With demand for EB-5 visas having outstripped supply, United States Citizenship and Immigration Services (USCIS) began 2020 with a backlog of approximately 14,000 EB-5 visa petitions awaiting adjudication. The resulting wait times have prompted investors to explore new strategies to ensure they continue to meet the conditions of the EB-5 program.

A main area of concern has centered on the requirement that EB-5 investment funds be maintained at risk throughout an investor’s conditional residence period, beginning from the time he or she enters the United States following approval of the I-526 petition and ending when the I-829 petition is adjudicated and unconditional permanent residence is granted. With backlogs and retrogression causing wait times of numerous years for some investors, fulfilling this requirement has become increasingly challenging.

This article examines the redeployment of investment funds within a new commercial enterprise (NCE), one adaptation strategy investors have used in response to this obstacle.

What Is the At-risk Requirement?

The purpose of the EB-5 program is to create jobs within the United States. As such, those filing for visas under the program are required to make an initial investment of $900,000 or $1,800,000 in a NCE depending on whether the project is located in a targeted investment area (TEA), which is a region experiencing unemployment levels significantly higher than the national average. This investment amount must be made available in its entirety to the NCE for the explicit purpose of job creation.

That the investment must be maintained at risk means the investor cannot be repaid this initial amount until their conditional residence period has ended. While the investor is permitted to see a return on that investment, such as a distribution of profits from the operation of the NCE, the original loan to the enterprise cannot itself be repaid. Guidelines from USCIS have additionally clarified that the amount cannot simply be held in escrow by the NCE during this time but must be continuously deployed in a project.

This requirement creates a problem for investors dealing with increased wait times as a result of retrogression: If the wait time for adjudication extends beyond the term of the loan and the loan is repaid during or even before the conditional residence period, the funds are no longer at risk. In this scenario, the investor would fail to meet the EB-5 program requirements and would risk losing their visa. For investors who have relocated their families and created new lives in the United States to obtain permanent residence under the program, this possibility poses a significant risk.

Redeployment of Investment Funds

Most EB-5 investors apply through the regional center model, in which the regional center as the NCE loans the investment funds to a second enterprise responsible for job creation. In the case of a real estate development, for example, the regional center loans the funds to a development firm, which uses those funds to create construction jobs. At the end of the loan term, the firm repays the loan, and the regional center returns the funds to the investor.

Traditionally, loan terms of five years satisfied the at-risk requirement well, providing enough time for the investor to file and receive approval for an I-526 petition, live in the United States for a conditional residence period of two years, and then file and receive approval for an I-829 petition. However, increased wait times mean these loan terms are no longer sufficient and indeed create an additional risk for the investor: Aside from the possibility of the NCE failing during the wait, the investor also risks losing their visa by failing to meet the at-risk requirement.

While resolving the issue of early repayment, longer loan terms are not desirable in all cases. As such, redeployment creates a potential solution for this issue by allowing the NCE, the regional center, to ensure the investment funds are maintained at risk by continually deploying repaid funds into new job-creating projects. While the initial deployment of the investment must fill the job creation quota, redeployment simply allows investors to meet EB-5 program requirements in cases where the loan is repaid before the end of conditional residence. EB-5 capital can also be redeployed following the sale or refinancing of a project when the EB-5 capital has been repaid to the NCE by the original JCE.

In July 2020, USCIS clarified how funds should be redeployed to ensure investors remain in compliance with the requirements of the EB-5 program. The clarifications address in which types of activities and enterprises, where, and when capital should be redeployed.

5 Key Points Contained in the 2020 EB-5 Capital Redeployment Policy Update

The clarification of the guidelines covers five key points.

1. The EB-5 capital must be redeployed into a commercial activity. If an investor redeploys the capital into a purely financial activity by investing in securities or financial instruments on the secondary market, the investment does not meet the at-risk requirement of the EB-5 program. Thus, an NCE should not redeploy their capital by, for example, placing it in a brokerage account or buying stock on the stock exchange.
2. The capital must be redeployed through the NCE in which the investor made the original investment.
3. Investors can redeploy capital into any commercial activity that aligns with the purpose of the NCE to engage in the conduct of lawful business. The most important consideration is that the NCE must engage in commerce that falls within its stated scope. The good news is that USCIS seems to be flexible regarding the kinds of activities that would qualify and that it is willing to allow amendments to NCE operating and partnership agreements to adjust the scope of the business.
4. The NCE must operate within the approved geographic area of the same regional center. However, this includes areas that fall under any amendments to expand the geographic scope of the regional center that are approved before redeployment.
5. Redeployment should occur within 12 months, but USCIS may consider longer periods if the delay was out of the control of the investor, NCE, and regional center. In other words, USCIS will consider evidence that the delay was reasonable.

The Main Implications of the 2020 EB-5 Capital Redeployment Policy Update

While EB-5 investors should be aware of the criteria for redeployment to ensure that their capital remains at risk and that they continue to meet the requirements of the EB-5 program, the clarifications have the greatest implications for regional center operators and developers who work with regional center sponsors. Because of the restrictions relating to the geographic scope of regional centers, the latter two groups must consider the future redeployment of capital by expanding the scope of existing regional centers or working with regional centers that offer extensive geographic coverage.

1. Expanding the Approved Geographic Scope of a Regional Center

To expand the existing scope of a regional center, a regional center operator must file a Form I-924 amendment. Doing so is especially important for regional centers with limited coverage. For example, if a regional center covers only three counties, redeployment will have to occur in only those three counties. If the regional center can expand its coverage area by adding another 20 counties, redeployment can occur anywhere within the 23-county area.

2. Working with a Regional Center that Offers Extensive Geographic Coverage

EB-5 project developers who are considering regional center sponsorship must select a regional center with a large geographic coverage area, as this will ensure flexibility for future redeployment. Project developers should factor in this criterion when conducting their due diligence during their search for the ideal regional center sponsor.

Additional Points Investors Should Consider When Contemplating Redeployment

Investors should keep the following key points in mind when considering redeployment as a potential fund management strategy:

• The potential for redeployment must be outlined in the private placement memorandum for the initial offering. Although it is not necessarily possible to plan for redeployments years in advance, as the business climate may change in the intervening years, the plan should be as detailed as possible so as to allow investors to make informed decisions and minimize risk.
• The EB-5 program does not allow for material changes to projects, meaning substantive changes not outlined in the business plan approved with the I-526 petition. As such, job creation must occur during the first deployment of funds, which is the focus of the original business plan.