- EB-5 Regional Center Investments May Not Work in Line with the Original Business Plan
- Limited Funds or Resources
- Instances Where Material Changes May Not Cause a Problem
- Instances Where Material Changes Can Become a Problem
EB5 Regional Centers and the Purpose of the EB-5 Program
There are two foreign investment models in the EB-5 Immigrant Investor Program, which allows foreign nationals to relocate permanently to the United States after investing in a qualifying project. An investor can invest directly in an EB-5 project or pool their funds with other investors in a regional center program project.
A regional center is a commercial entity that promotes and manages EB5 investment funds and funnels them into select new commercial enterprises (NCEs)—that is, EB-5 projects. Regional centers are approved and regulated by United States Citizenship and Immigration Services (USCIS).
A business entity can receive regional center designation by submitting Form I-956. This updated application for regional center designation was released in May 2022.
In addition, the U.S. government enacted the EB-5 Reform and Integrity Act of 2022 (“the 2022 Act”) in March 2022. The 2022 Act introduced new safeguards to the EB-5 industry. These measures are designed to reduce the risk of fraud in the regional center program and boost investor confidence.
As a result of the 2022 Act, projects in the regional center program are now subject to an increased administrative burden to ensure securities law compliance. USCIS is also empowered to conduct criminal record and background checks on those involved in the operation of existing regional centers.
What Are Material Changes?
Investors must file an I-526E petition to demonstrate that their EB-5 project complies with EB-5 program requirements. Then, investors file the I-829 petition at a later stage to demonstrate that they have met all of the EB-5 program’s requirements. One of the main requirements is for the EB-5 project to follow through on its business plan. The business plan originally submitted with the initial I-526E petition should not differ significantly from the regional center project details submitted in the final I-829 petition.
While minor differences between an EB-5 project’s business plan and its actual operation may not be an issue, material changes that significantly affect various aspects and outcomes of a project can result in the denial of EB-5 visa petitions by USCIS. The 2022 Act reinforces this position, although it does not specifically define “material changes.”
Generally, USCIS has determined that the following qualify as material changes.
- Changes in the regional center project’s scope. For example, an investor may change from a regional center program investment to a direct investment, or the focus of the regional center project may change entirely.
- Changes to the investment terms. For example, if clauses in the investment agreement are later removed, this is considered a material change.
- Changes that affect the source of funds or job creation.
USCIS generally considers the following changes to be non-material:
- Changes to conditions that do not affect compliance with EB-5 requirements.
- Minor changes to the focus of an investment project. For example, changing from an Italian restaurant to a restaurant that serves primarily French cuisine would not be significant.
- Changes to the investment agreement for clarification purposes.
Why May Material Changes Be Required?
In the annual reports required by the 2022 Act, regional centers are now required to include material changes to their EB5 projects and disclosures to investors about these material changes. Regional centers can be fined for failing to comply with this new requirement.
At the same time, material changes to a regional center project may be unavoidable for a number of reasons.
EB-5 Regional Center Investments May Not Work in Line with the Original Business Plan
On occasion, EB-5 regional center projects do not proceed exactly as outlined in the original business plan. While all reasonable efforts should be made to remain consistent with the original plans, unforeseen circumstances may leave no choice but to make changes as the project proceeds.
Limited Funds or Resources
EB-5 regional center investments are funded by foreign investors, who each invest a minimum amount of capital in their chosen regional center project, and from other sources such as equity or loans. Projects with funding from non-EB5 sources provide a financial cushion that lowers the immigration risk for foreign investors.
If an approved regional center fails to raise the required funds for a regional center project, then the project may require material changes to its business plan to adjust to the available funding. In this case, a new I-526E petition may need to be filed with the USCIS for its review and adjudication. Costly delays can be expected.
If a regional center remains inactive for an extended period, it may be viewed as no longer promoting economic growth in its approved geographic area, and USCIS may terminate the regional center’s license.
What Happens to EB-5 Regional Centers When Material Changes Are Made?
Instances Where Material Changes May Not Cause a Problem
As long as material changes do not disqualify the project from qualifying for the EB-5 program and each EB-5 investor can show that the changes were unavoidable and not planned from the start, USCIS may not deny the investors’ final I-829 petitions. Investors also need to show that funds remained at risk during the entire period regardless of any changes that were made to the project.
Instances Where Material Changes Can Become a Problem
If changes are made after an I-526E petition is filed, the application may ultimately be denied. Similarly, if a project undergoes material changes after its investors’ I-526E petitions are approved, their I-829 petitions may be denied.
Significant changes, such as changes that affect the basic characteristics of a project, can be problematic. For example, if an I-526E petition is filed listing the project as the construction of a luxury hotel, but the project is later completely changed to the construction of a single-family home community, this would most likely lead to the petition being denied.
Avoiding the Pitfalls of Material Changes
Material changes may be unavoidable in rate situations. However, investors can take the following steps to avoid the need for material changes and ensure that any changes do not negatively affect their I-526E or I-829 petitions.
Investors Should Carefully Review Business Plans
Investors should carefully review business plans for potential investment projects to make sure that the project is feasible. This limits the likelihood of later changes being necessary.
Verify the EB-5 Regional Center’s History
When selecting a regional center to work with, investors should verify that their chosen regional center has a history of successful EB-5 project completion. This increases the likelihood that the regional center will be able to maintain its regional center approval and see the project through to its completion. An investor’s poor choice of a regional center can reduce their chances of immigration success.
Investors Should Carefully Prepare Their I-526E Petitions
While not all project changes create issues for investors, it is best for investors to carefully plan for any foreseeable changes and avoid them when possible.
Investors should make sure that the submitted I-526E petition includes all the necessary information and that it is accurate. Details of how program requirements will be met should be included to reduce the risk of USCIS requesting further information. If any changes do have to be made due to a request for evidence (RFE), documentation linking the original plan to the new plan should be included.
Any material changes that occur after conditional permanent resident status has been obtained are less worrisome than those that occur prior to I-526E petition approval. Even in this case, however, USCIS needs to be notified of any changes before Form I-829 is filed, since that form must include documentation showing how the project has tried to adhere to the business plan set forth in the original petition.
It is important to ensure that the funds listed in the original I-526E petition match those listed on the final I-829 petition and that those funds were directly used to create the 10 required jobs. Job creation is an especially important component of all EB-5 visa applications; investors should use their project’s records to prove that the needed jobs were created.
In some cases, modifications to the nature and scope of a project’s job creation may be considered a material change. Since job creation is one of the main requirements for EB-5 visa immigration, projects should make sure to create all of the needed jobs for their investors.
Avoiding Material Changes is Essential For EB-5 Projects
While there are a variety of obstacles that investors may encounter during the EB-5 process, many can be avoided by a thorough investigation of potential projects and regional centers, ensuring that all the requirements of the EB-5 Reform and Integrity Act of 2022 are met and the needed documentation is provided. This will avoid costly delays and denials in the EB-5 petition process.
Investors and developers are encouraged to contact EB5 Affiliate Network (EB5AN) as the next step to learning more about the EB5 program.