On the February 26, 2014 stakeholder’s call with USCIS they clarified when indirect job creation could be attributed to guest expenditures. This is good news primarily because guest expenditures were never allowed to be used before. More specifically, USCIS stated that guest expenditures could be counted when a project:
- is serving an unmet demand in its area
- is providing a differentiated product (i.e. a
product that is not otherwise available in the area) targeted to a specific
- is being developed in response to
(and presumably to serve traffic resulting from) a new development in the community
On the surface, this appeared to be good news for the EB-5 community, as guest expenditures can have a significant impact on indirect job creation figures.
There is a downside, however. As many have documented in the case of tenant
occupancy, it often proved to be very difficult to know exactly how USCIS would interpret various attempts to meet the standards, given that they are not very specific. With approval times as long as they are today, the unknown is whether or not USCIS would accept given justifications on a case-by-case basis. Since guest expenditures could arguably have an impact on job creation and therefore the amount of money that an EB-5 project could raise from EB-5 investors, this unknown could have an impact on the capital stack and project timing if there is a delay or considerable back-and-forth in dealing with USCIS.
To the extent that a project can afford the time or can otherwise be flexible in terms of their capital stack, attempting to use guest expenditures can have a significant upside. Most, however, would find that it would be very challenging to have to change an anticipated capital stack according to whether or not the use of guest expenditures would be allowed.
Over time, it is anticipated that more clarity will come both from USCIS in terms of policy memoranda and from the EB-5 community as we see what is accepted and what is not and the reasons for those decisions. In the meantime, however, many have seen significant pushback from USCIS when they have attempted to use guest expenditure.
Investors would also do well to try to recognize when guest expenditures are part of the plan, especially in a case where a hypothetical plan was submitted. Until there is more clarity on what will be acceptable in the eyes of USCIS, guest expenditures can add some additional potential risk or delay in relation to the investor's approval at the I-526 stage.
Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com).