to a nation classified as E-2 on the Treaty Country list and then submitting their E-2 petition. Advisors point to Grenada as an ideal country to seek citizenship, as it can be issued in four months or less through an investment, and Grenada is classified as an E-2 Treaty Country.

Avoiding USCIS Through E-2 Visa Petitions

The USCIS has a reputation for thorough and rigorous reviews of all working visa petitions, as all EB-5 applicants are aware. It is only after receiving USCIS approval that individuals then file for their visa at a US Consulate. Those considering the E-2 visa route are relieved to learn that this is the only working visa that circumvents the USCIS and allows the applicant to directly submit their petition at a US Consulate. As US Consulates are all over the world, most interested parties contact the consulate located in their country of birth; other options include visiting a consulate at one’s country of citizenship (for Grenada citizens, the US consulate is in Barbados), a consulate in the country of residence, or any other US consulate worldwide willing to process the petition.

For those individuals working outside the USCIS, it is especially important that applicants be fully prepared for the many questions asked and documents required during the interview at the consulate. For this reason, and many more, applicants desirous of fast and successful outcomes wisely choose to work with experienced and knowledgeable experts in the field of E-2 and EB-5 Visas.

In the past, attorneys have brought cases against U.S. Citizenship and Immigration Services (USCIS) when the agency challenged the validity of EB-5 petitions, often claiming that the investment was either not at risk, was a debt arrangement, offered a guaranteed redemption, or some combination of the three. Curiously, the USCIS often confuses or applies all three terms to one situation. By successfully demonstrating the differences between these terms and focusing on nuances in legal documents, legal counsel can often present arguments that successfully overturn decisions made by USCIS.

Because any of these situations would invalidate an EB-5 investment, and consequently destroy the chances of the investor and their immediate family gaining permanent residency in the United States, a better understanding of these terms and how they negatively impact the EB-5 Visa process is important for both current and potential EB-5 investors. Most significantly, it is incumbent upon the investor to understand all terms and conditions pertaining to the successful operation of an EB-5 project; such an investor cannot rely upon ignorance as a defense with such costly outcomes at stake.

An Overview of EB-5 Investments

Over the past decade, the increased awareness of the EB-5 Immigrant Investor Program as a viable, and often desirable, financial resource for developers has kept the program running at maximum capacity. In fact, the window of opportunity for a successful EB-5 petition by a foreign national remains brief, often reaching its annual maximum in April.

The EB-5 program has proven to be an effective immigration method with a higher rate of success than many of the older, more traditional systems that have been under fire since the 9/11 tragedy shifted American attitudes away from lenient immigration standards and policies. As contrasted with most immigration programs, EB-5 rates popularly among Americans because of its high cost of entry: successful applicants must invest $1,000,000 ($500,000 for investments in Targeted Employment Areas) into a new commercial enterprise which, in turn, must prove its worth by creating a minimum of 10 new jobs per $1,000,000 investment.

As a reward for successfully satisfying these EB-5 requirements, investors, along with their immediate family members (spouse and children under age 21), are granted permanent residency and enjoy the rights and privileges granted to all American citizens. For America, the rewards are equally fruitful—thanks to the EB-5 Immigrant Investor Program, billions of dollars have been infused into the economy, many areas suffering from high unemployment have experienced visible improvement, and new jobs have sprung up across the nation.

An Overview of EB-5 Risk Factors

While this opportunity is mutually beneficial, it is up to the USCIS to govern and monitor the program to prevent abuse or manipulation of the rules or procedures. Emphasis is placed upon adhering to the entrepreneurial spirit which the EB-5 program encourages: investments must be directed to projects that entail the natural risks of any business venture. In other words, funds must be “at risk” and subject to normal losses or gains depending upon internal and external factors or conditions.

Because most of the EB-5 funds are channeled to regional center investments, where the EB-5 petitioner is a limited partner in a large project representing pools of funds often exceeding $1 billion, the ultimate success of the project is beyond the control of the limited partners. Cautious and conservative investors would like to have some guarantees included, but any agreement to redeem the investor’s money because of market failure is an attempt to mitigate or eliminate risk. Therefore, a guaranteed redemption clause runs contrary to the “at risk” requirement.
Another aspect of an investment is the element of equity. Equity is a value that can and does fluctuate; it can even be wiped out if market conditions or other factors cause a decrease in prices and the asset is encumbered with debt. Those holding debt secured by the asset are made whole before an equity holder will realize any return on their investment. For this reason, anything that has the look and feel of a debt arrangement, whereby the investor is offered a preferred or protected position upon liquidation, would also be a violation of the “at risk” character expected of an investment.

