The numerous problems that have plagued the EB-5 Immigrant Investor Program in the 2010s are well known. 2020 was a particularly difficult year for the residency-by-investment program—and for much of the world—due to the devastation caused by the COVID-19 pandemic, the significantly diminished EB-5 investment demand inspired by the Modernization Rule’s higher minimum required EB5 investment amount, and the financial difficulties and narrowly averted furlough at United States Citizenship and Immigration Services (USCIS). To add to the program’s woes, when the EB-5 Regional Center Program was renewed in December 2020, Congress divorced it from the government spending bill it’s traditionally been coupled with, placing the popular program at risk of termination.

The EB-5 investment community has banded together to enact reform on the program, which is seen as the only viable way to ensure the reauthorization of the EB-5 Regional Center Program. One bill, the EB-5 Reform and Integrity Act, led by Chuck Grassley (R-IA) and Patrick Leahy (D-VT), was introduced to the U.S. Senate in April 2021, and has been backed by EB5 investment stakeholders as crucial to the reauthorization of the regional center program. The bill focuses on reform and integrity measures, as suggested by its name, but also touches on long-term reauthorization for the regional center program.

In May 2021, another bill, H.R. 2901, was introduced to the House of Representatives, this time concentrating on the regional center program reauthorization and other EB-5 Regional Center Program issues. Both bills propose a five-year authorization of the program through 2026, and H.R. 2901 also includes measures to improve accountability and increase trust between EB-5 investment participants and EB-5 regional centers. Introduced by Senators Greg Stanton (D-AZ) and Brian Fitzpatrick (R-PA), H.R. 2901 once again demonstrates the bipartisan interests of maintaining and fostering the EB-5 program, with both senators attesting to the important job creation potential of the residency-by-investment program.

EB-5 investment stakeholders, such as nonprofit industry trade association Invest in the USA (IIUSA) and the Coalition to Save and Create Jobs (CSCJ), have endorsed both bills, expressing their excitement at the introduction of yet another EB-5 reform bill. They urge more EB5 investment stakeholders to get involved and push for swift enactment. Indeed, with the EB-5 Regional Center Program set to expire on June 30, 2021, time is of the essence.

Why Is the EB-5 Regional Center Program So Important?

Even if the EB-5 Regional Center Program were terminated, the EB-5 Immigrant Investor Program itself would survive and continue to offer foreign nationals a chance to relocate permanently to the United States in exchange for funding job creation through an EB-5 investment. So, some may wonder, why is the regional center program so crucial?

Although investors have the option to make an EB-5 investment directly in a qualifying EB-5 project, most choose to invest through a USCIS-approved regional center. Regional center investment provides a number of benefits—instead of dedicating themselves to the everyday management of the new commercial enterprise (NCE), investors can simply join the project as a limited partner and vote remotely on pertinent matters. EB-5 regional center investors also get to count indirect and induced jobs toward their job creation count, making it easier to satisfy EB-5 program requirements. Finally, EB-5 investors benefit from the experience and expertise of EB-5 regional center operators, who can help investors compile their I-526 petitions and otherwise satisfy program requirements.

If the regional center program were terminated, some foreign nationals may still elect to pursue U.S. permanent residency rights through a direct EB5 investment. Many, however, may seek out residency-by-investment programs in other rich, highly developed countries, such as the UK or Australia. If the United States wishes to retain the economic stimulation and job creation afforded by the EB-5 program, enacting reform and reauthorizing the EB-5 Regional Center Program is imperative.

If the popularity of the EB-5 Immigrant Investor Program is anything to go by, it offers important benefits to foreign nationals who choose to embark on an EB-5 investment journey. Throughout the program’s three-decade history, it has helped hundreds of thousands of investors settle into their new, permanent lives in the United States, all the while pumping billions into the U.S. economy and generating hundreds of thousands of jobs for U.S. workers. Though it may be undeservedly branded a “pay-for-residency scheme” by critics (despite subjecting investors to rigorous job creation requirements), it offers some important benefits that render it more than a simple immigration program for foreign investors.

As of February 2021, the EB-5 program has been experiencing ever-longer processing times since 2019. With uncertainty building for those with EB5 investments—particularly those from backlogged China and Vietnam—some foreign investors have opted to pursue residency in Canada or Australia instead of undertaking an EB-5 investment in the United States. However, the EB-5 program offers two important benefits that drive many applicants to ultimately opt for an EB5 investment.

Green Cards for Dependents

No matter how much an investor may wish to relocate to the United States, staying together with their immediate family members is more important to most. A U.S. green card may be essentially useless for an investor if their spouse and dependent children cannot enter the United States with them. EB-5 investment participants with families need not worry—spouses and unmarried children younger than 21 are equally eligible for permanent resident status under the principal applicant’s EB5 investment. This distinguishes the EB-5 program from some other U.S. visa categories, which allow underage children to accompany their parents to the United States but require them to apply for their own permanent residency rights when they turn 18.

Relocating to the United States with one’s children opens the door to a myriad of valuable educational opportunities. With a green card, not only can a dependent child participate in the U.S. public education system, which offers a high-quality, well-rounded education as well as immersion in English and American culture, but they may also be eligible for in-state tuition savings when it comes time to apply to universities. Permanent residents are also put into the same pool as citizens, not international students, when applying to colleges, increasing their chances of admission.

