The New USCIS Two-Year Investment Period Policy: Implications for EB-5 Developers and Regional Centers

On October 11, 2023, in a significant development for EB-5 visa applicants, the United States Citizenship and Immigration Services (USCIS) clarified its stance on the minimum investment period. This update is in the context of the EB-5 Reform and Integrity Act of 2022 (RIA), a pivotal piece of legislation shaping the future of EB-5 investments. Below is an analysis as to the impact of the RIA on EB-5 developers and regional centers and how it alters the playing field.

The RIA introduced a crucial stipulation requiring investments to be engaged for a minimum of two (2) years, but with start of the investment period being ambiguous until USCIS’s latest guidance. It is now implied that this two- (2) year timeline begins the moment EB-5 investor funds are actively utilized by the job-creating entity (JCE). This interpretation opens a new chapter for the EB-5 industry, particularly regarding the repayment of capital following the successful completion of the two- (2) year term and the creation of the requisite ten (10) jobs per EB-5 investor.

An EB-5 investor’s funds must be “at risk”—a term synonymous with the potential for gain or loss in an EB-5 project. Before the RIA, this condition extended until the end of the investor’s two- (2) year conditional residency. The recent update, however, revises this timeframe, providing a potential breather for investors, especially those from countries facing EB-5 visa retrogression.

It is crucial to note that this revised minimum investment period does not apply retroactively. EB-5 investors who filed Form I-526 before the RIA’s enactment in March 2022 must adhere to the original “at risk” duration.

While this policy shift is a game-changer for the EB-5 industry, it is important to recognize that it is merely guidance and not a rule or regulation. Rules and regulations are subject to the Administrative Procedure Act, which mandates a notice comment, consideration of the comments, and publication of the final rule or regulation. As a result, EB-5 developers and regional centers should exercise caution and strategic foresight in structuring their offerings.

The discussion below further explores the nuances of USCIS’s updated policy, underscoring its potential temporariness and impact. We also delve into practical strategies to align new EB-5 offerings with this evolving landscape, ensuring compliance and success in this dynamic investment domain.

Considerations with a Two-Year EB-5 Investment Period

With this shift in USCIS policy, many requirements surrounding when EB-5 investors can be repaid remain unclear. And developers and investors must account for several factors when relying on this new policy.

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

While the policy update clarified the required investment timeframe, its wording remains ambiguous. As a result, determining the exact start and end dates of the two-year investment period can still prove difficult.

The October 11 USCIS update states:

“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.”

Simply put, this means that an EB-5 investor’s funds must move from the new commercial enterprise (NCE) to the JCE for the two-year investment period to begin.

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

The October 11 USCIS interpretation implies that, as a baseline, the two- (2) year investment timeline starts when the EB-5 investor’s capital is transferred to the JCE. That said, there is a possibility that USCIS may require the JCE to actively employ these funds in job-generating activities for them to qualify as “at risk.” Pinpointing the exact moment when the JCE has fully used an individual EB-5 investor’s funds for such activities presents a challenge. This is chiefly because of the varying amounts and timings of fund transfers from the NCE to the JCE being tailored to meet the specific capital demands of the project.

In practical terms, the commencement of an EB-5 investor’s two-year investment period could significantly lag the initial fund transfer to the project’s NCE. Without further clarification from USCIS, finding out the precise start date of this period remains a complex and uncertain task.

The Two-Year Investment Timeframe May Be Overturned

The new two- (2) year retention policy was not enacted through the typical rule-making process, as it is merely guidance, which may be unilaterally reversed by USCIS, as they have done in the past. The new two (2) year retention policy is also subject to challenge through litigation, and prior USCIS policy changes have been successfully overturned in such a manner, even as recently after the passage of the RIA.

One 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 changed its guidance accordingly.

Key Implications for Developers

To prepare for the developing landscape of the EB-5 environment, developers and regional centers should consider:

Ideal EB-5 Projects Could Change: While EB-5 investors prefer to receive a return of their investment quickly, quality institutional real estate projects typically require over two (2) years to develop and stabilize. This dynamic calls for innovative project planning that aligns investor expectations with practical development schedules, ensuring compliance with the EB-5 program’s regulatory framework—and investors’ wishes—while maintaining the project’s integrity and viability. Developers are tasked with crafting EB-5-compliant projects that are both attractive to investors seeking quicker capital repayment and grounded in the realistic timelines of real estate development.

