Back in February, in a blog titled “EB-5 Chinese Quota Retrogression: Analysis and Potential Impact and Solutions,” I discussed the potential repercussion and immediate negative impact that would happen when EB-5 Investor Application application surging past the annual !0,000 numerical cap imposed by Congress. Presciently, I stated that:
Absent Congressional action, the prospect of EB-5 petitions exceeding the annual 10,000 allotment is inevitable. Once that quota is met, the per country limits will result in visa retrogression for Chinese investors, delaying their ability to obtain an immigrant visa by at least a year or more, in addition to the time it takes to process the I-526.
That statement was on February 4th, 2014 and a few days later, the possibility of the quota being reached became an absolute certainty, rather than a probability. On February 12, 2014, the Canadian Government announce that it is shutting down its Immigrant Investor Program, effective that same day, and an estimated 45,000 Chinese Investors will be denied and receive the funds they invested.
In the long-term, the delay and complications of EB-5 processing will result in Chinese investors looking to other countries that actively compete for foreign investors, including Australia, Canada, and the United Kingdom. Retrogression adds further strains on the EB-5 program which has already been plagued by extraordinarily slow processing times and delays by USCIS. Faced with the prospect of waiting two or more years before being able to immigrate to the United States, a Chinese investor may decide to immigrate elsewhere. Other countries will surely capitalize on visa retrogression to draw away potential investors.
In addition, the Chinese retrogression creates a significant conflict of interest between project developers, Chinese investors and immigration agents. It also raises new ethical issues for an attorney representing the project developer or the Chinese investor.
From an investor’s perspective, an investor with children who are reaching the age of 21 may have incentives to delay the approval of the I-526 as long as possible. Under the Child Status Protection Act (“CSPA”), commonly known as the “age-out provisions,” a child can immigrate as a beneficiary of a parent’s immigration application until he or she turns 21. The CSPA freezes the age of children who are derivative beneficiaries of an I-526 petition while the petition is pending, but not once the petition is approved and awaiting the quota to become available for an immigrant visa. This benefits a Chinese investor whose children are close to aging out. Thus, it will be their benefit to delay the I-526 approval as long as possible.
From a Regional Center or project developer’s perspective, job creation projections and capital redemption timelines will be directly impacted by retrogression. Capital redemption, or the investor’s exit strategy, is, essentially, the time period before which the investor can have his capital returned. A protracted visa immigrant visa availability will tie up the investment money for a longer period of time. Although that may seem like a benefit to the project developer, most current EB-5 investments provide for an exit strategy in which the developer sells or refinances the business, using the proceeds to repay investors. A delay in visa availability will delay the developer’s ability to do so–since an investor cannot redeem capital before the approval of an I-829, which is the petition to remove conditions on investor’s permanent resident card.
Another potential implication is whether such a delay would impact the developer’s ability to access investor funds. In a typical investment through a Regional Center, the investor’s capital is held in an escrow account until the approval of the I-526, at which point the funds are released to the developer. Previously, an I-526 approval typically meant that the investor would be able to immigrate to the United States (or adjust their status) shortly thereafter because an immigrant visa was always available. However, visa retrogression will delay that process by a significant period of time. An investor, therefore, may dictate that the funds be held in escrow until a visa becomes available, not simply until the I-526 is approved. Without alternate financing, this delay could essentially result in an inability to proceed with a project’s development and, ultimate failure.
From an attorney’s perspective, counsel for a Regional Center must recognize the additional securities disclosures that may result from visa retrogression. Specifically, new risk factors for offering documents or Private Placement Memoranda would need to be disclosed. Similarly, counsel for an investor would need to highlight the possible implications to their client.
Solutions and Proposals
However, the growth in EB-5 financing market has the creation of spurred specialized loan companies that address this very issue. There are now several companies that provide specialized EB-5 bridge loans which allow a developer access to all or some of its anticipated capital.
Bridge or interim financing provides the opportunity for EB-5 project developers to take out short term financing to help construct and develop the project, then the EB-5 capital, as it is received, may replace that short term financing yet still receive credit for job creation by USCIS.
Moreover, in its latest Policy Memorandum, USCIS has specifically indicated that such financial arrangements are allowed in the EB-5 context. In a May 20, 2013 Adjudications Policy Memorandum, USCIS stated, in pertinent part:
It is acceptable for the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, to utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital. If the project commences based on the bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise still gets credit for the job creation [arguably the main requirement of the EB-5 program] under the regulations….Developers should not be precluded from using EB-5 capital as an alternative source to replace temporary financing simply because it was not contemplated prior to obtaining the bridge or temporary financing.
Tapping Alternative Markets – Tapping the Middle East Market
Prudent project developers and Regional Centers should hedge the risk of any impact a shortage in Chinese investors may cause. Since over 80% of EB-5 investors are from China, even a small decrease in the number of investors may have an significant impact. Creating an alternative pipeline of EB-5 investors from different regions is the key to ensuring continued and sustained growth in the EB-5 Program. As a Firm with extensive experience in the Middle East. representing Institutional Investors, Private High Net Worth Investors, and advising on fiscal policy matter for government officials, we have the unique position to facilitate the expansion of an EB-5 Market throughout the Middle East,
 Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Division of the American Bar Association. Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years. Wassem currently concentrates his practice on Corporate Law, Business Immigration and International Business Transactions. He has advised countless Eb-5 Investors and assisted developers in structuring USCIS-compliant EB-5 Regional Centers as well as sourcing investors throughout the Middle East.
Wassem is also the Vice-Chairman of the MIddle East Comittee of the ABA; Vice-Chairman of the International Commercial Transactions Division; as well as a Board Member on the Regent Board of the ABA’s Immigration Policy
Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice. The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.