Free EB-5 Project Evaluation

How to Select an EB-5 Project and File I-526 Petition Before 11/21/2019


Sam (00:05):
Hi everyone. This is Sam Silverman and Mike Schoenfeld, managing partners of EB5AN. Thank you for taking some time to join us today. We know the deadline is rapidly approaching, so we’re going to try and cover some of the key aspects of selecting an EB-5 project and the source-of-funds aspects of the I-526 petition so that you can meet the upcoming November 21 deadline. If you have any questions during the webinar, please use the box on the screen to write in any questions, and we’ll try and address any questions at the end of the webinar today.

Sam (00:48):
Right, so, as most of you probably know, the upcoming investment change amount is increasing from $500,000 to $900,000 on November 21st. There are a number of other small changes, but the primary one is the change in the investment amount. So, if you’re interested in making an EB-5 investment, it would be wise to do so before the deadline—otherwise, the investment amount would be $900,000 for petitions filed post–November 21.

And to meet the deadline, the key is to have signed the subscription agreement, fully wired into the project, and have your full I-526 submitted to USCIS and received before November 21. We know that there is a large rush going on now. Many immigration attorneys are very busy, including Anahita, who has been kind enough to join us today to help talk through some of the source-of-funds issues. And going forward, we know that it is going to be a sprint to get all of the documentation together to beat the deadline, but it is possible if you move quickly. So, if you want to invest at the $500,000 level, it’s important to immediately begin working on your source of funds as you are going through the project diligence process.

Sam (02:06):
This is a short overview of the different requirements to be able to meet the deadline. The first important aspect is to diligence a project and decide which project you actually want to invest the $500,000 into. And then, the second component, as Mike mentioned, is selecting an experienced EB-5 immigration attorney to work with on the source of funds, which shows exactly how you obtained the $500,000 that’s going to be invested into the project. Once that’s completed, you sign the project subscription form, which typically takes just a few hours, invest the $500,000 into the project, and then, once the $500,000 has been invested, then your immigration attorney can immediately print and file your I-526 petition with USCIS.

Sam (03:03):
EB5AN is a national EB-5 regional center operator and fund manager. We have over 1100 investors from more than 40 different countries. We own and operate 15 USCIS-approved regional centers covering 27 states, and we have 11 ongoing EB-5 projects with exemplar approvals and many I-526 approvals as well.

Sam (03:32):
This is a short summary of the key three managing partners of EB5AN. I’m Sam Silverman, joined today by my partner, Mike Schoenfeld, and our third partner, Tim Shih. And as you can see, we all come from institutional backgrounds and have attended some of the top universities in the country.

And Anahita, if you would like to give a bit of background on yourself… Anahita is one of the experts in source of funds and a great immigration attorney, and we’re fortunate to have her on the line with us.

Anahita (04:06):
Yes. Hi everyone. So, my name is Anahita George. Just want to give a little bit background about myself—I have a bachelor’s in accounting and pre-law from Drexel University, a lot of experience in international tax and accounting from two of the big four accounting firms that are Deloitte and PWC. I have my JD from Penn State University, and I speak three different languages. We’ve done over 185 petitions so far.

Sam (04:41):
Thank you. Thank you. Towards the end of the webinar, we’ll spend a few minutes discussing the source of funds, and Anahita will spend some time walking through some of the most common source-of-funds questions and issues that investors face. To shift back to EB5AN, as I mentioned earlier, we own and operate 15 regional centers that cover 27 states. We’ve worked with investors from around the world. And one of the things we’re most proud of as a country is that investors from a wide variety of backgrounds have consistently found value in our approach to EB-5 project structuring and diligence. In today’s webinar, we’re going to focus on four key criteria for selection of an EB-5 project—first, sufficient job creation; second, a properly structured capital stack; third, feasible exit strategy; and forth, guarantees and protections. Then, Anahita will spend some time discussing best practices for EB-5 investors working on their source of funds.

Sam (05:58):
So, the first key thing that you should be looking at for the project, especially as we’re coming up to this deadline, is looking at the EB-5 job creation. So, of course, the primary goal in EB-5 is to secure the permanent green card. The way that you achieve that is by being able to prove where your source of funds has come from, investing into a high-quality project, and then creating the jobs. So, as long as you invest in a project and can prove the creation of the jobs, which could have already occurred, that is the key to ensuring a successful immigration outcome. And the way that you reduce the risk in investing in EB-5 is to invest in a project that is fully capitalized and is happening with or without EB-5 financing. And especially as we come up to this deadline, where we know after November 21 the flow of EB-5 capital will significantly slow down, it’s critical to invest in a project that can be completed without the remaining EB-5 capital they’re looking to raise. Additionally, it’s important to understand that projects that are already well under construction—for those types of projects, you’re able to count job creation from the beginning of the project. So, the safest, lowest risk from an immigration perspective for a project is one that’s been under construction for a significant period of time and has already created more than the required 10 jobs per EB-5 investor.