The Opportunity for Passive Income

One of the EB-5 program requirements is that EB5 investment capital remain “at risk” throughout the duration of the investment period. This does not mean the investment itself must be risky but rather that the capital must incur both the possibility of increase as well as the risk of loss. Given that it is an investment, the chance of high returns is inherent and obvious. However, depending on the type of EB-5 investment an applicant engages in, they may be able to earn the returns passively.

Investors must choose between investing directly in an EB-5 project or working with an EB-5 regional center to invest in a project. Direct investors are generally required to engage in substantial, in-person managerial labor. Regional center investors, conversely, usually sign on as limited partners, reducing their managerial responsibilities to voting on pertinent business matters, which can be conducted remotely.

In this way, investors can earn passive returns on their EB5 investment while enjoying their new life in the United States—even in a state far away from their EB-5 project. This opportunity for passive income is unique to the EB-5 program—employment-based immigration programs are abundant, but the EB-5 program is the only one to offer residency rights for a passive investment.

The November 2019 enactment of the Modernization Rule may also financially benefit those who engage in EB-5 investments in 2020 and beyond. The Modernization Rule raised the minimum investment amounts from $1 million ($500,000 for targeted employment areas, or TEAs) to $1.8 million ($900,000 for TEAs), which, in conjunction with the debilitating effects of the COVID-19 pandemic, all but halted new EB-5 applicants. Diminished EB-5 demand could result in higher interest rates as an incentive to attract more investors, which could mean investors earn more competitive returns on their EB5 investments.

The EB-5 investment program requires a capital commitment of $1.8 million from an immigrant investor seeking permanent residency in the United States. However, investors can reduce the minimum investment requirement to only $900k if they choose an investment located in a targeted employment area (TEA). An area is considered a TEA if it is located in either (i) a rural area or (ii) an area experiencing high unemployment.

The COVID-19 pandemic has resulted in dramatic increases in national unemployment, with impacts to specific regions differing greatly. Employment data reflecting the impacts of the COVID-19 pandemic was released by the Bureau of Labor Statistics (BLS) in April 2021. EB5AN’s free national EB-5 TEA map, which allows project developers to instantly check whether an address qualifies as a TEA, has been updated to reflect the most current BLS data.

Prior to the latest BLS data release, entire counties qualifying as TEAs were mostly limited to smaller, or more rural, counties. However, as a result of impacts of the COVID-19 pandemic, counties now qualify as TEAs in more populous urban areas such as Los Angeles County, California, and Brooklyn County, New York.

Read below to learn how TEAs are designated and to see a complete list of the full counties that now qualify as high-unemployment TEAs.

How Are TEAs Designated?

A rural TEA must be located outside of a metropolitan statistical area (MSA) and outside of a town or city with a population above 20,000 people. A high-unemployment TEA must have an unemployment rate at least 150% of the national average. High-unemployment TEA designations are made for individual census tracts, a combination of directly adjacent census tracts, or at the county-wide level. If the area is a combination of adjacent census tracts, the weighted average of that group’s unemployment must reach at least 150% of the national average to qualify as a TEA. Additionally, an entire county can qualify as a TEA if the county-wide unemployment rate is greater than or equal to the unemployment rate requirement for the given period.

What Are the Different Methodologies to Determine a Project’s TEA Status?

The burden falls on EB-5 projects themselves to prove that their site qualifies as a TEA. When calculating unemployment rates for high-unemployment TEA designation, projects use one of three methodologies: (i) ACS, (ii) census share, or (iii) county level.

Updated data from the American Community Survey (ACS) is published by the U.S. Census Bureau each December. Updated data from BLS is published each April and applies to the census share and county-level methodologies. This means that the effects of the COVID-19 pandemic on TEA status were only revealed in April 2021.

What Does the 2020 Report from the BLS Reveal?

The BLS publishes unemployment data at the national, MSA, and county levels. Although entire counties have always qualified as TEAs, these counties were typically less populous counties located in more rural areas. However, economic shutdowns in many major cities in response to the COVID-19 pandemic have increased unemployment rates in many urban areas in the United States. As such, many full counties that now qualify as TEAs include those encompassing large cities with high populations.

Below is a list of the counties that now qualify as high-unemployment TEAs based on the most recently published BLS data. The 2020 national unemployment rate according to the BLS was 8.10%, and high-unemployment TEAs must exhibit an unemployment rate at least 150% of the national average. Therefore, for a full county to qualify as a TEA, it must have an unemployment rate above 12.15% (8.10% x 1.5).

