Client Advisory: Canada’s Shutdown of Immigrant Investor Program Will Impact U.S. EB-5 Quota

Amin-Wassem-China-US-EB-5

By Wassem M. Amin, Esq., MBA

The Canadian Government announced on February 12, 2014 that it is shutting down the Immigrant Investor Program, effective immediately, with all pending cases being rejected.  As reported in Forbes.com, an estimated 45,000 Chinese Immigrant Investors with applications pending will be affected by this decision.  With the increased popularity of the U.S. EB-5 Immigrant Investor Program in China, it is inevitable that some of those affected applicants will choose to divert their investments here.

Assuming that even a fraction of those 45,000 investors applied through the EB-5 Program, the impact on the EB-5 Quota will be substantial.  U.S. Immigrations Laws allot 10,000 annual visas to EB-5 Immigrant Investors.  The visas are awarded on a first-come, first-serve basis.  As discussed in prior posts, forecasts indicate that this quota will be met as early as June of 2014–effectively backlogging all Chinese Immigrant Investor applicants.

However, it is critical to note that prior forecasts did not account for the potential influx of rejected Chinese Immigrant Investors from Canada.  This poses immediate consequences for EB-5 applicants from China.  An unexpected increase in Chinese applicants will result in the EB-5 quota being met earlier than the deadline previously forecasted, perhaps as early as April of 2014.  That will cause applications processed by USCIS after the deadline to be backlogged, perhaps by a year or more, in addition to current processing times for an I-526 (Immigrant Investor Application).

Potential EB-5 Applicants, particularly those from China, are advised to contact a legal professional to discuss the potential impacts this may have on their applications.

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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, having worked as a consultant in the region for over a decade.  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.  For more information, please visit the About Us page or request more information on our Contact Us page.

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.

EB-5 Regional Centers in Project Finance: Using EB-5 Capital in lieu of Mezzanine Financing

By Wassem M. Amin, Esq., MBA

The EB-5 program — which was created in 1990 but has grown in popularity only over the past few years — allows overseas investors to obtain a green card in exchange for providing a minimum of $500,000 in financing for qualified projects.  The explosive growth of the EB-5 program has caught the attention of real estate and project developers nationwide.  Developers have been using the program to establish so-called EB-5 Regional Centers, which are essentially entities, approved by the United States Citizenship and Immigration Service (“USCIS”) that allow a developer to raise capital from foreign immigrant investors for a specific project or projects.  The total capital raised per project has ranged from $1,000,000 to over $300,000,000.  As the use of EB-5 Regional Centers has expanded, the structure of EB-5 Regional Centers and underlying investments has also increased in complexity–which has allowed EB-5 capital to be used in increasingly diverse types of projects.

Of course, at the outset, it is critical to ensure that any contemplated EB-5 financing meet the stringent requirements set out by USCIS for the program.  The details of the program, and the differences between EB-5 financing through a Regional Center, are discussed in prior posts, here and here (each post includes downloadable PDFs, as well).

EB-5 Financing as an Alternative to Real Estate Mezzanine Capital

A potential, and increasingly popular, use of EB-5 funds in Real Estate finance is as a source of capital in lieu of traditional mezzanine loans.  In the context of real estate finance, mezzanine loans are typically used by developers as a source of supplementary financing for development projects.  Unlike a traditional mortgage, real estate mezzanine loans are collateralized by equity (such as stock or other ownership interest) in the development company rather than the property itself.  To account for the higher risk, lenders of mezzanine capital typically charge interest rates and fees that range between 12-20%, a substantial cost for the developer.

This is where EB-5 financing shines –  EB-5 cost of capital is one of the primary reasons the program has become very popular with developers.  EB-5 financing, whether structured in a debt or equity model (more on EB-5 financing structures, here), typically cost around 1-2%.  For example, in a debt model, an EB-5 loan from the foreign investor would carry an interest rate of 1%–significantly lower than traditional mortgage-backed loans, and exponentially lower than the cost of mezzanine financing.

EB-5 Financing as an Alternative to Mezzanine Capital in Leveraged Buyouts

In a leveraged buyout (“LBO”), mezzanine capital may be used in conjunction with other forms of financing and equity as part of the capital stack to fund the purchase price of a company being acquired.  In LBOs, Private Equity firms or an acquiring company often use mezzanine capital to lower the amount of capital invested.  Since Private Equity firms typically have higher target rates of returns than a mezzanine lender, use of mezzanine loans may increase the rate of return on an investment.  EB-5 Financing in the context of LBOs could replace the mezzanine loan in a capital stack and significantly enhance the rate of return on an investment or acquisition.  For example, in an LBO, if the capital stack of a purchase includes $50 million in mezzanine financing, at a cost of 15% to the borrower, using a simple interest rate calculation, the cost of capital to the purchaser is at least $7.5 million.  The significant cost of a mezzanine loan may have the effect of not only reducing the value of an LBO target, but also greatly diminishing the rate of return on an investment.

