What Happens If an EB-5 Project Fails?

An EB-5 project refers to a new commercial enterprise (NCE) that is funded through the EB-5 Immigrant Investor Program. Established in 1990, this program enables foreign investors to obtain a Green Card by investing a minimum amount of capital in a qualifying new commercial enterprise in the U.S.

To qualify for the EB-5 program, investors must invest $800,000 or $1,050,000, depending on the project’s location. The lower investment amount applies to projects located in targeted employment areas (TEAs), which are high-unemployment or rural areas. In addition to the minimum investment requirement, the project must create or preserve at least 10 full-time jobs for eligible U.S. workers.

EB-5 projects can take various forms, such as real estate developments, infrastructure projects, and manufacturing ventures. The majority of EB-5 projects are sponsored by USCIS-designated regional centers.

But what happens when an EB-5 project fails? In this article, we’ll explore the immigration and financial risks investors encounter if a project fails, based on their position in the EB-5 application process.

 

Failure of an EB-5 Project

While there are numerous reasons why an EB-5 project may fail, it can have severe repercussions for investors. Naturally, an EB-5 applicant’s primary concern is how project failure might affect their EB-5 application. EB-5 investors would also want to know whether they will be able to reimburse the original investment amount.

The primary factor influencing what happens after an EB-5 project fails is whether the applicant invested directly or via a regional center. When an investor uses the funds to form or purchase a business directly, the answer varies depending on the business structure and the investor’s plans for dealing with a potential failure, among other factors. Investors who chose regional centers, on the other hand, rely heavily on the investment agreement.

This article will focus on failed EB-5 projects involving regional centers, as that is the most popular investment option among foreign investors.

Return of Investment with a Failed EB-5 Project

Even though favorable provisions may help investors get another shot at the EB-5 program, there is no guarantee that their initial investment will be returned.

The circumstances surrounding the failure of an EB-5 project, as well as the terms of the investment agreement, determine the potential outcomes for investors. Investors are typically faced with the possibility of losing all or a portion of their investment or redeploying it. Here are a few possible scenarios:

• Loss of Investment: If the EB-5 project fails and is unable to repay its debts or return investment capital, investors risk losing their entire investment. This may occur if the project encounters financial difficulties, such as cost overruns, lack of demand for the project’s products/services, or mismanagement.
• Partial Recovery: In some cases, investors may be able to recoup some of their investment. However, the amount recovered is often much less than the original investment, and investors may still suffer losses. Some EB-5 investors may be able to recover their losses following the denial of Form I-526E, as most regional centers keep the funds invested in escrow while Form I-526E is pending approval.
• Redeployment: According to the EB-5 Reform and Integrity Act of 2022, regional centers can redeploy EB-5 investment funds “anywhere within the United States.” However, the capital must “remain at risk” after EB-5 redeployment, and investors’ capital “is expected to remain invested for not less than two years.” Investing redeployed funds in purely financial activities, such as purchasing financial instruments on the secondary market, does not constitute redeployment under this Act.
• Legal Recourse: If the EB-5 project fails due to fraud, misrepresentation, or other illegal activity, investors may be able to recover their investment by seeking restitution from the parties responsible.

Impact of a Failed EB-5 Project on Visa Status

The timing of an EB-5 project’s failure may determine how it affects investors’ visa status. Let’s look at some scenarios below.

Failure Before I-526E Approval

If a project fails before the I-526E petition is approved, the investors will most likely be unable to meet the EB-5 program’s requirements, particularly the need to maintain the investment during the conditional residence period and create 10 or more jobs.

However, if an EB-5 project is only partially completed before failing, a new developer or receiver can take over and complete the project.

Furthermore, assuming there are no significant changes to the project, the investors could be able to complete their immigration process. If the EB-5 project fails completely, the only viable option is to redeploy the reimbursed amount (if any) and resubmit the EB-5 application with an investment in another project.

Failure After I-526E, but Before I-829

It is important to note that if a project fails after Form I-526E approval but before Form I-829 (Petition by Investor to Remove Conditions on Permanent Resident Status) approval, the conditions may still be successfully removed, depending on the timing and ability to demonstrate sufficient job creation.

According to USCIS Policy Manual, if the jobs were created and maintained for the required period, even if they no longer exist at the time of the I-829 filing, the investors should be okay concerning their EB-5 application. It should be noted that the I-829 petition must be filed 90 days before the expiry of the conditional residence period.

Failure After I-829 Approval

EB-5 investors who successfully removed conditions on their Green Cards will not be impacted by the success or failure of the project’s compliance with USCIS requirements.

Work with EB5AN to Minimize Risks

The failure of an EB-5 project can have unfavorable consequences for everyone involved. Investors risk losing their investments and being unable to obtain residency permits. So, before investing in an EB-5 project, investors must conduct thorough due diligence and seek professional advice to reduce their risk exposure.

EB5AN has helped more than 2,300 families from 60 countries relocate to the United States as lawful permanent residents. Our expert team has more than a decade of experience, and offers clients first-rate, low-risk EB-5 regional center projects with 100% USCIS project approval rate to date.

If you are considering investing, book a one-on-one call with our team today to learn more about the risk factors associated with EB-5 investments and receive support throughout your entire EB-5 process.