Alabama

• Wilcox County (14.73%)
• Lowndes County (13.33%)

Alaska

• Skagway Municipality (21.45%)
• Kusilvak Census Area (19.36%)
• Denali Borough (15.74%)
• Haines Borough (15.62%)
• Hoonah-Angoon Census Area (13.52%)

Arizona

• Yuma County (17.13%)
• Apache County (12.78%)

California

• Imperial County (22.49%)
• Colusa County (15.95%)
• Tulare County (13.21%)
• Los Angeles County (12.80%)
• Kern County (12.52%)
• Merced County (12.19%)

Florida

• Osceola County (13.54%)

Georgia

• Clay County (12.39%)

Hawaii

• Maui County (17.83%)
• Kauai County (16.18%)

Kentucky

• Magoffin County (16.08%)

Louisiana

• Orleans Parish (12.17%)

Michigan

• Cheboygan County (14.58%)
• Wayne County (13.81%)
• Mackinac County (13.35%)
• Montmorency County (13.14%)
• Lapeer County (12.49%)

Minnesota

• Mahnomen County (13.01%)

Mississippi

• Jefferson County (18.40%)
• Holmes County (16.20%)
• Tunica County (14.86%)
• Humphreys County (14.74%)
• Claiborne County (14.43%)
• Wilkinson County (13.36%)
• Coahoma County (12.53%)

Missouri

• Taney County (12.92%)

Nevada

• Clark County (14.73%)

New Jersey

• Atlantic County (17.76%)
• Cape May County (13.82%)
• Passaic County (12.60%)

New Mexico

• Luna County (15.86%)

New York

• Bronx County (16.03%)
• Brooklyn County (12.53%)
• Queens County (12.53%)

North Dakota

• Rolette County (13.43%)

Pennsylvania

• Cameron County (12.57%)
• Philadelphia County/City (12.37%)
• Elk County (12.30%)

Texas

• Starr County (17.32%)
• Maverick County (15.00%)
• Presidio County (14.73%)
• Zavala County (14.11%)
• Crane County (13.61%)
• Jim Wells County (12.98%)
• Zapata County (12.41%)

Virginia

• Petersburg City (13.95%)

West Virginia

• Calhoun County (16.06%)
• Mingo County (14.25%)
• McDowell County (12.59%)
• Clay County (12.50%)
• Roane County (12.44%)
• Logan County (12.17%)

Wisconsin

• Menominee County (15.34%)
• Forest County (12.42%)

If you would like EB5AN to research and monitor a specific project location for you, please send an email with your request to info@EB5AN.com or schedule a call.

As the world heads into continued turmoil caused by the COVID-19 pandemic, United States Citizenship and Immigration Services (USCIS) has released the EB-5 petition processing data for FY2021 Q1 (October–December 2020). This data release closes out the tumultuous year of 2020, and the figures it offers cannot necessarily be extrapolated for future predictions due to the special circumstances of 2020. Nonetheless, it provides some important insights for foreign nationals currently engaged in an EB-5 investment journey, detailing receipt, approval, and denial rates for I-526 and I-829 petitions.

I-526 Petition Data

Receipts

Not a lot can be said about I-526 petition receipts from October to December 2020 because USCIS simply didn’t include the information in the data release. Instead of a number, the official data table included a “D” in the FY2021 Q1 column of I-526 receipts, which stands for “data withheld to protect applicants’ privacy.” However, it’s likely that the figure was low, considering the COVID-19 pandemic that continued to ravage the world throughout the quarter. Historical trends indeed show record-low I-526 receipt figures throughout calendar year 2020, initially sparked by the massive spike in FY2020 Q1 of investors rushing to file their EB5 investment application before the Modernization Rule increased the minimum investment amounts by 80% in November 2019 but further exacerbated by the pandemic.

Approvals and Denials

As has steadily held true throughout Sarah Kendall’s tenure as chief of the Immigrant Investor Program Office (IPO), USCIS adjudication remained low throughout all of calendar year 2020, including the first quarter of fiscal year 2021. There has been a slight upward trend in I-526 approvals since a record low in FY2019 Q3, but the figures nonetheless remain abysmal compared to USCIS’s productivity prior to Kendall taking the reins. However, FY2021 Q1 is the IPO’s final year under Kendall’s direct influence, as her LinkedIn page indicates that she left her post at the IPO after November 2020. If the new leadership better manages the office’s productivity, EB-5 investment stakeholders could see these figures shooting up in the next data release.

While Kendall’s IPO has continuously faltered on I-526 approvals, denial figures have remained fairly consistent with historical numbers. What this means is that the approval-to-denial ratio has increased, with EB5 investment participants facing a higher likelihood of I-526 denial. This trend is particularly evident when plotted by quarter, with the number of approvals in FY2019 Q3 just barely exceeding the number of denials. While the rate has subsequently improved, it remains far below pre-Kendall figures.

Overall

What the charts make clear is that I-526 productivity at the IPO has stayed low. While it’s easy to chalk up low adjudication figures to the effects of the COVID-19 pandemic, it could equally be argued that the IPO had even more opportunity than usual to adjudicate I-526 petitions, given that many other duties at the IPO were likely slashed due to public health protocols, freeing up more time. FY2021 Q1 also represents the first quarter of an extraordinarily high EB-5 investment visa allowance, with the EB-5 program receiving almost double the typical number of annual EB-5 visas. Barring consular service interruptions, USCIS has the perfect opportunity to whittle down the EB-5 backlogs, but so far, they have chosen to forgo this opportunity.

The good news, however, is that quarterly approvals are up from FY2020 Q4, and if the trend continues, FY2021 will record higher numbers overall than FY2020. The I-526 petition backlog also decreased by 9% in FY2021 Q1, as opposed to the 9% increase recorded in FY2020. Though this may be due more to a lack of incoming I-526 petitions rather than adjudication productivity, the figures are still good news.

