USCIS Updates Minimum EB-5 Investment Period: What this Means for EB-5 Investors

On October 11, 2023, United States Citizenship and Immigration Services (USCIS) updated its policy on the minimum investment period for EB-5 visa applicants. This update seeks to clarify how USCIS interprets changes made by the EB-5 Reform and Integrity Act of 2022 (RIA).

The RIA stated that an investment is expected to remain invested for not less than two years, but does not specify when the two years start. The new guidance published on the USCIS website states that this two-year period begins when investor funds are deployed to the job-creating entity (“JCE”). As long as 10 jobs have been created by an EB-5 investor’s investment, he or she can be repaid after two years and remain eligible for a U.S. Green Card. This is a significant change to the “at-risk” requirement for EB-5 investors.

The new policy, however, is just that: a non-binding policy. It does not carry the weight of a regulation promulgated by the Immigration Agency, which has been subject to notice and comment. As a result, EB-5 investors should be cautious about selecting projects that are promising a shorter investment timeframe.

In this article, we examine this new policy and explain why it may be temporary. We also provide practical guidance for EB-5 investors on how to mitigate the financial and immigration risks that come with this new policy.

Key Takeaways for EB-5 Investors

• The at-risk period for EB-5 funds is now two years starting from the time the funds are “placed at risk” What USCIS means by “placed at risk” remains unclear, but it is clear that the funds must be made available to the JCE for job creation.
• Although this appears to be a final pronouncement from USCIS on this subject, USCIS may reverse this new policy (at any time) as it is non-binding. Also, the policy may be overturned through the promulgation of regulations or litigation. If this happens, the required investment period would revert to the 2-year conditional residency sustainment period—EB-5 investors must receive and hold the Green Card for 2-years prior to being eligible for a repayment of investment funds.
• Because this policy, even though issued as a final pronouncement, may be reversed, investors should be cautious and keep this possibility in mind when considering an EB-5 project that has a much shorter repayment target than the average 5-year term that most EB-5 projects have.
• Generally, EB-5 projects that promise a two-year investment period are likely to pose both higher immigration and financial risk to investors.

Overview of the New Two-Year Minimum Investment Timeframe Policy

To qualify for a Green Card, an EB-5 investor’s funds must be “at risk,” which means the money must be invested in an EB-5 project and subject to gain or loss. Prior to the RIA, an EB-5 investor’s funds had to remain at risk until the end of his or her two-year conditional residence period, which may be long after the approval of Form I-526.

The RIA has new language regarding the investment period. Instead of having to keep their funds invested until the end of the conditional residence period, EB-5 investors must keep their funds invested for at least two years. But Congress did not define in the RIA when this two-year period starts.

The latest guidance from USCIS seeks to clarify the situation. According to the new policy, this two-year minimum investment period begins once “the full amount of qualifying investment is made to the new commercial enterprise and placed at risk under applicable requirements, including being made available to the job creating entity.”

In other words, the clock starts ticking once the investment is made and becomes at risk. The period no longer begins when the conditional Green Card is granted.

The reduced minimum investment timeframe does not apply to EB-5 investors who filed Form I-526 before the RIA was signed into law in March 2022.

Risks Associated with a Two-Year EB-5 Investment Period

This shift in USCIS policy provides little certainty about when EB-5 investors can be repaid while remaining eligible for Green Cards. And relying on this new policy entails several risks.

The Start Date of the Two-Year Investment Period Remains Ambiguous

While the policy update was meant to clarify the required investment timeframe, its wording leaves room for uncertainty. As a result, determining the exact start and end dates of the two-year investment period can still be difficult.

The October 11 USCIS update says the following:

“We interpret the start date to be the date that the full amount of qualifying investment is made to the new commercial enterprise and placed at risk under applicable requirements, including being made available to the job creating entity, as appropriate” (emphasis added).

At a basic level, this means that an EB-5 investor’s funds must go from the new commercial enterprise (NCE) to the job-creating entity for the two-year investment period to begin.

