In 1992, Congress established the Immigrant Investor Pilot Program, which created the regional center designation. Regional centers have come to form the backbone of the EB-5 program.
Regional centers are economic units designated by the USCIS for the purpose of encouraging regional economic development through EB-5 investment. Typically, regional centers are limited partnerships, limited liability companies, or C corporations, but other organizational structures can apply for regional center designation. Organizations apply for designation through Form I-924, Application for Regional Center under the Immigrant Investor Program.
The Advantages and Disadvantages of Establishing an EB-5 Regional Center
The key advantage of establishing a regional center is that it enables developers to accept large investments from EB-5 investors who do not expect high returns on their investments. Investors’ primary goal is to secure permanent residency, so their focus is not on high returns. Additionally, their investments must be at risk during the entire investment period.
Raising capital is further simplified by the advantages of regional center investments for EB-5 investors. These investments do not require participation in the day-to-day management of the project; they allow the inclusion of direct, indirect, and derived jobs in meeting the job-creation requirement; and they often involve projects in targeted employment areas (TEAs) that qualify for the lower investment threshold. This makes it easier to secure EB-5 capital.
The main disadvantages of establishing a regional center relate to costs and time. The process tends to be fairly expensive. In addition to the $17,795 filing fee, applicants must factor in the cost of the professional assistance and supporting documentation required to complete the application. Developers may need the assistance of immigration counsel, a business attorney, a bank escrow agent, an economist, and a business plan writer.
Once the form is submitted, it can take 12 to 24 months to process. Processing time depends on the submission, the complexity of the project, and the backlog of pending applications.
For many developers, the advantages of establishing a regional center outweigh the disadvantages, especially when taking the long-term view. An investor who does not want to face delays in starting a viable project can also rent a regional center while awaiting the outcome of a regional center application.
An Overview of the EB-5 Regional Center Application Process
Before starting the application process, the developer must identify the scope of the regional center and hire a suitable team of professionals to provide support during the application process. The scope of the regional center includes not only the geographic scope but also the types of projects the center will invest in.
Next, the developer must hire a suitable EB-5 regional center application team. Although some people hire individual experts to compile different parts of the application pack, working with a consulting firm like EB5AN ensures consistency across documents and simplifies the coordination of the application.
The purpose of Form I-924 is to show that the entity will meet the requirements of the EB-5 program. Because of the variations in the individual circumstances and needs of applicants, the supporting documentation required varies.
Documentation that must be submitted along with Form I-924 include the following:
- At least one regional center EB-5 compliant business plan
- An operating or partnership agreement
- A hypothetical, actual, or exemplar project business plan
- An economic report regarding the project’s employment creation
- A private placement memorandum (PPM)
- An investor questionnaire and subscription agreement
- Any related corporate, transactional, loan, or securities documents prepared by appropriate counsel
Once the supporting documentation has been compiled into hardcopy binders and the application form completed, the applicant must sign the hardcopy documents in ink and submit the application pack and filing fee to the USCIS California Service Center.
EB-5 Regional Center and Project Business Plans
For the USCIS to approve the regional center application, the business plans for both the regional center itself and the accompanying project must meet certain requirements. Specifically, these business plans must be compliant with the guidelines set out in Matter of Ho. The USCIS requires comprehensive business plans that provide ample, independent evidence of their credibility.
For a real estate project in particular, the business plan should provide evidence of viability through a credible third-party feasibility report. This report should indicate whether the project is likely to succeed within its geographic area and market type, highlighting comparable properties. Additionally, the report should include an explanation of its assumptions regarding the calculation of pro forma revenues and expenses.
Hypothetical, Actual, and Exemplar Project Applications for EB-5 Regional Centers
Form I-924 must be accompanied by project documentation, which is classified in terms of readiness ranging from hypothetical to exemplar.
The simplest project type, referred to as hypothetical, is just that—a project that may or may not actually exist but that could exist. This form of project documentation is useful when the regional center applicant has no shovel-ready projects but desires regional center approval for future projects. In such cases, the hypothetical project serves as an indicator of the type of projects the regional center expects to pursue. Without specific project details, however, the related documents (e.g., offering documents, economic report, business plan, etc.) are based upon basic assumptions.
An actual project is shovel-ready and therefore should include a business plan and economic report that reflect the project’s details—the actual corporate documents, offering documents, third-party feasibility studies, details about the capital stack, any permits or licenses, and any other relevant documents. For an actual project, the development is set to commence once the USCIS approves Form I-924 and the regional center can accept EB-5 capital from investors.
One of the major benefits of an actual project is that future filings based on the same material facts receive deference, which means a favorable determination for an actual project proposal is more likely to result in a favorable determination for investors’ I-526 petitions. Another benefit of filing an actual project, as opposed to an exemplar project, is that small changes can still be made to the business plan, economic report, and offering documents before investors file their I-526 petitions.
An exemplar project proposal is similar to that of an actual project except the exemplar project includes a completed Form I-526 for an unnamed investor. Exemplar projects are considered preapproved by the USCIS, though the USCIS maintains the authority to rereview all future filings at its discretion. In practice, the preapproval of the project along with a sample I-526 provides greater certainty that future I-526 filings for the same project will be approved.
For investors in exemplar projects, the only material not previously reviewed by the USCIS is their source of funds documentation. While exemplar projects are the least flexible once approved, this preapproval is particularly appealing to potential investors.
Work with EB5AN to Set Up Your Regional Center
Setting up a regional center is a complex process. EB5AN has successfully established numerous regional centers. In fact, we own and operate 14 of our own regional centers. To learn how we can help you to compile and submit a detailed, accurate I-924 application, contact us today.