“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.”
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