As in Real Estate finance, use of EB-5 capital in an LBO can have significant advantages.  For example, in the above scenario, if the LBO uses EB-5 capital in lieu of its mezzanine financing, the cost of capital would be around 1-2%, or between $500,000 to $1,000,000 in a $50 million capital raise–that is a savings of over $6,500,000.  In other words, using EB-5 capital just increased the return on the investment by an additional $6,500,000!

Making EB-5 Financing Work: Bridge Loans

Assuming the underlying project meets the requirements of the EB-5 program, many project developers or companies are still reluctant to use EB-5 financing simply because of the length of USCIS processing times.  Although USCIS has made significant strides over the past few years to address that issue, the fact remains that structuring an EB-5 financing takes a significant amount of time.  It may take anywhere from 6 months to 2 years before a developer is able to have funds from an EB-5 financing at its disposal.  The delay in access to these funds can prove fatal to a project.

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.  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:

“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.”

The increasing popularity and exponential growth of the EB-5 market has expanded the possibilities in which EB-5 capital can be used.  More than ever before, EB-5 capital can be used in a variety of flexible financing structures to fund increasingly diverse projects.  The key to successfully raising EB-5 capital is proper planning with the assistance of attorneys and professionals who, not only have expertise in Securities, Corporate, Immigration and, if applicable, Real Estate Law, but are also well-versed in the unique requirements the EB-5 program.  Finally, proper and extensive due diligence and risk analysis on the underlying project and the overall financing should also be completed contemporaneously.

If you would like more information about the EB-5 Visa or Regional Center development and investment offerings, please contact Wassem M. Amin, Esq., at wassem@dharlawllp.com.

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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 as well as the Islamic Finance Committee of the American Bar Association’s International Law Section.  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.  For more information, please visit the About Us page or request more information on our Contact Us page.

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.

EB-5 Investments in a Regional Center: A Due Diligence Guide for an EB-5 Immigrant Investor

eb-5-visa Wassem Amin

By Wassem M. Amin, Esq., M.B.A.

The EB-5 Visa program’s popularity has skyrocketed in the last couple of years.  A foreign investor can obtain permanent residency and, eventually, citizenship if the investment follows the United States Citizenship and Immigration Service’s (“USCIS”) guidelines of the EB-5 Visa Program.  The majority of EB-5 Investors invest through so-called Regional Centers.

A Regional Center is an entity, approved by USCIS, to develop projects that meet EB-5 guidelines.  The Regional Center could be the developer of the project or another entity that manages the project.  Obtaining the designation of an approved regional center from USCIS allows that entity to solicit foreign EB-5 Investors.    Although the program has been a huge success – generating billions of dollars in direct investment and creating tens of thousands of U.S. jobs – this success has attracted the attention of unscrupulous individuals.

A couple of recent high-profile examples include the Chicago Regional Center (discussed here) and, more recently, an individual who created a fraudulent regional center to solicit funds and divert them for his personal use.   Despite these unfortunate, the vast majority of EB-5 Regional Centers are legitimate.

If you are considering investing in an EB-5 Regional Center, it is important to conduct your own research and due diligence.  Although this should not be viewed as a comprehensive list, the following guide should be used to assess the viability of the Regional Center and feasibility of the underlying project.

EB-5 Investors: Due Diligence Guide

  1. The beginning step should be to always confirm that the Regional Center has been approved by USCIS.  Start by checking on www.uscis.gov.  USCIS maintains an up-to-date list of Regional Centers across the country.
  2. After you have located a potential Regional Center, request a copy of their USCIS approval letter.  This will help ensure that you are not dealing with an imposter instead of the actual Regional Center.  Further, obtain copies of the actual filings with USCIS.  Regional Centers must file an application (Form I-924) to obtain initial designation and approval.
  3. Stay away from Regional Center projects that do not have clearly written and planned investment offering documents.  Reputable Regional Centers will usually have a Private Placement Memorandum (PPM), or similar, to send to an interested investor.  In addition to the PPM, investment documents for a typical Regional Center project include: Request the above investment information in writing.  If you do not have experience in evaluating the profitability or viability of a potential project, hire an experienced professional, such as a Corporate Lawyer or Business Consultant, to assist you.
    • Memorandum of Terms or Term Sheet;
    • Partnership Agreement or similar;
    • Investor Qualification Questionnaire;
    • Subscription Agreement;
    • Escrow Agreement;
    • USCIS Approval Letter
    • Investor Certificates;
    • Comprehensive Business Plan;
    • Economic Impact Plan by a qualified professional;
    • Wiring Instructions;
    • Disclosures of Administrative Fees;
    • Marketing Plan and Sample Marketing Material
    • Among others
  4. Consider the project developer’s involvement in the project.  A majority of EB-5 Regional Center developers often make significant capital investments in the project.  This would be a positive indication for the investor, because it means the developer’s own funds are at risk and they have their “skin in the game”–their financial return is linked to the success of the project.