In most EB-5 offerings, the NCE is the regional center’s investment fund. This entity receives the money from the EB-5 investor but does not create the jobs. The JCE is the project development entity that uses the EB-5 investments to create jobs.

However, EB-5 funds generally do not go straight from the NCE to the JCE. In some cases, the JCE may not need the capital for months.

The exact language of the policy update that is of concern is “placed at risk” and “made available.”

This language suggests that, at a minimum, the two-year investment period begins when an EB-5 investor’s funds are advanced to the JCE. But USCIS may decide that the JCE must actively be using an investor’s funds for job creation in order for the investment to be considered “placed at risk.” Determining when the JCE has used all of a specific EB-5 investor’s capital on job creating activities can be difficult. EB-5 funds may be drawn in different amounts and at different times from the NCE into the JCE based on the project’s capital needs.

This means that, in practice, an EB-5 investor’s two-year investment period may begin long after he or she transfers funds to a project’s NCE. Furthermore, the exact date this period starts will be hard to determine with certainty without further guidance from USCIS.

Repayment Cannot Happen before the Job Creation Requirement Is Met

For an EB-5 investor to qualify for repayment of his or her EB-5 funds, both of the following two requirements must be met:

His or her investment must have been “placed at risk” and “made available” to the JCE for at least two years; and
His or her investment must have created at least 10 jobs.

Tracking the timing of job creation is complex. The process involves an evaluation of the project’s drawdown schedule, its job creation benchmarks, and the timing of when the JCE actually uses the funds for job creation.

Job creation typically depends on an EB-5 project’s construction expenditures. Job creation is calculated differently depending on how long construction lasts. Projects with construction that lasts at least two years benefit from much higher economic impact, while short projects will produce significantly fewer jobs.

Any delays in construction or in raising EB-5 funds will likely delay job creation as well. This is a risk factor for all EB-5 projects, but it will be especially pronounced in projects that plan to repay investors after only two years.

Depending on construction progress at the time an investor makes his or her investment, few jobs may have been created after two years. Fewer jobs entails less room for error.

If an EB-5 project repays an investor as soon as the two-year period ends—and if it turns out later that there is insufficient job creation from the project and the investor has already been repaid there’s no way to cure a job creation problem at that point as they are no longer a member of the NCE and the investor will not qualify for a removal of conditions on the permanent Green Card.

Calculating job creation accurately is essential.

EB-5 projects that plan to repay investors after two years will have to be very careful to ensure that all 10 required jobs have been created for a specific investor before repaying that investor.

So, while shorter timeframes may seem attractive, the added nuances of earlier repayment can often create an additional layer of immigration risk for EB-5 investors.

The Two-Year Investment Timeframe May Be Overturned

The new two-year investment policy was not created through the normal rule-making process. Consequently, it is non-binding and can be reversed sua sponte by the agency, which they have a history of doing on this exact topic. It is also subject to challenge through litigation. Past USCIS policy changes have been successfully overturned through litigation.

One recent high-profile example came in the June 2022 federal court ruling against USCIS’s decisions to deauthorize all EB-5 regional centers. This policy was overturned, and USCIS modified its guidance accordingly.

Should USCIS reverse its updated policy regarding investment timeframes, any investors who were repaid prior to holding their Green Cards for two years may be subsequently denied.

EB-5 Projects with Two-Year Repayment Terms May Not Have Safety Features

Historically, many of the safest projects in the EB-5 market have been large real estate developments that do not rely on EB-5 funding and have been underwritten by major banks. With a senior loan, developer equity, and traditional sources of funding, EB-5 capital makes up only a small portion of these projects’ capital structures.

Even if these projects raise less EB-5 capital than projected, they will continue to be built because they have already secured all necessary funding. As a result, they are likely to continue to create jobs as planned, reach completion, and repay their investors.

In many cases, construction is already well underway in these projects. By the time EB-5 funding is deployed in the JCE, some or all of the required EB-5 jobs may even already have been created.