Differentiating Between Investors, NCEs, and JCEs

There is more than one financial relationship in EB-5 regional center investments. There is, of course, the investor, who creates a relationship with a regional center by investing in the New Commercial Enterprise (NCE) which is structured to meet the USCIS requirements concerning EB-5 projects. The NCE is empowered to deploy those funds to meet the EB-5 job creation requirements. A Job Creating Entity (JCE) will borrow the funds raised and managed by the NCE and initiate projects intended to generate the economic growth and new employment needed to satisfy EB-5 conditions.
All investor funds raised by the NCE must be placed with a JCE to ensure that 100% of investor funds are placed at risk. When these funds are loaned, the NCE can formulate terms that require the JCE to guarantee repayment without violating the debt guarantee conditions monitored by the USCIS. The reasoning is that the concern of debt guarantee relates between the investor and NCE only and not between the NCE and JCE.

The Difference Between Puts and Calls

Another area of confusion arises between the differences of puts and calls and how they are used in EB-5 investment contracts. If an EB-5 operator includes a provision allowing them to buy out an investor’s interest under specific terms and conditions, this is considered a call option, also called a buy option. The important term here is “option.” The EB-5 general partners have the right to purchase the investor’s interest but are under no obligation to do so. This avoids the label of guaranteed redemption while offering extra incentive to an investor who may be hesitant about committing to an EB-5 project.

On the reverse side, sometimes an EB-5 agreement has a clause allowing investors to exercise a put option, or sell option. This option does confer rights to an investor that allows for a redemption of their investment, but even a put option can be structured so it is not deemed a guaranteed redemption. Specifically, if the put option can only be exercised upon a contingency related to the success or failure of the EB-5 project, it will not be categorized as a guaranteed redemption, since no one can guarantee the occurrence of a contingency.

Sustaining the “At Risk” Requirement

There have been questions in the past as to how long an investment must sustain its “at risk” characteristic. It has been successfully argued that once the job creation requirement has been satisfied, the investment has met its EB-5 requirement and no longer needs to sustain its “at risk” status. This argument holds up well, as USCIS regulations concerning the I-526 petition (Immigrant Petition by Alien Entrepreneur, filed at the beginning of the EB-5 process) specifically address the “at risk” requirement, while USCIS regulations regarding the I-829 (Petition by Entrepreneur to Remove Conditions on Permanent Resident Status, filed upon satisfaction of the job creation obligation) does not reference the “at risk” requirement.

Some legal experts have argued that sustainment of “at risk” does not apply during the two-year period when conditional residence takes place; only that the investment ownership is sustained during that provisional period. Although this situation is not specifically addressed in the USCIS policy manual, investors are advised to err on the conservative side—they should assume that the investment must be at risk at least during the qualification period of the first two years of the EB-5 investment.

“At Risk” Requirements for Redeployed Investment Funds

Since long wait lists have become more common, the sustainment requirement gets a little more complicated. In these cases of lengthy wait periods, often, the money has already been put to work and may be in the process of attaining the goal of creating 10 new jobs. Once the wait period ends, investors may be required to redeploy their funds until they reach their two-year conditional residence wait period. It has been successfully argued in the past that if those redeployed funds have already met the job creation requirement, they are no longer required to remain at risk.

By redeploying funds into another investment that remains engaged in a trade or form of commerce, experts believe this further strengthens their case that funds are being used for their intended purpose and “at risk” factors are less important in the overall picture. Since this situation has not been litigated often in court, and has reached various rulings, it remains somewhat cloudy; nevertheless, most legal council finds that a proactive approach in the courts typically ends on a positive note for immigrant investors.

The Difference Between Debt and Equity

Of all the risk factors, identifying the difference between debt and equity may be the clearest and easiest to prove in a court of law. A good start is by using the definition from Black’s Law Dictionary which defines debt as an “obligation of a debtor to pay,” along with the “right of a creditor to receive and enforce payment,” and is often used in conjunction with IRS codes addressing differences between debt and equity. If this is challenged by the USCIS, hiring a CPA as an expert witness to explain generally accepted accounting principals concerning debt structure as compared to equity positions usually produces positive results. Normally, the onus is upon the USCIS to prove that an investment is structured as a secured debt by providing documentation that irrefutably proves their assertion.

