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Preparing for Changes in the EB-5 Program

Recent uncertainty regarding the future of the EB-5 Program harkens back to temporary shakeups in 2013 brought about by the publication of the May 30 memorandum by United States Citizenship and Immigration Services (USCIS). While EB-5 practitioners were quick to adapt to the adjustments outlined in the memo, similar concerns have arisen in the present day regarding the potential for policy changes to blindside investors, regional centers, and other practitioners within the context of the EB-5 Program.

In an attempt to face any changes proactively, as investors and regional centers will need to adapt immediately following any upheavals, practitioners are investigating novel strategies regarding the creation of business plans and other documentation provided to USCIS for adjudication. This article therefore reviews the impact of the May 30 memo to illustrate how changes in USCIS policy can result in innovation in the EB-5 market as well as improvements in the way projects are evaluated, leading to a more transparent investment environment overall.

The past three years have fostered an evolution in the design of EB-5 business plans, and better understanding these changes can help practitioners develop tactics to address any potential upcoming policy changes. The recent spike in the shuttering of regional centers has illustrated that USCIS aims to ensure all actors within the EB-5 Program fulfill their roles, and practitioners have noted that requests for evidence (RFEs) often concern information gaps that could have been avoided through more diligent regard for USCIS guidelines.

By examining reactions to the May 30 memo within the EB-5 market, practitioners can better develop strategies to face future changes as well as current USCIS trends in adjudication. Successful responses to changes introduced in the May 30 memo are therefore outlined here.

Changes in Adjudication Standards

The May 30 memo signified that USCIS would be adopting a more rigorous stance in evaluating the viability of EB-5 projects. While the Matter of Ho ruling provided comprehensive guidelines on the information necessary in an EB-5 business plan, and USCIS continues to adjudicate petitions based on these standards, the level of scrutiny has intensified as USCIS aims to combat fraud and misrepresentation within the program. Whereas practitioners once viewed the Matter of Ho guidelines as suggestions rather than requirements, recent RFEs have driven home the importance of supporting each project with thorough documentation.

Prior to the May 30 memo, investors and regional centers generally relied on the experience of project management teams to create financial projections and support the assumptions for revenue and expenses stated in the business plan. Indeed, before 2013, I-526 petitions for conditional permanent residence were adjudicated and approved based on little data concerning the viability of EB-5 projects. The May 30 memo therefore clarified that USCIS would be evaluating projects much more intensively in the following years.

Introduced with the memo was a focus on the standard of a “preponderance of evidence” regarding all information submitted with I-526 petitions. This signified that USCIS would be turning a more critical eye to any assumptions presented in EB-5 business plans, and investors and regional centers would therefore need to provide more legitimate data and support from sources outside the projects themselves moving forward.

Use of Third-Party Data

The most significant change in strategy was the move toward using third-party data to support EB-5 business plans. The type of data used varies by industry but must reflect current and historical trends specific to the project and must be integrated effectively into the business plan. Some projects additionally commission a third-party feasibility study to better support their economic viability and ability to fulfill the goals of the EB-5 Program.

Because the capacity of a project to fulfill the EB-5 job creation requirement is so crucial to the success of the I-526 petition, regional centers must model the financial aspects of a project on relevant and accurate data to ensure the right amount of investment funds are sought for the capital stack. Experienced economists can use this data to create financial projections as a basis for economic inputs and thereby calculate the necessary capital to sustain the job creation requirement and the project itself.

Third-party data also allows project managers to make any adjustments necessary during the preliminary planning stages to ensure the project remains viable. While providing credible data to USCIS greatly increases the likelihood of the successful adjudication of investors’ I-526 petitions, this data can also serve to provide a foundation upon which to build the capital stack and avoid later significant changes once a project is underway.

Evaluating RFEs

Recent RFEs provide guidelines upon which investors and regional centers can base their project development and documentation. Whereas RFEs have previously focused on a lack of information regarding economic viability, job creation potential, and licenses and permits, current RFEs center on the ability of new commercial enterprises to compete with competitors in the U.S. market. Developers have therefore begun to include comprehensive marketing strategies with their business plans and have undertaken SWOT analyses to determine areas for improvement in this regard.

These RFEs have demonstrated that USCIS is evaluating documents much more intensely than in previous years in an effort to ensure EB-5 projects meet the central job creation requirement of the program and remain accountable to investors.

The evolution of business plans following the May 30 memo illustrates the ability of EB-5 practitioners to adapt to changing circumstances and evaluation criteria. The more sophisticated business plans required of current EB-5 projects make use of multiple data sources and are the result of collaboration with experienced economic and legal professionals. Any future changes will likewise be geared toward fostering more transparent and sustainable EB-5 projects to protect investors and the goals of the program, and through significant developments in business plan design following the May 30 memo, practitioners have demonstrated that they are eager to embrace such challenges.