I-829 Petition Data

Receipts

Perhaps most striking about the I-829 petition receipt data for FY2021 Q1 is the low number of receipts. Since I-829 petitions must be filed within the final three months of an EB-5 investment participant’s two-year conditional residency period, they should logically reflect I-526 approval figures from a few years prior. With FY2017, FY2018, and FY2019 exhibiting high I-526 approval figures, the low rate of I-829 petition receipts in FY2021 Q1 is concerning. However, USCIS’s inefficiencies in the face of COVID-19 may ultimately be to blame—the agency struggled to issue I-829 receipt notices throughout 2020, which may have resulted in significant underreporting of the number in the current data release. If this theory is correct, FY2021 Q2 may show a spike, unless USCIS continues its failure to issue I-829 receipt notices in a timely manner.

Approvals and Denials

While investors in the I-526 stage of the EB-5 investment journey may not have harbored much love for Sarah Kendall, the I-829 processing situation at the IPO under her leadership was significantly more favorable. Putting a clear focus on I-829 petitions, Kendall delivered higher I-829 approval figures than many of her predecessors. In FY2021 Q1, the number of I-829 approvals was down slightly from the previous three quarters, but it remained higher than the quarterly figures from previous years.

In terms of I-829 denials, figures are also a bit higher throughout Kendall’s reign compared to the numbers recorded by previous IPO chiefs. However, the increase in overall I-829 processing more than compensates for the relatively high denial figures, with the IPO demonstrating a relatively high approval-to-denial rate for I-829 petitions throughout FY2020 and FY2021. The rate has come down slightly in FY2021 Q1 but nonetheless remains higher than many historical rates. All in all, the last few fiscal years have been a positive period for I-829 processing, and the future situation depends on how the new IPO leadership behaves.

Overall

The I-829 processing figures for FY2021 Q1 are somewhat difficult to interpret due to the absence of the receipt figures, but overall, it’s clear that while I-829 adjudication has taken a hit compared to FY2020, processing is still higher than in many previous years. Compared to FY2020 Q4, the I-829 approval number in FY2021 Q1 has decreased by 12%, but compared to the first quarters of previous years, FY2021 is doing relatively well. EB5 investment stakeholders can only hope the new leadership will maintain high I-829 processing while simultaneously increasing I-526 adjudication.

In terms of the I-829 backlog, FY2021 has so far recorded a decrease in the number of pending I-829 petitions. Although it’s only 4%, it’s still much better than previous years, as the I-829 backlog has seen a steady increase since FY2013. However, EB-5 investors shouldn’t get their hopes up prematurely—the drop is likely a result of the low I-829 receipts recorded in FY2021 Q1, which, in turn, may be due to challenges in issuing receipt notices. The data release for FY2021 Q2 should provide more insights into the question of I-829 receipts.

I-526 and I-829 Processing Data Comparison

The takeaway from USCIS’s FY2021 Q1 data release is that I-526 petition processing has continued to underperform, while I-829 petition processing has continued to overperform. No significant differences from FY2020 Q4 can be detected, although processing figures are slightly down in both categories. Massive backlogs remain for both I-526 and I-829, so EB-5 investment participants can continue to expect long wait times to begin their new life in the United States.

However, this data release is somewhat lacking, making it difficult to draw conclusions. The absence of I-526 receipt data means EB5 investment stakeholders won’t know the current EB-5 demand until the FY2021 Q2 data comes out, and the unusually low I-829 receipt data could be due to USCIS inefficiency, but we won’t find out until the next quarter’s data is released.

With all the turmoil of the world in 2020 and 2021, EB-5 investment figures in the next quarters are difficult to predict. The COVID-19 pandemic and the various mutations of the virus threaten additional restrictions and shutdowns, which could impact the ability of U.S. embassies and consulates to process EB-5 visas. EB-5 demand could remain low because of the 80% increase in the minimum required EB5 investment amount, especially after so many businesses and individuals have suffered financial hardship in the face of the pandemic. Finally, Sarah Kendall’s relinquishing of the reins at the IPO might signal a new era for the EB-5 program, depending on what direction the IPO takes under the leadership of new chief Nick Colucci.

Insights to all of these uncertainties may be revealed in the FY2021 Q2 data release. Until then, EB-5 investment stakeholders should focus on the imminent sunset date of the EB-5 Regional Center Program because if the program fails to be reformed by June 30, 2021, it may face termination. The EB-5 community is backing the EB-5 Reform and Integrity Act, which has been introduced in the Senate, as many believe it’s the program’s sole chance at reauthorization.

Wondering what the final action dates and dates for filing are for backlogged EB-5 Immigrant Investor Program participants in May 2021? The U.S. Department of State – Bureau of Consular Affairs has released the Visa Bulletin for May 2021. While Chinese nationals involved in an EB-5 investment should prepare for another month of disappointment, Vietnamese EB-5 investors can rejoice in the continued movement in their final action date.

What Are the Final Action Dates in May 2021?