Avoiding Guaranteed Redemptions

While most investors prefer to mitigate their risk by having some guarantees put into place in the investment, one of the biggest red flags is the inclusion of a form of guaranteed redemption in the investment agreement. To determine if a guaranteed redemption exists, the USCIS studies the investment contract to see if it includes an absolute pledge to purchase the interest of an investor at a predetermined price at a determined future date. There has been some success by attorneys in arguing that all three conditions (the unconditional promise, the fixed price, and the set date) must be present to meet the guaranteed redemption definition, but the USCIS is likely to disagree and litigate the issue in a court of law. Investors should carefully review their investment agreement to see if it addresses this potential problem and, if so, ensure that no ambiguous language is used.

Understanding the Matter of Izummi

One legal case, the Matter of Izummi, has been carefully and thoroughly studied and is often referenced by attorneys as it involved an EB-5 investor dealing with all three issues: the “at risk” status, debt and equity positions, and guaranteed redemptions. While legal opinions are not law, previous views stated by judges often lay the foundation for actual rulings in future cases. Most immigration attorneys believe the Matter of Izummi case offers excellent opinions and arguments in support of the immigrant investor.

For those foreign nationals already involved in an EB-5 project, and for those desirous of participating in future EB-5 investments, gaining a clearer grasp of the subtleties of “at risk” investments, knowing the difference between debt and equity holdings, and understanding the complexity of guaranteed redemptions is imperative to selecting a qualified EB-5 investment that meets their goals without raising possible legal entanglements that could disqualify them from earning permanent residency in the United States.

With the surge of interest and participation in the EB-5 Immigrant Investor Program, there has been a similar explosion of regional center investment offerings to keep pace with this growing demand. This offers the immigrant investor more EB-5 investments from which to choose. Since there are many variations in the structure of regional center investments, the possible outcomes and risk exposure differs widely. It is up to the investor to perform their own due diligence to ascertain the worthiness of each investment.

A standard due diligence evaluation of an investment attempts to calculate a realistic rate of return while gauging safety of principal; for regional center investments, the ability of the regional center to create the 10 required jobs needed for each investor is equally important. If a regional center preserves the investor’s capital and delivers an acceptable rate of return but fails in meeting the required job quota, the investment is a failure.

Components of Regional Center Investment Offerings

Like other investment pools, regional centers combine general partners, who bring their experience to the table, with limited partners, who provide financing. Often, in addition to the funds provided by the limited partners, the general partners seek additional financing in the form of conventional loans. The general partners also structure the profit sharing arrangement of the regional center investment.

A seasoned investor will learn to look at these two components in the first stage of analysis. By understanding the debt burden as a ratio of invested funds, the investor can better judge the risk of their investment capital. By fully comprehending the backend profit sharing plan, the investor can better assess the probable return on their capital commitment.

Judging Capital Risks
While judicious use of debt can increase returns on investment through effective leveraging, regional centers that rely too heavily upon debt capital can find themselves at risk of foreclosure or restructuring debts at higher costs. Therefore, a careful study of the debt to capital ratio should be the first step in examining a regional center offering. While some regional center operators will seek to obtain 80% financing, this leaves a thin layer of protection for the investors who represent the remaining 20% of capital.

Since debt financing must be paid back before sharing profits, a small decrease in the value of a heavily leveraged investment will directly and negatively impact the investors while the lenders remain whole. The only way lenders risk a loss is if the investors are completely wiped out and there is still insufficient equity to pay back the loans. Most lenders are careful to ensure there is enough cushion to avoid that financial calamity; however, lenders cannot be concerned about the welfare of the investors.

Therefore, investors are advised to only consider regional centers which limit their debt to 60% or less of the total investment. Unless a complete catastrophe occurs, the chances of the investor losing their principal is greatly reduced. Such a low percentage of debt also serves as a buffer during difficult economic periods when revenues and reserves may temporarily decrease.

Assessing Probable Returns

Although determining debt structure is straightforward, assessing the potential returns entails more guesswork and estimates. There are many variables that can impact the final return for an investor; some variables are better anticipated than others. In all cases, the general partners should provide historical data to support their forecast and clearly explain any discrepancies or unusual projections that deviate from the supporting information.