Sam (07:44):
One of the other important aspects to understand is the use of bridge financing. Bridge financing has been specifically allowed by USCIS. And what it essentially allows for is for a developer to use temporary financing to get a project started and then have EB-5 financing come in later on to replace it. And so, when that happens, USCIS specifically allows job creation from the very beginning of the project to be counted through the completion. So, that, in effect, allows projects to reduce their risk by having construction advanced to a point where all the jobs needed for EB-5 investors joining the project have already been completed and in place before EB-5 investors actually joined the project. And we’ll spend a little bit more time later on discussing how this actually works with a specific project.

Sam (08:50):
Another important aspect of an EB-5 project is the capital stack. The most important thing you want to understand is that you want EB-5 to be coming in as a nice-to-have, not as a need-to-have. Projects that are already fully financed with third-party bank financing, where a bank has already signed a final loan agreement and already funded that loan into the project—those are the types of projects that you want to consider for investment. That shows that a third-party banking institution has already completed their diligence and has felt comfortable investing millions of dollars into the project and the project is not reliant on EB-5 investors.

Sam (09:35):
Again, projects where the EB-5 investor is getting the benefit of a major banking institution already having completed their diligence and approved the project for funding is a great indicator that the project is economically sound and has already met the criteria for investment from a professional, third-party, independent institution.

Sam (10:06):
Feasible exit strategy—it’s very important to understand how the EB-5 capital investment will be repaid to investors. One of the most important things here is to look at the reasonableness of the project and how economically sound and realistic is the projected outcome going to occur. Additionally, you also want to consider the quality of the EB-5 borrower. Who is the company that’s actually borrowing the EB-5 loan and is going to be responsible for the repayment at the completion of the project? And at the time when the EB-5 capital can be repaid under USCIS rules to each individual investor, given some of the countries today have a longer wait time, it’s very important to evaluate the track record for repayment of loans for the developer of the EB-5 project to make sure that the developer borrowing the EB-5 money as a loan has a very long track record of successfully repaying loans and debt obligations so that the EB-5 investors in the project can take comfort in knowing that the person borrowing the money has a track record of over 20+ years of successfully borrowing and repaying loan obligations.

Sam (11:49):
Guarantees and projections—this is a section where there is little USCIS requirement for EB-5 projects. So, there will be a wide variety of different guarantees and protections offered to EB-5 investors ranging across different projects. So, it’s very important to understand exactly what the protection is and what entity is responsible for providing that measure of safety for the investors in the project. Here, we’ll touch on some of the most common types of guarantees, and again, these will vary by project. The first one is an I-526 refund guarantee. The purpose of this is to ensure that, since the primary goal of the EB-5 investment is to receive I-526 approval and shortly thereafter receive the green card, the goal here is that if, for any reason, an investor is not approved, their I-526 petition is denied, then the investor’s getting his or her money back within a specific short period of time.

Sam (12:54):
The second is a repayment guarantee. The most favorable type of guarantee is one that’s from a developer’s parent company and is not secured only by the specific project where the EB-5 loan funds are going into. The idea here is that when it’s time to actually repay the money, when the investor becomes eligible to get the money back, this is the type of guarantee that’s going to make that much more likely and lower the risk of a loan default. Third, the completion guarantee—this means that the developer is going to complete the project and fund any additional costs that come up to make sure that it’s completed successfully. And last, repayment terms—this is more around the timing of capital being repaid. Most loan projects have a specific loan period, and they may also have additional extensions. It’s very important to understand exactly what the trigger is, what the requirements are for repayment. Once an individual investor has filed his or her I-526 petition, the USCIS current rules state that the earliest an EB-5 investor can receive his or her capital back is upon the filing of his or her I-829 petition. This will vary from project to project. However, some projects attempt to retain investor funds for a longer period of time. So, it’s very important to understand exactly what is going to be the trigger for each individual investor to receive their capital back once they’re eligible under USCIS rules.

Sam (14:42):
And again, the most important thing for the guarantees and protections is to realize that none of these are required by USCIS, but they will ensure timely repayment of capital and ensure that the EB-5 goal of getting the I-526 approved does happen for investors.

So, now we’re going to switch over, and Anahita will talk a little bit about the source-of-funds requirements, especially as we get towards the deadline. She’ll walk through some of the EB-5 regulations for source of funds and then some of the common ways that investors prove source of funds. So, with that, I’ll hand it over.

