In 1992, Congress established a pilot program that allows U.S. Citizenship and Immigration Services (USCIS) to designate certain entities as regional centers to facilitate EB-5 investments in specific geographic regions and industries. This was done to promote foreign investment through the EB-5 program by creating favorable investment conditions.
A regional center is any private or public organization involved with promoting U.S. economic growth through increased regional productivity, domestic capital, and export sales, and the creation of new jobs. The staff at a regional center typically manages the center’s EB-5 projects, so investors are seldom involved in the daily management of their investments. Of the 10,000 visas available annually through the EB-5 program, 3,000 are set aside for investors whose petitions stem from regional center projects.
Renting a regional center holds several benefits. It saves time and money, and it allows developers to begin raising EB-5 capital immediately. To make the most of regional center rental, developers must consider three important factors.
3 Factors to Consider when Renting a Regional Center
When choosing a suitable regional center, developers must determine whether candidate centers cover the desired geographic areas, perform comprehensive due diligence, and ensure that they understand the terms of the rental agreement. Seeking professional advice and assistance from legal counsel and qualified business professionals is a crucial part of this process.
1. The Regional Center’s Scope
Regional centers are permitted to develop projects only within the approved geographic area listed in their approval letters. While a regional center can apply to USCIS to amend its operational scope if a project falls outside these parameters, this can cause delays, and approval is not automatic.
During the earlier stages of the pilot program, regional centers were restricted to operating within preapproved industries defined according to the North American Industry Classification System (NAICS). However, since the publication of the May 2013 EB-5 Adjudications Policy Memo, this restriction has fallen away.
Identifying the scope of a regional center is simple: just ask the operator for a copy of its USCIS approval letter. This letter confirms the approved geographic region covered by a regional center.
2. The Regional Center’s Performance and Reputation
The next factor to consider is arguably one of the most important: is the center reputable, and does it have a strong, verifiable record of success? As of April 2019, 855 USCIS-approved immigrant investor regional centers are in operation. This number includes centers of varying levels of operational efficiency, ranging from those managed by experienced professional staff to those managed poorly—or even illegally.
The first step in the vetting process should be to check the number of USCIS-approved I-526 immigrant investor petitions the center has filed. It is important to ask whether any of the center’s I-526 petitions and any of investors’ I-829 petitions have been denied and why. Next, developers should seek references from qualified professionals such as reputable industry partners and immigration lawyers and from the center’s current partners.
Developers should also investigate compliance with laws and USCIS policies. Compared to centers that focus solely on rental agreements, those that sponsor their own EB-5 projects have a greater incentive to remain in compliance with USCIS requirements. Additionally, compliance with state and federal laws is vital, and developers should ask centers what procedures they have implemented to ensure legal compliance.
Finally, when performing EB-5 regional center due diligence, developers should check the regional center’s
- I-924 application,
- principals’ backgrounds,
- litigation record (current and pending litigation against the center),
- product offerings and rate of success related to these offerings, and
- compliance procedures related to the projects sponsored or affiliated with.
3. The Terms of the Rental Agreement
The last step in the regional center rental process is agreeing to rental terms. Developers must ensure that they understand the full implications of the rental agreement, particularly those related to cost, obligations, oversight, competition, and indemnification.
One of the main reasons for renting a regional center is to avoid the costs associated with establishing a new center. Therefore, it is important to determine whether the cost of the rental is feasible. Developers should ask whether the regional center charges upfront fees or a fee per EB-5 investor. Moreover, they should clarify whether the regional center requires project equity or a specific amount of job cushion.
If a regional center requires significant upfront fees and/or project equity, the project might not be profitable. Conducting a comprehensive cost-benefit analysis is an essential part of determining whether a project will be profitable.
The rental agreement should clearly set out the obligations of the developer and the regional center. This includes indicating who is responsible for the completion of documentation related to the project and for administering the investment fund.
Compliance with laws and USCIS regulations is a key aspect of choosing a regional center. It is equally important to ensure that the rental agreement contains details of the oversight the regional center performs. Strict oversight increases the likelihood of the center and project remaining in compliance.
Regional centers, especially those who often rent their services, are usually involved in several projects at the same time. Thus, developers must clarify whether centers are sponsoring multiple projects that might be in competition with one another.
The rental agreement must contain a clause that indemnifies the developer against past liability.
After clarifying these points, the agreements can be drafted and signed. Documents must be written in language that reflects both parties’ understanding of the agreement, and developers must ensure that their interests are represented.
In addition to carefully reading any agreements before signing them, developers should consider obtaining advice from immigration counsel or EB-5 professionals to confirm that their interests are protected.