EB5 Investors Magazine English Edition Volume 6, Issue 2 | Page 109

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 EB5INVESTORS.COM 109