EB5 Investors Magazine | Page 32

“Sustaining the Investment” by Jeff Campion Introduction When an issuer offers a project to an EB-5 investor, the investor is provided with a series of documents including the business plan and private placement memorandum for the project. These explain to the investor what the project contemplates to do with their funds and the risks associated therewith. After the investor has been a conditional resident for twenty one months, they will file their I-829 to remove conditions and become a permanent resident. The Immigration and Nationality Act (the “Act”) under 216A (d)(1) requires that the investor has: (1) invested the capital required, (2) sustained the investment throughout the period of their residence in the U.S., and, (3) otherwise conformed to the requirements of 203(b)(5) of the Act. The lack of clarity around the requirement to “sustain the investment” has created questions for investors, regional centers, and developers. For example: can the asset be sold (a hotel, multi-family building, etc.) prior to the I-829 being approved for the investor? If sold, can the capital be returned to the new commercial enterprise? Can the capital be redeployed by the NCE or the job creating entity? Can the capital simply be placed in a bank account of the NCE or the JCE? These questions become increasingly more important as the possibility of visa backlog time and retrogression looms. Below, these issues are discussed as they relate to “sustaining the investment.” Discussion As seen above, the requirement to “sustain the investment” could have dire consequences that result in the Investor not receiving permanent residency. Moreover, it could prevent the developer from selling an asset at the most efficient time. Thus, it is critical to all parties involved in the EB-5 transaction to know what impact this requirement could have and what is permitted. This issue becomes more complicated as one analyzes the current typical time to permanent residency compared to what could occur if there is a visa backlog and/or retrogression. Each employment-based category is granted a limited number of immigrant visas per year. The EB-5 classification is allocated 10,000 visas per fiscal year. This number is effectively reduced to around 3,300 visas because the investor, their spouse, and their children all count against the 10,000 available. To analyze the visa backlog or retrogression impact, assume there is a backlog of eighteen months for Mainland China. When an investor files the I-526, they are assigned a priority date (in this case, the date of filing). If the investor files on January 1, 2015 and the case takes 14 months to approve, the investor would have to wait another four months to begin the consular process because the priority date for the investor still is not ripe (assuming the 18-month visa backlog). Now, assume that the consular process takes six months. It has now been 24 months since the investment was made – Jan. 1, 2017. Thereafter, the investor takes six months to enter the U.S. It is now July 1, 2017 and the Investor will not file for removal of conditions until May 1, 2019. This is four and a half years from the date of the initial investment. It is easy to see how these times can be impacted is the backlog becomes two or three years. But, this, at some level, muddies the issue. The issue is that in many real estate transactions a developer looks to build, stabilize, and sell; a cycle could be just three years. In such a case, regardless of visa backlog or retrogression, the developer needs to know whether the sale of the underlying asset will result in the investor not complying with the requirement to “sustain the investment.” 30 EB5 INVESTORS MAGAZINE