In May 2021, the final action date for Chinese EB5 investment participants has failed to budge, but this shouldn’t come as a surprise. The Chinese final action date has remained at August 15, 2015, since the September 2020 Visa Bulletin, and chances are it will remain there for the rest of FY2021, according to remarks by Charles Oppenheim, chief of the Visa Control and Reporting Division at the U.S. Department of State. China, which has long led the world in EB-5 demand, has suffered a long-standing backlog that first materialized in 2014, and Chinese EB-5 investors should expect significant wait times for an EB-5 investment visa.

While the outlook for backlogged Chinese EB-5 investors is currently bleak, better news could be on the horizon. With both the EB-5 Reform and Integrity Act and the U.S. Citizenship Act of 2021 on the table, massive changes could be coming to United States Citizenship and Immigration Services (USCIS) that speed up the adjudication times of Chinese EB-5 petitions. The U.S. Citizenship Act of 2021 even proposes to remove the country cap on U.S. visas, removing the disadvantage of Chinese nationality.

Vietnam is the only other country with an EB-5 backlog as of May 2021, but unlike their Chinese counterparts, Vietnamese EB-5 investors are seeing progress in their final action date. In the May 2021 Visa Bulletin, the Vietnamese final action date lies at February 15, 2018, representing a two-month jump from the April 2021 bulletin. The final action date in the April 2021 Visa Bulletin was, in turn, a seven-week leap from the previous month. If this trend continues, Vietnamese EB-5 investment participants may see their country hurtling toward “current” status, just as Indian investors did in July 2020.

What Are the Dates for Filing?

In the EB-5 Immigrant Investor Program, Chinese nationals are the only ones to have ever been subject to a date for filing backlog. What that means is not only do they have to wait to receive their EB-5 visa following the approval of their I-526 petition, but they also have to wait just to file their application for the visa after receiving I-526 approval. As of May 2021, the date for filing for Chinese EB5 investment participants stands at December 15, 2015, just as it has for more than a year. The date for filing isn’t likely to move before the final action date does, so it’s likely that USCIS won’t be seeing any new applications for EB-5 visas from Chinese nationals for the remainder of FY2021.

Every year, thousands of foreign nationals make EB-5 investments, aiming for a brighter future with their families in the United States. The EB-5 Immigrant Investor Program is largely seen as the quickest and simplest means to permanent U.S. immigration, and generally, those who prioritize care and meticulous due diligence in their EB5 investment process successfully receive U.S. permanent resident status. However, an EB-5 investment is not a guaranteed ticket to a green card, and one risk—one that is especially pronounced during the COVID-19 pandemic—is the EB-5 project owner defaulting on their loans.

When an EB-5 project defaults, an EB-5 investor’s financial capital and immigration status alike are endangered. The new commercial enterprise (NCE) through which the applicant is investing has a duty to protect the immigration eligibility of its investors, and while a defaulting EB-5 project is a precious situation, it does not necessarily nullify the investor’s chance at a life in the United States. Below is a guide of the steps an NCE should take if its EB-5 project is defaulting.

1. Review the Investment Documents

The first step an NCE should take is reviewing the agreements and documents in place for its investment with the EB-5 project. Such a review allows the NCE to ascertain what rights it has and what solutions are available to execute.

2. Review the Intercreditor Agreement and Senior Loan Documents, If Applicable

If the NCE is not the senior lender in the project—and usually it is not—then it is also imperative to review the senior loan documents and any intercreditor agreements the NCE may have signed with the senior lender. In most cases, an NCE is required to enter into an intercreditor agreement. The intercreditor agreement may prohibit certain actions permitted under the investment documents with the project owner, shortening the list of potential actions the NCE can take.

The NCE should seek to fully understand the conditions of the senior loan documentation before sending written notices to the project owner or senior lender, as such actions could evoke negative consequences that accelerate a foreclosure sale initiated by the senior lender. It’s usually in the best interest of the NCE to avoid a foreclosure sale, as this often prevents repayment of its loan.

3. Determine the Solutions Available

After combing through the relevant documentation, the NCE should carefully consider the options available. Factors it should contemplate include what actions it can take against the EB-5 project owner, what actions it could take to safeguard its investors’ interests in the event of a foreclosure sale, how much capital is needed to pay off the senior loan, how viable the EB-5 project is in its present state, and whether the NCE can take over the project or find a “white knight” third-party entity willing to save it while preserving the NCE’s interests. This list is non-exhaustive—NCEs should consider all possible factors for the most accurate analysis.

4. Obtain Documentation to Determine Job Creation Numbers

To protect the immigration eligibility of its EB-5 investment participants, an NCE should request the records and documentation it needs to determine job creation immediately upon catching wind of potential financial distress of the project owner. If the project owner loses control of the project, the NCE will no longer have access to such documents, so speed is key. Once the NCE has the necessary documents, it should have its economist prepare a revised economic report to determine whether a sufficient number of jobs have already been created to satisfy the EB-5 program requirements. This determination will help shape the decision the NCE ultimately makes.

5. Determine the Effects on the Investors’ EB-5 Eligibility

The NCE must carefully consider the immigration status of its EB-5 investors, and if an insufficient number of jobs have been created, it must work carefully to safeguard the immigration eligibility of the investors. The NCE should take into account which actions would be most beneficial from an immigration standpoint and whether a given action would result in a “material change” that must be registered with United States Citizenship and Immigration Services (USCIS).