While general partners cannot control such elements as the state of the economy, current interest rates, or overall appreciation on invested assets, the managers of the fund can structure the profit sharing to ensure that their interests remain subordinate to the priorities of the investors. There are many creative approaches that the general partner can offer, but the investor should expect a preferred return on their investment before the general partner can share in the profits.

Because general partners want to paint a positive picture, they often use favorable assumptions when estimating the use of funds, expected cash flow, and anticipated final sale. It benefits the diligent analyst to counter these glowing predictions by employing a conservative approach and crunching the same numbers. This allows an investor to get a realistic picture of probable returns that may be expected under a worst-case scenario.

Minimizing General Partner Conflicts of Interest

Regional center general partners should properly align their interests with the expectations and needs of the investing partners. Because general partners earn fees for managing the investment fund, they are motivated to operate a long-term project. On the other hand, since investors are seeking the quickest return of their investment, they prefer a shorter holding period for the investment. This creates an immediate conflict of interest that must be satisfactorily addressed by the general partner.

While most investors desire a quick turnaround, sometimes as short as five years, this is not a realistic assumption. Raising funds can sometimes take several years before an EB-5 project can begin in earnest. Also, the managing partners have no control over many factors, including the general economic picture. Investors should anticipate a holding period of at least seven years; ten years is more realistic. Of course, if the regional center investment should be fortunate enough to complete and sell its project in five years, this is a bonus for the sensible investor.

If a regional center is projecting strong results based upon aggressive assumptions and variables, the managing partners should be willing to back those numbers with performance guarantees. For instance, if they are promising a five-year return of principal and will allocate 30% of the profit for themselves (leaving the investors 70%), then they should scale back their profit sharing percentage in the event they do not reach their goal. By reducing their portion of the profits by 5% per year, they are motivated to meet their goal or pay the price for not keeping their word.

Meeting the New Jobs Requirement

EB-5 investors must also factor in the goal of meeting the requirement of generating at least 10 new jobs within the first two years of operation. This element depends upon the performance of the general partner.

An investor should not assume that if their I-526 petition is accepted by the USCIS based upon the anticipated number of jobs to be created, this guarantees that the regional center has met the predicted goal. It is only after form I-829 (which documents the actual number of jobs created) is successfully accepted with documented proof of new employment that permanent residency is granted to the investor and immediate family.
This means that careful attention should be paid to the assumptions and projections used for the job creation component of the EB-5 investment. Due diligence should reveal whether there is valid data backing up the job generation predictions. One should also look to see if conservative projections easily exceed the 10-job minimum each investor needs to achieve for an extra cushion of safety.

Past Performance Results

If the above due diligence steps pass muster, the final investigation should focus on the managers of the regional center. While past performances never guarantee future results, a smart investor will judge the experience and success of the general partners in previous and currently operating projects.

Many investors will once more look to their EB-5 advisors for their endorsement of a regional center investment. Because these professionals have had more exposure and experience working with regional center principals, they are an excellent resource to seek out in this final and crucial stage of the due diligence process.

As any veteran investor understands, due diligence cannot guarantee success, but it goes far in eliminating projects that are riskier than the investor is comfortable with. It also reduces unpleasant surprises that could arise in the future and soften the financial blow of any temporary downturns.

Whichever part of the EB-5 investment process you find yourself in, whether you’re still just researching or already invested in the program, it’s never too late to learn about EB-5 capital redeployment.

Defining Capital Redeployment

When an investor has an ongoing EB-5 investment project and they are filing form I-829 to lift the conditions from residency, it’s possible to run into additional problems. Because of high numbers of EB-5 investments, especially from countries like China, there can be a backlog of I-829 forms.

When then I-829 filing gets delayed, you may risk losing the eligibility for removing conditions. Specifically, the requirement that the investment funds should be at risk. If the project has been successfully completed and your funds returned to you, they are no longer at risk and will not fulfill the requirement.

In this case, you may need to redeploy the original amount of your EB-5 capital into another project to qualify for the I-829 removal of conditions. This was underlined by a USCIS memo which discussed the problem of funds not being at risk during the I-829 filing.

It’s not unusual to face the prospect of capital redeployment if the job-creating entity (JCE) you’re working with completes the project earlier than anticipated, or if the I-829 form is delayed for longer than normal.

When is Capital Redeployment Necessary?
In a normal, on schedule EB-5 project, you won’t need to redeploy your capital. But if your I-829 form has not been approved, you may not be approved if your capital is not at risk anymore.