Remember, although the EB-5 visa program has one of the highest USCIS approval percentages for individual investors, it is not “guaranteed.”  A telltale sign of potential fraud are promises of a conditional or permanent green card or citizenship.  In addition, be wary of promises of returns on the investment that are significantly higher than market rates.

Keep in mind that a requirement of the EB-5 investment is that the investor’s funds must be at risk–that means that the Regional Center or developer cannot even guarantee the return of your principal investment.  Although most reputable Regional Centers will in fact pay return the investment funds at the end of the agreed-upon period, a promise or guarantee at the outset is not feasible – and could even result in the denial of application with USCIS.

The EB-5 Regional Center program has been very successful and is gaining in popularity.  It has significant potential in generating foreign direct investment in rural and high unemployment areas.  It is also very popular with investors because of it has a track record of success and high rate of USCIS approvals.  However, a potential foreign EB-5 investor should always exercise caution when considering an EB-5 Regional Center investment.  Comprehensive due diligence and research, as with any other investment, is necessary and highly recommended.

If you would like more information about the EB-5 Visa or Regional Center development and investment offerings, please contact Wassem M. Amin, Esq., at wassem@dharlawllp.com.

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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.

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 as well as the Islamic Finance Committee of the American Bar Association’s International Law Section.  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.  For more information, please visit the About Us page or request more information on our Contact Us page.

ICE Ramping Up Its Hunt for Illegal Workers

ICE Enforcement Actions

By Wassem Amin, Esq.

The Wall Street Journal reports that the U.S. government has launched an aggressive campaign against employers suspected of hiring illegal immigrants.  It is reported that the Immigrations and Customs Enforcement (ICE), the agency responsible for these investigations, have notified nearly 1,000 business across the country that they were being audited.   The so called “silent raids” by ICE have targeted a wide range of industries, including restaurants, food processing, high-tech manufacturing, agriculture, and others.  Despite immigration reform languishing in Congress, the latest raids suggest that the government is not suspending its enforcement actions.

The primary worksite enforcement mechanism used by ICE is the so-called I-9 Audit, together with the administrative fine procedure in the Immigration and Nationality Act.  Business selected for audits undergo a comprehensive review of I-9 forms and payroll records.  As part of the continuing investigation against the employer, employees that are detained will be interrogated and are often asked to give damaging testimony against the company.

Employers should know that current enforcement priorities focus on the employers rather than the employees.

Audits may result in civil penalties and may form the basis for criminal prosecution of employers who knowingly hire undocumented workers or commit other egregious violations.  The investigation may ultimately lead to criminal sanctions and/or civil fines against employers for hiring or harboring undocumented workers and/or for money laundering. Asset forfeiture tools will also utilized to seize any assets that have been deemed products of the unlawful activity.

An employer selected for an audit must immediately seek counsel from an attorney who is familiar with the intricacies of ICE investigations.

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Wassem M. Amin, Esq., MBA is an Attorney at Dhar Law, LLP in Boston, MA. Wassem has extensive experience as a business advisor and consultant, domestically and abroad (in the Middle East region), having worked as a consultant for over 9 years. Wassem focuses his practice on Business Immigration and Corporate/Business Law and is also the Vice-Chairman for the Middle East Division of the ABA and the Vice-Chairman for the Islamic Finance Committee of the ABA. For more information, please visit http://www.dharlawllp.com and email Wassem at wassem@dharlawllp.com.

Disclaimer: These materials have been prepared by Dhar Law, LLP for informational purposes only and do not constitute legal advice. This article 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. This material may be considered advertising according to the rules of the Supreme Judicial Court in the Commonwealth of Massachusetts. Reproduction or distribution without prior consent of the author is prohibited.