6. Determine the Best Course of Action

With all the facts on hand and careful deliberations made to determine the available solutions, the NCE should determine its best course of action and communicate its plan with the EB-5 project owner, senior lender, other major investors, and a prospective third-party buyer, if applicable. It should first speak with its business legal counsel to determine the best means of communication with these parties, however, as premature discussions could jeopardize the NCE’s ability to execute its strategy.

7. Determine How to Communicate the Situation to the EB-5 Investors

NCEs have a fiduciary duty to notify EB-5 investment participants of any important material changes to the EB-5 project that could affect their financial or immigration status, but they may keep this information confidential until they have reached a decision on the strategy they will implement. Before it reveals the plan to investors, an NCE should also consult its business legal counsel to determine the best way to break the news. In its communication, the NCE should tell EB-5 investors what the state of the project is, whether enough jobs have been created to satisfy EB-5 requirements, the factors that lead the NCE to believe action is necessary, and why the NCE has deemed the intended action the most appropriate.

8. Document the Justifications for the Decision

Finally, the NCE should keep comprehensive records of its deliberations and justifications of its decision. Despite its best efforts, an NCE may still end up losing the EB5 investment capital of its investors, which could result in lawsuits from the investors. The best way for the NCE to protect itself is to compile ample documentation showing that the decision was made in good faith with reasonable business judgment in consideration of the evidence available at the time of the decision.

Since 1990, the EB-5 Immigrant Investor Program has paved the way to permanent resident status in the United States for thousands of immigrant investors and their immediate family members, generally constituting one of the quickest and easiest means of obtaining a U.S. green card. EB-5 investments are generally successful, but the EB-5 program stipulates a number of requirements investors must satisfy, and failure to do so results in EB-5 denial. One particularly dangerous situation for those with active EB5 investments is when the EB-5 project owner defaults on their loan, which can put the investor’s capital and immigration status alike at risk.

New commercial enterprises (NCEs) are required to preserve the capital and immigration status of its EB-5 investors to the best of its ability, so when a project owner defaults on their loan, an NCE must take various actions to protect its EB-5 investors. Depending on the circumstances, EB-5 investment participants may be able to retain their eligibility for immigration benefits despite a default.

Determining Sufficient Job Creation

One of the key requirements of the EB-5 program is the creation of no fewer than 10 full-time jobs filled by U.S. workers. Direct EB-5 investors must showcase at least 10 jobs on the NCE’s payroll or construction jobs that have lasted at least two years, which can be challenging if a project is defaulting and has not been completed. Regional center investors, on the other hand, may count indirect or induced jobs, which are determined through an economic analysis of the impact of the NCE’s spending and operations in the local economy. Even in an incomplete state, a project may still fulfill the job creation requirements, allowing the applicable EB-5 investors to maintain eligibility for a U.S. green card despite the project defaulting.

If, conversely, the NCE cannot demonstrate sufficient job creation to safeguard all its investors, it must engage in discussions with the project owner or a third-party purchaser to ascertain whether the project will continue as originally planned and whether the formerly projected jobs will still be created. If so, the NCE may suffer financial loss but nonetheless protect its investors’ eligibility for U.S. permanent residency.

Given this delicate situation, if an NCE learns that the EB-5 project it has invested in is in distress, it should immediately reach out to obtain the necessary documentation to showcase job creation. If a higher-up lender holds a foreclosure sale, the NCE may lose its rights to request such documents, creating a need for urgent action upon news of a default.

Navigating Material Changes Due to Foreclosure Sales

If a defaulting EB-5 project that has not created sufficient jobs to satisfy the needs of all its EB-5 investment participants is sold in a foreclosure sale, the EB-5 investors are thrust into a precarious situation. If the new business owner revamps the entity such that it constitutes a “material change” for United States Citizenship and Immigration Services (USCIS) purposes, it may still be possible for the EB5 investment participants to earn their immigration benefits. However, unless the NCE was repaid with excess capital derived from the foreclosure sale, it’s unlikely that the entity will have sufficient funding to make more EB-5 investments in the new project.

Such a scenario begs numerous questions: Would the NCE need to elicit extra EB5 investment funds from its investors? If so, how much extra capital would investors need to inject into the revamped project? Who would pay for the fresh business plan and economic report that would also be required for the new project? With careful planning with the project owner, it may be possible for the NCE to avoid making a new investment by preserving the job-creating ability of the original entity. This would be an NCE’s best bet, as the logistics around an additional EB5 investment may be tricky at best and impossible at worst.

If, on the other hand, enough jobs have indeed been created to satisfy the job creation requirement, an investor may still receive their immigration benefits regardless of a default. History has shown USCIS to issue I-829 petition approval even to investors whose EB-5 projects have failed in ways that have left them incomplete.

When it’s said that the EB-5 Immigrant Investor Program is among the fastest and easiest ways to immigrate to the United States, that doesn’t mean an EB-5 investment isn’t without its risks. All EB5 investments are inherently subject to immigration risk, and one of the EB-5 program requirements is that the EB-5 investment capital remain subject to financial risk (the possibility for both loss and gain) throughout the investment period. While most EB-5 projects are successful and earn the investor and their dependents U.S. permanent resident status, some do fail, and the COVID-19 pandemic has accentuated this risk. In particular, hotels and other hospitality businesses are experiencing distress, with some project owners defaulting on their loans. What happens to the new commercial enterprise (NCE) funneling EB5 investment capital into a project when the project defaults?