Unfortunately, the USCIS has not put out much formal information about this topic, but from what they have released in memos, it’s important to understand the problem and solution. Redeployment is an option you will need to consider if your JCE meets the conditions of the job too quickly, returning the money for the project before the scheduled time.

Ways to Do Capital Redeployment

Keeping your money at risk does not mean that you have to undertake an entirely new EB-5 investment project.

Loaning to the JCE

You may be able to loan the capital to the JCE that you worked with originally. If your experience working with them before was good, it could be a potentially profitable partnership. But there are certain risks to this option.

Make sure to do the research and find out about the new project to which you will be loaning your capital. If it’s a long-term or complex project, it could keep your money tied up for longer than you wanted. Just because the JCE was efficient the first time does not mean they will be again for a different type of project.

Make sure to also understand how profitable the new project is set to be. It should be a project that you can feel comfortable being involved in, especially in terms of risks.

When you’re loaning money to a new JCE, you won’t be subject to the job creation restrictions that were placed on your initial investment project.

Investments outside of the JCE

It is the opinion of some experts that you are not required to invest in another JCE-related project to meet the “capital at risk” requirement. As long as you invest your money somewhere and put it at risk again, it may still count towards the requirement. This might include activities such as purchasing stock or investing in a real estate trust.

The benefit of investing outside of the JCE is that your investment can have higher liquidity, allowing you to regain your money quickly after your I-829 is approved.

Without strict guidelines from the USCIS, it’s hard to determine exactly how capital redeployment needs to be done. But you need to understand it in case you reach a place where your I-829 is stuck processing while your EB-5 investment project has been completed. Capital redeployment may not be a preferable option, however, it can save your chances of successfully removing the conditions on your permanent residency.

The EB-5 Visa process was formed so the U.S. could attract investors with high net worth. Qualifying investors are able to get a visa through the EB-5 Program, but only if they meet the investment standards, including a $1 million minimum investment or a $500,000 minimum investment in certain geographic areas.

While there are a lot of benefits to be found in the EB-5 Investment Program, including ownership interest in a U.S. company and the potential for a green card, there are processes that must be followed to help an individual qualify. For this reason, many investors choose to work with an EB-5 certified regional center.

Selecting an EB-5 Certified Regional Center

As an investor, you have to do your own due diligence before selecting a regional center to work with. One regional center is not the same as another, so you need to be selective about which one you choose to partner with for your investment.

Some things to look for:

Third-party experts
There are a lot of different facets involved in EB-5 investments, including the SEC, the USCIS, and real estate financing, to name a few. There should be experts in each facet to make the process smoother. These experts can help a regional center to compliant with EB-5 regulations in their respective areas of expertise.

Due diligence related to your investment
While you need to perform due diligence on the regional center, they have the responsibility to perform their own due diligence on all aspects of the EB-5 investment. This includes reviewing the project, developer, foreign partners, and investors.

Some due diligence actions to look for include understanding the project’s business plan, financial projections, timeline, budget, legal approvals, EB-5 compliance, and permits. They should understand the project inside and out.

The regional center should also thoroughly know the developer that will take part in the project, including tax returns, financial statements, and organizational structure documents. Developers need to have the specific experience and ability to complete the project.

Regional centers should be completing reviews on potential investors before accepting them to make sure they are likely to qualify for an EB-5 investment. Part of this review should include understanding the source of the investor’s funds.

Track record on EB-5 investments
You need to understand the regional center’s business model, their experience with past EB-5 projects (completion, timeline, success, etc.), guarantees to investors, and more. It’s important to understand how they have done in the past and what they will do to guarantee your success in the future.

Systems in place for tracking and protecting investor funds
Misuse of funds is a potential problem with investments, so you need to make sure the regional center has mechanisms in place to protect your money. Look for escrow management, satisfaction with developers before payments are made, checks and balances internally (such as multiple signatures before money is moved), and separate accounts for each investor.

Compliance training and education
Employees, consultants, foreign partners, and others should be thoroughly trained and educated in EB-5 compliance, or else you may not be able to trust the regional center to complete the project legitimately. This should be a constant process, as EB-5 laws are always changing, especially in the current immigration climate.

Controls in place for marketing of the project
Regional centers should be in complete control of marketing so that all investors can be sure of the information they’re getting. The regional centers should have a close relationship with all partners and should prepare all their own marketing materials.