Anahita (21:43):
Yes. So, I just want to go through a brief history of the USCIS EB-5 regulations, one of which is the most important aspect—we need to establish that the funds were obtained through lawful means. By this, USCIS wants to know that the funds were acquired not through criminal activity. On top of that, there’s an additional requirement to document the path of funds. So, if you sold your home, they want to know, after the sale of the home, what bank account was the fund transferred to? And from that bank account, it was transferred to a new commercial entity or an EB5AN bank account. So, all that line needs to be drawn straight. The standard is preponderance of the evidence, so they don’t need to see 90%. They just need to be convinced that the funds are generated through legal activity.

Anahita (22:36):
And that the path of funds is clean. I have seen in a lot of RFEs that USCIS will use this language saying “Please do not just provide bank letters or statements documenting deposit of funds in NCE.” A lot of attorneys just submit bank statements that show the balance of $500,000. And then, that is transferred to a regional center. That in itself is not enough to document source of funds. You need to document how the $500,000 was accumulated in your bank. If it was through savings, that can be backed up by a W-2, by tax returns… if it was through 401k withdraw, you know, you need to have the 401k contributions that are, again, reflected in your W-2. Withdrawals through, say, fidelity—that’s your broker. And then, deposit. The slide here highlights some of the common EB-5 sources of funds that I have seen—income and savings is the most common. Home equity loans, 401k withdrawal, inheritance, sale of assets and gifts. The most important thing to focus on is the gift. If you have a relative providing you a $500,000 gift or a partial gift, you need to document the donor source of funds. You need to show how the donor acquired those gifts and then gifted them to you.

Anahita (24:07):
So, I want to go over a couple of pitfalls that you need to avoid prior to the November 21 deadline. Definitely avoid filing an incomplete I-526 petition because in July 2018, USCIS issued a policy memorandum which stated that it will exercise discretion to deny cases that are submitted without sufficient initial evidence. This policy did not exist in 2015. So, investors should understand the risk of filing a bare-bones petition—an incomplete I-526 petition can be denied outright without the issuance of a request of evidence. And after that, the only recourse that the investor will have been left with is a motion to reopen. That is a bad spot to be in. The second is there’s no such thing as interfiling an I-526 petition. So, in a rush, you may decide to file a bare-bones petition and then supplement your petition.

Anahita (25:08):
USCIS has updated its policy in July 2018, and this is problematic for two reasons. USCIS can invoke a rule, which is called “approvable when filing,” which means that the officer is to review a petition based on the records submitted at the time of the filing. So, even though USCIS can issue an RFE, they have the right to outright reject the petition. And it also gives us the authority to act in the agency’s best interest, which might not be the same as the investor’s best interest. And the final thing to look forward to are boiler plate source-of-funds documents. There is no such thing as a one-size-fits-all source of funds. You’re going to have a brief discussion with your immigration attorney, and the immigration attorney will highlight the required documents. It’s a fluid process. There’s a lot of back and forth when coming up with a list. So, be very careful of a boiler plate, long checklist with documents which highlights which documents needs to be provided. Yeah, that’s it on my side.

Mike (26:19):
Excellent. Well, thank you so much. And on the screen now, we wanted to post contact information so that if you have any questions, you can reach out directly to us. We are running up against the deadline here. So, there are only a few weeks. This is a very late stage in the game to try and get started. If you have a clean source of funds, it’s very possible to still get done with everything and file before November 21. But there’s no time to waste. And with that, there’s a few questions that came in. So, let me address some of those.

Mike (26:59):
The most common question we saw was, “Is there a possibility of the November 21 deadline getting extended?” And the answer to that is “very unlikely.” So, this is a rule that has been introduced and is published and final by the Department of Homeland Security. So, in terms of any extension, it is highly unlikely. These rules have been in the works. It’s always possible that legislation could come and change, but with the way things are working in Washington right now, I would not count on it. So, all operating assumptions should be as of November 21st, the minimum investment amount will be $900,000 for the future. So, I would suggest that if you are interested in EB-5 and want to do it at the $500,000 level, you should absolutely start moving forward immediately. The key next steps for you will be twofold: to get in contact with us about the projects that are open for investment.

Mike (27:58):
And second, to contact Anahita very quickly and start seeing if your source of funds could potentially work prior to the deadline. And you would be able to arrange your funds and make the transfer prior to November 21. So, with that, I believe we’ve answered a majority of the questions. For any specific source-of-funds questions, you should reach out directly to Anahita. And with that, we’d like to thank you for your time and attendance, and please reach out directly if you have any more questions. Thank you very much.