USCIS Continues Positive Reform of the EB-5 Immigrant Investor Program In Policy Memo

imagesBy Wassem Amin, Esq.

On May 30, 2013, USCIS issued the final version of its EB-5 Adjudications Policy.  Although it has been around since 1990, the EB-5 Visa, also known as the Immigrant Investor Visa, has been rising in popularity over the past couple of years.  Summarily speaking, the EB-5 Program is based on three main elements: (1) the immigrant’s investment of capital; (2) in a new commercial enterprise; (3) that creates jobs.

This article summarizes the main changes in USCIS’s adjudications of EB-5 investor and regional center applications.  A complete overview of the EB-5 Visa can be found in previous posts.

  • USCIS explicitly mentioned, for the first time, that administration of the program is done “with the utmost vigilance to program integrity” and that fraudulent applications are referred to appropriate law enforcement and regulatory authorities.  This is perhaps due to the recent high profile fraudulent EB-5 Regional Center in Chicago.
  • Ability to diversify investment:  USCIS clarified that the capital invested may be deployed into a portfolio of wholly-owned businesses, so long as all capital is deployed through a single commercial enterprise.  In other words, an immigrant investor’s capital, whether through a direct investment or regional center, can create a holding company that would receive the funds and distribute them to different businesses – so long as one or more of the portfolio of businesses or projects can create the required number of jobs.
  • Pooled Investments in Non-Regional Center Cases: In a direct investment context, USCIS indicated that the new commercial enterprise can consist of pooled investments OR can have owners who are not applying under the EB-5 program.
  • Geographic Scope of a Regional Center: In adjudicating Regional Center applications, the geographic scope of a Regional Center will be determined on a case-by-case basis.  The Memorandum noted that “the reasonableness of the proposed regional center geographic boundaries may be demonstrated through evidence that the proposed area is contributing significantly to the supply chain, as well as the labor pool, of the proposed projects.”
  • Removal of Conditions on Permanent Resident Status:  USCIS reiterated that the EB-5 Program allows an immigrant investor to become a lawful permanent resident, without conditions, if the immigrant investor has established a new commercial enterprise, substantially met the capital requirements, and can be expected to create within a reasonable time the required number of jobs.  Of particular significance is the fact that all of these requirements need not have been fully realized before the removal of conditions.  It is sufficient that evidence submitted establishes that “it is more likely than not” that the investor is in substantial compliance with the program and job creation will result within a “reasonable time.”  “Reasonable time” is a fact-specific determination, but USCIS indicated that, in most cases, the maximum ceiling allowed will be a one year extension after the original two years.
  • Impact of Regional Center’s change of Plans on Investors: A particularly laudable shift in policy is USCIS’s announcement in the memorandum that it will no longer deny investors’ petitions to remove conditions solely bases on failure to adhere to the plan contained in the Form I-526 (the initial immigrant investor application) OR to pursue business opportunities within an industry category previously approved for the Regional Center.  This will allow Regional Centers significant leeway in pursuing different options if their initial proposed investment fails, which also increases the likelihood of a successful exit for the investor. However, there is a draw back, USCIS noted that:

“it recognizes the fluidity of the business world and therefore allows for material changes to a petitioner’s business plan made after the petitioner has obtained lawful permanent resident status.  However, immigrant investors, and the regional center with whom they associate, should understand that availing themselves of this flexibility does decrease the degree of predictability they will enjoy if they instead adhere to the initial plan that is presented to and approved by USCIS.”

USCIS continues to make positive changes to the EB-5 Immigrant Investor Program.  With many practitioners hopeful that the visa quota will be increased if the new immigration bill passes, the EB-5 Program will most likely to continue to gain popularity among foreign investors as well as an attractive capital source for developers stateside.

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Wassem M. Amin, Esq., MBA is an Attorney at Dhar Law, LLP in Boston, MA. Wassem has extensive experience as a business advisor and consultant, domestically and abroad (in the Middle East region), having worked as a consultant for over 9 years. Wassem currently focuses his practice on Corporate Law, Business Immigration Law, and International Business Transactions; where he works with Firm Partners Vilas S. Dhar and Vikas Dhar to advise Regional Centers and individual investors on EB-5 Visa matters. For more information, please visit http://www.dharlawllp.com and email Wassem at wassem@dharlawllp.com.

Disclaimer: These materials have been prepared by Dhar Law, LLP for informational purposes only and do not constitute legal advice. This article 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. This material may be considered advertising according to the rules of the Supreme Judicial Court in the Commonwealth of Massachusetts. Reproduction or distribution without prior consent of the author is prohibited.