These real estate projects are typically larger and require EB-5 funding to remain invested for a four- or five-year period. But because of how they are structured, they tend to increase an EB-5 investor’s chances of both creating the 10 necessary jobs and getting a timely repayment.

Comparably, new projects that plan to repay EB-5 investors after two years based on USCIS’s new policy guidance may feature capital structures that are higher risk.

These projects may not have secured funding from traditional sources and therefore need EB-5 capital to begin construction. If a project is dependent on EB-5 funds, it may not reach completion unless it raises all of the planned EB-5 capital. Then, if the project is not completed, EB-5 investors may not be repaid at all.

These projects may even be pre-development, meaning that construction is yet to begin. No construction progress would mean little to no job creation, making projects in pre-development are often riskier than those with construction well underway.

Because job creation must occur before EB-5 investors can be repaid, it is unclear whether projects like these could repay investors earlier without jeopardizing their chances of getting their Green Cards. The added risks are high with uncertain benefits.

Before selecting an EB-5 project that offers repayment after two years, EB-5 investors should ask whether the possibility of being repaid sooner is worth risking their Green Card.

Other Considerations for Two-Year EB-5 Investment Projects

Besides the added risks that may be involved with projects that offer repayment after two years, EB-5 investors should be aware of other implications of this policy change.

Repayment Will Ultimately Depend on a Project’s Offering Documents

This new policy does not require that every EB-5 investor be repaid after exactly two years. And even if a project markets itself as offering repayment after two years, not every EB-5 investor may qualify.

The terms of a project’s documents and offering memorandum ultimately determine when an EB-5 investor can have his or her funds returned. For example, a project’s offering documents may state that the EB-5 loan term is five years. If this is the case, the project is unlikely to be able or willing to pay back investors after only two years.

Additionally, even if an EB-5 project offers a two-year loan term, the offering documents may include optional extensions of the loan that may be exercised without investor consent.

EB-5 investors should carefully read an EB-5 project’s offering documents before investing. Even though USCIS policy currently allows for repayment after two years, the offering documents are what ultimately dictate the conditions and timeframe for the return of capital.

Repayment after Exactly Two Years Is Unlikely

Raising EB-5 funds takes time. For many EB-5 projects, the NCE raises funds for one to two years. Then the JCE may not use any EB-5 capital until a minimum amount has been raised. This could mean that an EB-5 investment is not “placed at risk” until a year or more after being wired to the NCE.

Another concern is that, realistically, a project that is not completed is unlikely to be able to repay an investor in the middle of development. Before investing in an EB-5 project that plans to repay EB-5 investors after two years, an EB-5 investor should ask where the funds for repayment will come from if the project is ongoing.

Safeguarding Your Funds and Immigration Interests

In a fast-changing regulatory environment, EB-5 investors should keep up to date with the latest policy changes. Investors should also keep in mind that even final USCIS policies can be overturned through litigation—or by the agency itself.

The impact of the updated minimum investment timeframe on the EB-5 market is presently unknown. And uncertainty always means risk.

Best practice for EB-5 investors will always be to choose the safest projects—those that are fully capitalized, that are not dependent on EB-5 funding to be completed, and that have advanced construction with significant job creation already in place at the time of investment.

Instead of selecting a project based on uncertain hopes for faster repayment, an EB-5 investor should closely examine a project’s financial strength and job creation. These are the two main factors that determine whether EB-5 investors will successfully get permanent Green Cards with I-829 approval and a return of their EB-5 funds.

For further guidance on how to navigate the EB-5 program and how to select a safe project, we invite you to schedule a free consultation with EB5AN, Klasko Immigration Law Partners, or Greenberg Traurig’s Global Immigration and Compliance team.

We also invite you to watch a comprehensive overview of the new USCIS policy in our recent webinar.

Authorship

This is a joint article written by Sam Silverman, managing partner of EB5AN; Ron Klasko, managing partner of Klasko Immigration Law Partners; and Kate Kalmykov, co-chair of Greenberg Traurig’s Global Immigration and Compliance team.