Projects Already Under Construction Will Have a Shorter Investment Period: For EB-5 investors, projects that have begun construction and begun job creation before their investment will be attractive. These projects are likely to meet the EB-5 program’s job creation requirement within a two- (2) year period more reliably than those not yet off the ground. As a result, EB-5 projects that can show progress in construction and job creation will become a preferred choice for investors looking to take part in the program.

Redeployment of EB-5 Capital Is Unlikely: Redeploying capital to secondary projects is unlikely to be necessary. This shift is significant for investors who prioritize directness in their investment path. When an EB-5 project successfully generates the required number of jobs and maintains the investors’ capital at risk for the mandatory two-year period, the complexities of reinvesting funds to another project to maintain the “at risk” requirement end. This shift toward a single investment structure will EB-5 investors offer a more secure and transparent investment experience.

Make Sure the Assumptions Are Reasonable: For investors seeking a two- (2) year investment period, scrutinizing the viability of the exit mechanism will be crucial. A realistic exit strategy is paramount, not just for investors’ peace of mind, but also for project’s credibility project in the eyes of regulatory bodies. It must be a well-structured plan that ensures the return of capital. A two-year investment horizon is ambitious, and the exit strategy must reflect a deep understanding of the investment landscape. It should align with a thorough risk assessment and provide a clear pathway for investors to be repaid without unforeseen complications. Developers must present investors with a clear, achievable roadmap for both the creation of jobs and the exit strategy.

Important Disclosures for Developers

The revised policy will require additional risk disclosures to prospective EB-5 investors. Some of these important disclosures are explained below.

There Is No Assurance that Forward-Looking Statements Are Accurate: It is critical to acknowledge that projections about the future are estimates, not certainties. Investors must know any forward-looking statements made in investment materials are based on current expectations, forecasts, and assumptions that involve risks and uncertainties. These statements do not offer any guaranty but present a potential scenario based on analysis and the information available. This means there is a distinct possibility that actual results may differ from those predicted in these statements because of myriad factors. In particular, market conditions, regulatory changes, and unforeseen economic shifts can all impact the outcome.

The Timing of Project Completion Is Not Guaranteed: The ability of an investor to receive a permanent Green Card depends upon the successful implementation of the projected schedule for completion of the project. If the timelines are subject to delays, the delays may affect investors’ ability to show the requisite jobs were created by the project during their risk period.

The Investment Period Could Be Affected by Job Creation and Timing of Deployment to the Project: The EB-5 investor’s timeline could be affected by various investment-specific factors, such as the timing of job creation and the timing of capital deployment from the partnership to the project. The consequences of such effects are unclear and no adjudicative precedent currently exists. Investors must proceed understanding that the investment period may extend beyond initial projections because of these variables and must recognize that the landscape is subject to change as new precedents are established.

Senior Financing Needs to be Repaid Before EB-5 Investors are Repaid: For EB-5 investments arranged as mezzanine debt financing, senior financing has priority in repayment over EB-5 investors. This means that any obligations to existing senior debt must be settled prior to the repayment of EB-5 investor funds. Potential EB-5 investors should be aware how the subordinated position can influence the timing of repayment.

USCIS May Put Forth New Guidance that Differs from the Risk Period Guidance: As similar “guidance” has been successfully challenged and reversed by federal court in the past, the USCIS risk period guidance may likewise be challenged and reversed by a federal court. Investors must be vigilant and prepared for possible changes in the regulatory environment. Any alterations to the risk period guidance could impact ongoing and future projects, along with investors’ strategies. As such, it’s important to understand that USCIS guidance is not absolute and may evolve through legal challenges and reinterpretations.

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.

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

Authorship

This is a joint article written by Sam Silverman, managing partner of EB5AN, and Bruce Rosetto, a shareholder of Greenberg Traurig P.A.

Disclaimer: Please note that the blog is not legal advice and only intends to provide helpful tips in connection with the new rules and the guidelines from USCIS. You should not rely on this guidance in making any decisions regarding the topics herein and you should consult with your own attorneys and professional advisers for such advice.