How Regional Centers Benefit the EB-5 Industry
Here’s what we’ll cover in this article
The Advantages of Investing in a Regional Center-Sponsored Project1
The History of the EB-5 Regional Center Program 3
How Does a Business Entity Receive Regional Center Designation? 3
Differences Between the Regional Center and Direct Investment Models 4
Regional Center Investment: The Cornerstone of the EB-5 Industry 5
The process of obtaining a U.S. Green Card through the EB-5 investment program can be intimidatingly complex; after all, EB-5 investors must fulfill a plethora of specific criteria in order to immigrate successfully. Creating at least 10 jobs, keeping the EB-5 investment funding at risk according to program guidelines, and submitting the necessary evidence in the visa applications require careful planning and execution.
Fortunately for EB-5 visa applicants, United States Citizenship and Immigration Services (USCIS) has established economic entities known as regional centers, which act as service agents for investors and projects in the EB-5 industry. These entities manage EB-5 investment funding across a variety of projects and ensure that USCIS requirements are met.
In this way, investing in a regional center project can make the EB-5 process far more straightforward; the experienced professionals who manage EB5 regional centers can increase an investor’s chances of creating the 10 required jobs, complying with the financial requirements for EB-5 capital, and ultimately qualifying for U.S. permanent residency. (EB5AN offers consulting services for project managers, regional centers, and investors, helping them to remain eligible under program guidelines.) Moreover, the new regulations for regional centers established in the EB-5 Reform and Integrity Act of 2022 will ensure that these entities manage investor funds carefully and transparently.
The Advantages of Investing in a Regional Center-Sponsored Project
Pooled Investments
When an EB-5 project, known in the industry as a new commercial enterprise (NCE), obtains regional center sponsorship, it is allowed to raise funding from numerous EB-5 investors. In fact, only EB-5 regional center projects are allowed to pool capital from more than one investor, which grants the regional center industry broader access to EB-5 funding and the potential to create larger projects.
EB-5 visa applicants in regional center ventures do not invest directly into an NCE—rather, they purchase equity stakes in a regional center’s investment fund. This fund is then used to purchase equity in the project’s job creating entity (JCE) or loaned to it. Regional centers thus act as intermediaries between EB-5 investors and project managers. They oversee the flow of capital into the project, help projects comply with USCIS requirements, and often provide investors with much of the necessary documentation for the two visa petitions: Form I-526 and Form I-829.
Job Creation
Perhaps the most significant advantage of investing in a regional center-sponsored business is the more relaxed criteria for job creation.
EB-5 projects that are not sponsored by regional centers can count only direct positions toward satisfying the 10-job requirement. Direct positions are full-time W-2 jobs that appear on a company’s payroll.
In contrast, regional center investments can also count indirect and induced employment, which are calculated using an economic impact study. Indirect jobs are created when an EB-5 new commercial enterprise purchases goods and services from local businesses, thus stimulating the economy.
For instance, a construction development may purchase equipment and consulting services from local companies. Induced job creation takes place when a project’s employees spend their wages in the community.
Because induced and indirect jobs are not created directly by the project, they make it significantly easier to fulfill USCIS’s job creation requirement, especially for large projects with numerous investors.
Investors should note, however, that induced and indirect job creation can constitute no more than 90% of a regional center project’s total EB-5 job creation. Construction developments with a duration of fewer than two years, which have historically been common in the EB-5 investment industry, have a 75% cap on indirect and induced job creation.
Thanks to these two advantages— the ability to pool capital from several investors and the flexible job calculation criteria—the regional center industry has become the ideal choice for EB-5 investors. In recent years, approximately 95% of all EB-5 investments have been made in regional center-sponsored projects, injecting tens of billions of dollars into the United States and promoting economic growth. Moreover, these projects can be found across a wide variety of industries, including real estate developments, hospitality, tech, and education.
The History of the EB-5 Regional Center Program
The EB-5 Immigrant Investor Program was established in 1990, but its regional center component was not introduced until October 6, 1992. The EB-5 Regional Center Program, initially a temporary measure, came to the fore of the EB-5 industry during the economic crisis of 2008, which made the need for a cheap, accessible source of capital more apparent.
The renewed success of regional center projects during this period led Congress to remove the program’s pilot status in 2012, and the EB-5 industry experienced unprecedented growth in the 2010s. However, the program went into a brief lapse starting in December 2015 due to Congress’s failure to pass a government spending bill.
A far more prolonged lapse in the regional center industry began in June 2021, when Congress was unable to reach a consensus on EB-5 reform. The ensuing months were difficult for the EB-5 industry, as thousands of regional center investors were unable to move on in the visa process, and regional centers across the United States were forced to suspend operations.
Fortunately, the EB-5 Reform and Integrity Act of 2022 revalidated the EB-5 Regional Center Program on March 15, 2022. The program is now authorized through September 2027, and several new measures to oversee regional centers more closely are now in place. In a recent webinar, EB5AN summarized the new changes and explained how regional centers can succeed in this stringent regulatory environment.
How Does a Business Entity Receive Regional Center Designation?
Business entities interested in obtaining regional center status must file Form I-924, Application for Regional Center Designation Under the Immigrant Investor Program. USCIS reviews each applicant’s planned projects, anticipated marketing strategy for investors, and the geographic area in which they will operate.
Potential investors should note that an EB-5 regional center with official USCIS designation is not necessarily a reliable option; along with their immigration attorneys, foreign investors interested in the EB-5 visa should do thorough research on each regional center’s management team and track record. (EB5AN has thoroughly reviewed hundreds of projects and regional centers across the United States. We help investors choose the safest options and safeguard their funds.)
As mentioned previously, the EB-5 Reform and Integrity Act has introduced several new requirements for regional centers. For instance, all regional center projects must submit a “project request” detailing their operations and compliance with securities regulations. A project’s investors will be unable to apply for their EB-5 visas unless a project request has been filed.
Maintaining USCIS designation will also be significantly more challenging under the new rules. USCIS will carry out a thorough audit of each regional center every five years and will use in-person site visits to ensure that legitimate business operations are taking place. Moreover, regional center investments must now employ a third-party fund administrator or release audited financial statements.
Differences Between the Regional Center and Direct Investment Models
The alternative for EB-5 investors who do not wish to work with a regional center-sponsored project is to make a direct investment. In this model, the funds are deposited directly into the new commercial enterprise with no intermediation from other entities. In addition to the more restrictive job creation requirement, there is another significant drawback to the direct investment model: the degree of an investor’s involvement.
The management structure of a direct EB-5 new commercial enterprise often has investors assume active roles in day-to-day business management, which often requires them to live near the business.
Regional center investors are typically free of such obligations; as limited partners in a limited liability company, they only need to vote on major policy decisions and have little involvement in day-to-day business operations. This added freedom also allows regional center investors to live anywhere in the United States regardless of their project’s location.
Of course, an investor’s involvement ultimately depends on the project’s management structure and not on the investment type.
Regional Center Investment: The Cornerstone of the EB-5 Industry
In the EB5 investment industry’s unforgiving regulatory environment, thousands of investors have been able to immigrate to the United States thanks to the convenience of the EB 5 regional center investment model. These entities are crucial in ensuring transparency in their projects, making the application process more straightforward for investors, and popularizing EB-5 capital as one of the most convenient funding sources for a new commercial enterprise. The EB-5 program’s continued success—both in encouraging immigration and stimulating the U.S. economy—can largely be attributed to the regional center program.
