By: Joseph Barnett
EB-5 success stories often occur but are rarely publicized. On the other hand, news about “failing” EB-5 projects, or the involvement of the U.S. Securities and Exchange Commission (“SEC”), or lawsuits brought by EB-5 investors against project developers or Regional Centers attract readership and are aplenty.
Of course, the definition of a “failing” EB-5 project is subject to interpretation. Ideally, what most EB-5 investors seek is full green card status for the principal applicant and derivative beneficiaries, return of the principal investment, and a return (usually nominal) on that investment.
But if the principal goal of the EB-5 investment of permanent residency within the U.S., then is a project that creates sufficient jobs for I-829 approval a failure, even if the EB-5 investment is not returned? Is it in the interest of EB-5 investors if a new commercial enterprise agrees to subordinate its position, if it allows a senior lender to provide a job creating entity the necessary financing to complete construction on an EB-5 project? Here, the goal of obtaining full green card status may conflict with an EB-5 investor’s financial considerations. Or what if EB-5 investors are willing to input additional capital – and obtain equity in the EB-5 project – to prevent a receiver from selling undeveloped or partially developed land, if deemed by the receiver to be in the best interest of the receivership estate? In this case, a “white knight” in the form of an EB-5 investor group is willing to go the distance to save the EB-5 project from development delays and financial insolvency, with the goal of saving the immigration benefit as well.
“EB-5 Project Restructuring” is a general way of describing the modification of the corporate or financial structure of an EB-5 project, as indicated in an investor’s Form I-526 petition, during the EB-5 process to achieve an EB-5 investor’s immigration goals. It can occur because a job creating entity is underperforming and severely behind schedule, because market forces have increased projects costs or demand for goods and services, because job creation won’t support I-829 petition approval, or because of a federal receivership appointment after an SEC investigation, among other reasons.
Note, EB-5 investments are statutorily required to be “at risk,” and USCIS has previously indicated – though only in a draft policy guidance – that it’s possible to obtain full green card status even if the job creating entity is sorting through a bankruptcy proceeding.
EB-5 Project Restructuring can begin – and will likely become even more common – before conditional permanent residency is achieved due to incredibly long EB-5 visa backlogs for Chinese investors, but must be carefully handled to prevent the issuance of a Notice of Intent to Revoke (“NOIR”) a Form I-526 approval due to “material changes.” Moreover, because most EB-5 projects get a portion of capital from Chinese investors, it’s possible they have strength in numbers in voting rights to force a new commercial enterprise to act in a particular manner to achieve their respective immigration goals. EB-5 Project Restructuring will also become more common as EB-5 loans become due after job creation has occurred to ensure compliance with USCIS’ June 2017 policy guidance on redeployment.
Finally, USCIS’ proposed regulations include relief to allow an EB-5 immigrant petitioner to use the priority date of an approved EB-5 immigrant petition for a subsequently filed EB-5 immigrant petition. The stated reasons for this regulatory change relate to similar concerns as “EB-5 Project Restructuring”: (1) to address situations in which petitioners may become ineligible through circumstances beyond their control (e.g., the termination of a regional center) as they wait for their EB-5 visa priority date to become current; and (2) to provide investors with greater flexibility to deal with changes to business conditions. If this proposal becomes finalized, there will be even more opportunities for EB-5 investors to switch to better EB-5 projects to support green card eligibility.
While increased minimum investment amounts and long visa backlogs may lower new demand, there will be no slowdown in assisting current EB-5 investors to achieve their immigration goals. Regional Centers, project developers, migration agents, and other professionals in the EB-5 industry must become educated on how to do this properly, in a corporate, immigration, securities, and communications perspective.
I will be speaking on this cutting-edge topic during a panel titled “Redeployment and Project Restructuring: How to Get It Right” on Tuesday, April 24, 2018 at IIUSA’s 11th Annual EB-5 Advocacy Conference in Washington D.C.