How to Address
Significant Changes
in Existing EB-5 Projects
What actions are deemed a material change in a project
and how do these impact investor consent, immigration
status, and the potential for investors to exit the project.
By Ronald Fieldstone
I
t is more than likely that there will be financial changes to EB-5 projects over time.
Budgets and the financial capital stack is always a moving target. Other changes
also include a change in the property manager, the contractor, the architect or other
parties that were previously disclosed in the offering circular. The most common
substantive change tends to be a change in the scope of the project and the capital
stack where the project usually expands or encounters significant cost increases that
needs to be funded with additional financing.
IMMIGRATION AND SECURITIES/CORPORATE ISSUES OF
MATERIAL CHANGES
From an immigration issue, if a material change takes place in the EB-5 project prior
to an investor receiving conditional residency status, then based upon the June
14, 2017 Policy Memorandum, this could result in a denial of the I 526 petition. The
Policy Memorandum clarifies that once conditional residency status is obtained, then
materiality is no longer an issue and only the creation of jobs and the maintenance of
the “at-risk” requirements is required.
From a securities standpoint, there may be significant changes that could be deemed
material from a securities standpoint. Generally, the concept of materiality under
securities laws would include new information that would reasonably affect the
investment decision of an investor if known in advance.
The issue here is the different perspective of “materiality” from each a securities and
immigration point of view. If there is an acknowledgement of material changes to a
project, this could otherwise impact the immigration risk as to an I-526 petition denial.
Practitioners need to tread carefully with respect to how changes to a project are
addressed.
From a corporate standpoint, there are provisions contained in the applicable
partnership/operating agreement that may address changes to the transaction, and in
particular, the loan transaction and/or the equity contribution provisions. Usually there
is a provision for either the manager/general partner to have authority to make certain
decisions on behalf of the EB-5 company or, the changes otherwise need the consent
of the applicable members or limited partners.
HOW TO EVALUATE THESE FACTORS
Change in location: Is there a change in the location of the project? If so, is the
change significant? For example, let’s say there is an eminent domain proceeding of
a project and the development of the project is moved a few blocks away. Or, there is
a termination of a lease and the project is relocated with a new lease within blocks of
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