Since EB-5 investments can be structured in numerous ways, there’s no one simple answer to this question. Different options are available for different types of EB5 investments, but generally, the terms are not overly favorable for the NCE.

If the NCE Is Secured by a First-Lien Mortgage

Most EB5 investments are not secured by a first-lien mortgage, but some are, and this is by far the best situation for an NCE to find itself in upon default by the project owner. In this case, the NCE has the right to hold a foreclosure sale on the project, either taking ownership of it itself or selling it to a third party. Each state follows its own foreclosure laws that NCEs must abide by, which generally means hiring a foreclosure expert to conduct the sale.

In the foreclosure sale, the NCE may bid up to the full amount of its loan. If the NCE does so, and if no other bids exceed this amount, the NCE pays nothing and assumes ownership of the project. If, however, a third party does outbid the NCE, they will have to pay cash at the foreclosure sale, allowing the NCE to receive full repayment for its loan. Any excess cash goes to the project owner, who must pay it out to other creditors.

If the NCE Is Secured by a Second-Lien Mortgage

NCEs with loans secured by a second-lien mortgage have similar rights to first-lien mortgage lenders, but they are subordinate to the first-lien mortgage lenders. In other words, NCEs with a second-lien mortgage on an EB-5 project may call a foreclosure sale, but only if the senior lender chooses not to.

If the senior lender does choose to exercise this right, however, the junior lender cannot receive any repayment until the senior lender’s loan has been repaid in full. If the excess funds cannot cover the junior lender’s loan amount, the NCE loses its second-lien mortgage and the rights associated with it. In cases where the defaulting project owner cannot fully repay the junior loan with the proceeds from a foreclosure sale, the NCE may obtain a monetary judgment against the project owner that can be satisfied with other assets the project owner possesses, but generally, the project owner’s sole asset is the EB-5 project, leaving the NCE with little recourse to recover its loan.

An additional factor complicates matter further—generally, a junior lender is required to sign an intercreditor agreement with the senior lender. Usually, this agreement disallows the second-lien lender from taking enforcement action against the project owner until the senior loan has been entirely repaid. This often means the only option is for the NCE to repay the senior loan itself or find a third party willing to do so while keeping the NCE’s junior lien intact. However, most NCEs have no additional funds to pay off the senior loan, rendering this solution inviable. The best practice for junior lender NCEs in this case is to work with the project owner to avoid a senior-lien foreclosure and sell the project at a high enough price to pay off both the senior and junior loans.

If the NCE Is Secured by Pledges of Membership Interest

Many EB-5 investments are secured by pledges of membership interest, either by the project owner, the entity that owns the project owner, or another entity above the NCE. Such a loan structure offers the NCE the right to hold a foreclosure sale of the membership interests, which operates similar to a regular foreclosure sale in that the secured party may bid up to the full amount they are owed. Should no other bids exceed this amount, the NCE obtains ownership of the membership interests.

However, like with junior lenders, NCEs with loans secured by pledges of membership interest are usually required to enter into an intercreditor agreement that prohibits them from holding a foreclosure sale on the membership interests until the senior loan has been fully repaid. To make matters worse, if the senior lender holds a foreclosure sale, the membership interests may be rendered useless—and if the entity pledging the membership interests is above the project owner in the chain of command, the project owner must first repay all unsecured lenders before the NCE. Thus, NCEs with loans secured by membership interests should work with the project owner to avoid a foreclosure sale.

If the NCE Is Unsecured

An NCE with an unsecured loan has no rights to hold a foreclosure sale, leaving the only recourse to file a complaint in court against the project owner to obtain a monetary judgment. After the monetary judgment is obtained—which can take months or years—the NCE would have to file a writ of attachment on any assets the project owner might have, allowing them to be sold to help fund the repayment of the NCE’s loan. Since assets that the project owner has already pledged to other creditors would first have to satisfy their loans, it could be a lengthy or even impossible process for an NCE with unsecured loans in a defaulting EB-5 project to receive repayment.

The Third-Party Rescue

In all above-described scenarios other than the one in which the NCE is the senior lender, the NCE cannot receive its repaid funds until the senior lender’s loan has been repaid. In such cases, the NCE may locate a third-party entity—often called a “white knight”—to either purchase the project or repay the senior lender’s capital and take their position as the first-lien mortgage lender while maintaining the NCE’s interest in the project. To make this arrangement financially attractive for the white knight, the deal is usually structured such that the NCE is not repaid until the white knight receives their full repayment and a specified return and all other creditors have been repaid. While this almost inevitably represents a higher-risk investment for the NCE, it’s still preferrable to losing the entire investment to a foreclosure sale.

The EB-5 Immigrant Investor Program, in place since 1990, offers the ideal opportunity for any foreign investor dreaming of a life in the United States: for $1.8 million—or $900,000, depending on the targeted employment area (TEA) status of the project—investors can make a passive EB-5 investment and gain U.S. permanent resident status for themselves and their dependent family members, contingent on satisfying EB-5 program requirements. But what if you don’t have the funds?

