EB-5 Commentary

Guest Expenditures in EB-5: A Double-edged Sword

Posted by Phil Cohen on Mon, Apr 27, 2015 @ 06:55 AM

On the February 26, 2014 stakeholder’s call EB-5 Investmentwith 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
    market segment
  • 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.

The Downside

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.

 

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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). 

Tags: EB-5 center I-924, capital raise, EB-5 Regional Center Application Cost, EB5 capital, EB-5 investors, applications, USCIS, tenant occupancy, I-924, EB-5, EB-5 Regional Center, job creation

Canadian Immigrant Investors: Thinking About Moving To EB-5?

Posted by Phil Cohen on Mon, Apr 20, 2015 @ 06:58 AM

describe the imageThe Canadian government unveiled its new Federal Investor Program replacing the prior program which was very popular with immigrant investors.  Unfortunately, the government has gone from one extreme to the other, moving from a program that was one of the most secure offerings around to one which is considerably more risky, vague and which will appeal only to a  select few, in this author's opinion.

The EB-5 program is quickly proving itself to be a viable alternative for immigrant investors who have been pushed out of the Canadian Federal Investor Program.  Like the Canadian program, the EB-5 program allows foreign investors the opportunity to get a path to citizenship in the United States based on making a qualifying investment.  EB-5 investments must be made in a qualifying business and must be 'at risk' (although this does not mean necessarily 'risky').

Some key points about the EB-5 program:

  • The investment required is $500,000 as long as the business being invested in is located in what's called a Target Employment Area (most are)
  • The typical investment horizon is five years
    although some opportunities are for six years or seven years
  • The typical return to investors is in the range
    of 1% per year, but this varies widely from project to project

There are many other considerations involved in looking at the program and one should take good advice from legal counsel and/or from business consultants who may be able to help.

The EB-5 program has all kinds of businesses participating, some good and some not so good.  The key to mitigating risk in the program, in my opinion, is to work with a company that carefully selects projects that it represents and does a significant amount of due diligence (i.e. one in a position to know good from bad and one who is in a position to choose the best).  It also helps to see that the company that you work through does not take on more than one or two projects at a time, so that there is no conflict of interest in how it represents projects.

Those interested in taking advantage of the EB-5 program should be aware that the US government has imposed a start date of May 1, 2015 for 'Chinese visa retrogression,' whereby citizens of China may be put on hold while other countries get an opportunity to have access to the visa quota.  If other countries do not fill the quota then the program will be reopened to Chinese citizens. Chinese EB-5 investors can still have their applications processed and approved, but they will not be issued their green cards until retrogression is lifted again at the end of the program year (September 30, 2015).   

For Chinese citizens especially, it is suggested that moving ahead sooner rather than later on making an EB-5 investment will give them good placement in the backlog line, thereby allowing them to avoid what may end up being a multi-year wait, such as the situation was in Canada.  It is expected that there will be an influx of investors from Canada who will no longer be able to apply to the Canadian program.

Still need help figuring it out?  Contact me.

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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). 

Tags: Chinese Investors, EB-5 explained, EB-5 investors, I-526, EB5, EB-5; Canadian Immigrant Investor

USCIS: Chinese Visa Retrogression to Start May 1, 2015

Posted by Phil Cohen on Mon, Apr 13, 2015 @ 04:30 PM

Mr. Charles Oppenheim announced today (April 13, 2015) that Chinese visa retrogression will be effective as of May 1, 2015.  As of this date, Chinese nationals who file their I-526 petitions may still be processed, but they will not be able to continue processing for their conditional permanent residence until the retrogression is lifted again at the beginning of the new 'EB-5 Year' on October 1, 2015.

As stated in earlier blogs that we have published, we do not believe that the demand will abate anytime soon from Chinese nationals as a result of retrogression, however, as the lineup and backlog starts to form we encourage those seeking to raise capital via the EB-5 program to start to move at a more rapid pace in developing their business plans and getting their projects approved by USCIS.

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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). 

 

Tags: I-526, EB-5

Knowing the Cost of an RFE to Your EB-5 Regional Center

Posted by Phil Cohen on Sun, Apr 05, 2015 @ 02:59 PM

Cost of RFE to EB5 Regional Centers resized 600What is an RFE?

An RFE is a request for further evidence.  RFEs are issued by USCIS when EB-5 regional center (or investor) applicants have not adequately presented sufficient information when applying to form an EB-5 regional center or an associated project, or if the information presented requires more clarity (the submission application is called the I-924).

Avoiding RFEs

The best way to avoid an RFE is to ensure that you have a good team in place and that you have had your I-924 package reviewed by qualified, experienced experts.  There can be no guarantees that an RFE can be avoided, since USCIS has made significant policy shifts without warning and in some cases, has appeared to issue RFEs that did not make sense to the applicant or their team of professionals.  However, this does not mean that one should not make every effort to avoid getting an RFE.  On the contrary, the rule of thumb that we follow is to present things at a higher level than necessary; more is better than less, as long as it is clearly documented and professionally presented so that an adjudicator will not miss it.

The Real Cost of an RFE

RFEs can be very costly, and can even sink a project.  Why? Depending on the actual substance of the RFE, an EB-5 regional center applicant may need to re-engage some of their team of experts, spend time addressing the RFE and preparing a response, which must then be submitted to USCIS for review. In some cases the RFE may even lead to a need for the applicant to shift an element of the business plan or strategy from what was originally intended, which can impact the project in unexpected ways.  In addition to the time it took to get the first application ready, submitted and reviewed (up to 12 months or more to get reviewed by USCIS alone, once submitted) an RFE could mean many more months of waiting, which can put certain kinds of projects at risk of failure.  The total cost will vary in each case, but in most cases it is safe to assume that an RFE could cost thousands of dollars and several months of additional waiting time.

If prospective EB-5 investors ask if you ever had an RFE and you are new to EB-5, not disclosing this would be untruthful and disclosing it can create the impression of wrongdoing to the investor even if this is not actually the case.  The long term effects of an RFE can mean lost opportunities with EB-5 investors.

Bear this in mind when choosing your EB-5 business plan writer,legal team and economist in particular.

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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). 

 

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Tags: EB-5 center I-924, EB-5 Regional Center Application Cost, EB5 Regional center, regional center EB5, regional center EB-5, EB-5 explained, EB-5 Regional center processing times, EB-5 Regional Center, EB5