These are simplified guidelines for selecting a regional center. Your own due diligence should be more exhaustive than what’s included here and should go beyond the simple guidelines for each suggested examination point. There’s no way to guarantee absolute success, but by checking on the procedures set by the regional center and the transparency of the operation, you can be more certain that you will reach your investment and EB-5 goals.

EB-5 investment is a path to getting a green card, but it can sometimes take longer than expected and involve more steps than you might have imagined.

I-526 Petition Approval

After you have submitted your I-526 petition for review, you have officially started the process for EB-5 based permanent residency. But approval of your I-526 does not lead directly to a conditional green card. Instead, it puts you in the current system’s queue.

Once your approval comes through, you are not immediately entitled to any immigration benefits or even allowed to apply for them. Instead, your application will be placed into the first in, first out (FIFO) based system. There are some regulations that can work for or against you in this process.

1. The priority date (date on which you filed your application) determines your eligibility in regard to other petitioners. When you filed your I-526 will help determine when you’re eligible for an EB-5 Visa.
2. Annual visas from one country cannot exceed 7% of all EB-5 Visas. No country can receive more than 7% of available EB-5 visas outright. There will be a cap once the 7% has been reached, cutting off all further attempts.
3. If all countries with eligible applicants have received EB-5 Visas, those who are held back by the 7% rule are able to get a visa on a FIFO basis. If all countries with applicants have received their limit of visas or their applicants have received all the visas requested (when under the 7% cutoff), those held back by the 7% cutoff will be allowed to receive the remaining unclaimed visas until the total annual limit (around 140,000) is reached. Applicants will be eligible based on their filing priority date.
4. 3,000 visas are reserved for targeted employment area (TEA) projects. If these visas are not claimed, they will become eligible for others in line.
5. 3,000 visas are reserved for investors working with a regional center. These visas will also be re-distributed if they are not all claimed.

Your country of origin has great impact on your waiting time. Unfortunately, Chinese applications for EB-5 Visas have overwhelmed the system to the point that there is a 10+ year backlog of applications. If you’re applying from China, you may have a very difficult time getting a green card in any reasonable time period.

If you’re applying from a country with low EB-5 petition numbers, you may be able to get a visa more quickly than others.

Some exceptions can help you jump ahead of the queue, including doing a project with a regional center or a project within a qualified TEA. Because there are a certain number of visas allocated for these two categories of projects, they can help you get ahead of some people in the line, even if your priority date is later than theirs.

Getting a Green Card after I-526 Approval

Once your name comes up in the queue and you’re approved for your EB-5 project to move forward, you must apply for your green card officially through either adjustment of status (AOS) or consular processing (CP). You will not automatically be issued a visa, and you can still be found inadmissible to the U.S. if you do not meet the immigration criteria. This is something you should consider before even applying for an EB-5 project.

You are required to go through one of the two official processing before you can get a conditional green card. There are some similarities, such as both processes requiring an interview, but they are fundamentally different.

Adjustment of Status (AOS)

In order to apply for AOS, you have to currently be inside the U.S. with a valid non-immigrant visa of some sort. This does not include visas like the B1 or B2, as these have a strict requirement that the holder should not be applying for AOS while on these types of visas. Most other visas do allow for AOS.

AOS can take longer than CP, but does allow for denials to be challenged because decisions by USCIS officers are often based on discretion rather than facts alone.

Consular Processing (CP)

If you don’t have a valid non-immigrant visa to the U.S., you have to apply for your EB-5 conditional green card through a consulate. This must be a consulate in your home country. If you have legal residency in another country, you may be allowed to apply through that country’s consulate instead.

CP is usually a shorter process than AOS, and it has a lower refusal rate. Decisions in CP need to be fact and evidence based, requiring the officer to provide specific proof that you are inadmissible. This makes it less likely that you will be denied, but the tradeoff is that you may not be able to have your case reviewed or the outcome challenged if you are denied.

Receiving Your Conditional Green Card

If you’re deemed to be admissible to the U.S., you will be granted a conditional green card that will allow you to legally live and work within the United States. If you fulfill the conditions of the EB-5 project, those conditions can be removed and you will have full legal permanent residency.

From this point on, you will be on a path to full U.S. citizenship. The time it takes to get to this point will vary based on where you’re applying from, the type of project you’re undertaking, and your current immigration status in the U.S.