A prospective EB-5 investor’s journey is not necessary over if they don’t personally possess the necessary capital for an EB5 investment. Those with wealthy relatives can embark on an EB-5 investment journey with capital gifted by their family members, as long as they prove to United States Citizenship and Immigration Services (USCIS) that the funds were truly a gift and that they originated from lawful sources. It’s relatively common for parents not personally interested in immigrating to the United States to gift their child the necessary capital to make an EB-5 investment and forge a brighter future in the United States.

Satisfying the Source-of-Funds Requirement

USCIS accepts EB-5 capital from nearly any source, including gifts, as long as the investor demonstrates its legality. The transfer of the gifted funds from the donor to the recipient alone doesn’t count as the capital’s source—the donor must prove that they obtained the funds legally. According to USCIS guidelines, investors must provide evidence that suggests it is “more likely than not” that the funds derive from a legal source. For gifted EB5 investment capital, USCIS primarily cares about the legitimacy of the gift and how the donor obtained the funds.

Proving the Legitimacy of the Gift

To count as valid EB-5 investment capital, gifted funds must constitute a bona fide gift with no repayment terms. To satisfy this USCIS condition, the donor should draft a written gift agreement that explicitly states the gift is “irrevocable” and the recipient is not obligated to repay it, and both parties should sign it. If the donor does not speak English, they should compose the agreement in a language they speak and obtain a certified translation into English for the investor to include in their I-526 application. While gifts may come from anyone, USCIS will exercise more scrutiny toward gifts from friends or business associates than from family.

Proving the Lawful Source of Funds

USCIS also requires those making an EB-5 investment with gifted funds to demonstrate the capital’s lawful sources, just like with any other type of fund. As part of the gift, the donor should provide documents to the recipient that prove the legal origins of their capital. The documents should be as detailed as possible, constituting anything from employment records, bank statements, and tax returns to investment records, loan documents, and property records. If any documents are not in English, the donor or investor must obtain a certified translation into English.

Consult EB-5 Immigration Counsel to Help

USCIS regulations can be complicated, and the source-of-funds requirement is one of the trickiest requirements of an EB-5 investment. Depending on the capital used, obtaining the necessary documents to prove the legality of the funds can be challenging and time-consuming. The best practice for any EB-5 investor (or their donor) is to hire an experienced EB-5 immigration lawyer to determine which sources to use to prove the lawfulness of the EB5 investment capital.

International travel has become significantly more difficult during the COVID-19 pandemic. However, while travel and immigration to the United States remain challenging during the pandemic, immigration remains a great option in a post-pandemic world. The EB-5 program is considered the most efficient path to obtain U.S. permanent residency. This article explains the benefits to immigrating the United States under the EB-5 investment program.

You Will Be Able to Be with Your Family

Whether your family resides mostly in the United States or in your home country, they are a dominant factor in your decision to move to the United States. If you have family that lives in the United States, this is a great opportunity to spend time with them.

To maintain conditional permanent residency status, you must reside predominantly in the United States without taking extended international trips. If you are the first of your relatives to relocate to the United States, this requirement may seem daunting, but after five years of permanent residency you may apply for U.S. citizenship. Once you have citizenship, there are no international travel restrictions. When an investor receives an EB-5 visa, their spouse and unmarried children under the age of 21 are also eligible for U.S. green card status.

Invaluable Access to American Education

Colleges and colleges worldwide have moved to online learning to minimize the spread of COVID-19. However, U.S. universities have not lost their prestige during their shift to virtual classes. It is difficult to be accepted to these prestigious universities, such as Harvard, Stanford, and Yale, and international students often have to battle for the few spots open to them.

Attaining a U.S. green card, however, opens up many academic opportunities for students. With a green card, EB-5 visa holders will have an easier time getting into these competitive universities. Green card holders and U.S. citizens have a 4.5 percent chance of being accepted to Harvard, whereas international applicants have only a 0.1% chance of admission. EB-5 visa holders applying to public universities could also be eligible to benefit from in-state tuition savings. In addition, many U.S. students work during their time at a university and EB-5 visa holders would be eligible to do so as well.

The U.S. Economy Is Already Recovering from COVID-19

In order to keep small businesses running during the financial downturn caused by the pandemic, the U.S. government has provided extensive aid. However, this downturn was not due to diminished consumer demand, which is often the case during recessions. Consequently, many expect a quick recovery following the pandemic. We may also see an influx in innovation in industries that have become prominent during the past year, such as health care, technology, and e-commerce businesses.

The Pandemic Has Created an Ideal Environment for EB-5 Projects

The coronavirus hit many cities hard, and places where rents were high, such as New York City, have seen significant vacancies and drops in property values. As unemployment rates have increased in many parts of the country, different parts of the United States could qualify as targeted employment areas (TEAs). This would result in EB-5 investors having a lower minimum investment amount for projects in these areas.

An accumulation of all these factors and the end of the pandemic may make this the ideal time for investors to make an EB-5 investment.

The COVID-19 Pandemic Should Not Deter Prospective EB-5 Investors

Immigrating to the United States during the pandemic has been difficult, to say the least. Despite the closure of U.S. embassies and consulates, EB-5 applications have continued. In fact, I-526 petitions have the potential to be processed faster than they were before the pandemic, making this a great time to make an EB-5 investment for those who are able to.