The New USCIS Two-Year Investment Period Policy: Implications 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 explains how USCIS interprets changes made by the EB-5 Reform and Integrity Act of 2022 (RIA).

A requirement of the EB-5 Program is that an EB-5 investor’s funds must be “at risk.” This means that the EB-5 investor’s funds 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 residency period—which could come after the approval of Form I-526 if the investor is from a country with EB-5 visa retrogression.

The RIA stated that an investment is expected to remain invested for not less than two (2) years, but it did not specify when the two-year period begins. The new guidance published on the USCIS website states that this two-year period begins when investor funds are made available to the job-creating entity (JCE). As soon as the two-year period is satisfied and ten (10) jobs have been created by an EB-5 investor’s investment, the EB-5 investor can be repaid its invested capital and remain eligible for a U.S. Green Card. This is a significant change to the “at-risk” requirement for EB-5 investors.

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 a 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.

The discussion below further explores the nuances of USCIS’s updated policy, and aims to provide practical guidance to EB-5 investors on how to evaluate the financial and immigration risks that come with this new policy.

Risks to Consider with a Two-Year EB-5 Investment Period

With this shift in USCIS policy, many requirements regarding when EB-5 investors can be repaid remains unclear. In addition, relying on this new policy entails several risks.

The Start Date of the Two-Year Investment Period Is 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.”

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.

That said, the language suggests that the two-year investment period begins when an EB-5 investor’s funds are advanced to the JCE. It is nonetheless possible that USCIS may decide that the JCE must actively be using the EB-5 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.

Practically, it is possible for 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.

The Job Creation Requirement Must Be Satisfied Before Repayment

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: 1) his or her investment must have been “placed at risk” and “made available” to the JCE for at least two years, and 2) 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 uses the funds for job creation.

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 two years.

Depending on construction progress at the time an investor makes his or her investment, only a fraction of the expected total jobs may be created after two years.

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.

EB-5 Projects with Two-Year Repayment Terms Could Have Higher Financial Risk

In the past, many of the safest (from a capitalization perspective) projects in the EB-5 market have been large real estate developments that have been financed primarily by major banks and did not rely on EB-5 funding. These projects are generally capitalized with a senior loan, developer equity, and traditional sources of funding, well before EB-5 capital enters the project. As a result, if these projects raise less EB-5 capital than projected, they will likely be completed as they have already obtained all necessary funding. They are also likely to continue to create jobs as planned, reach completion, and repay their investors.

As these projects already have a senior debt structure in place, they will most probably require the EB-5 funding to remain in the project until after the senior debt has been repaid, which could be several years beyond the new two-year at risk period. Yet, these projects remain attractive to EB-5 investors as they have senior financing in place, and can establish the requisite number of jobs as well as return the capital commitments of the EB-5 investors.

In comparison, new projects that plan to repay EB-5 investors after two (2) years based on USCIS’ new policy guidance may feature capital structures that are higher risk and may not be fully financed at the time of investment.

These projects may not have secured funding from traditional sources and therefore need EB-5 capital to close on the traditional sources (e.g., the senior construction loan) and begin construction. If a project depends on EB-5 funds, it may not reach completion unless it raises all of the planned EB-5 capital. If the project is not completed, EB-5 investors may not be repaid at all, and the requisite number of jobs may not be created.

Before selecting an EB-5 project that offers repayment after two (2) years, EB-5 investors should consider the practicality that the project may not even be able to repay the capital at the end of the two-year term and that their immigration requirements may not be met.

Realistically, Repayment After Exactly Two Years Is Unlikely

Raising EB-5 funds takes time. For many EB-5 projects, the NCE raises funds for one (1) to two (2) years. Depending on whether the project has a minimum offering amount, the JCE may not use any EB-5 capital until a minimum offering 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 a project that has not been completed will typically not be able to repay an EB-5 investor in the middle of construction and development. Before investing in a project that plans to repay EB-5 investors after two (2) years, an EB-5 investor should ask where the funds for repayment will come from if the project is ongoing.

In addition, as EB-5 investments are often structured as mezzanine loans to the project, the repayment of EB-5 investors could be contingent on senior loan covenants, which may prevent EB-5 mezzanine loan (and thus the EB-5 investors) from being repaid before repayment of the senior loan. If the senior loan agreement and any intercreditor agreement is not yet drafted or executed, and thus not available to review before investment, these covenants will be unknown, but will typically include that senior debt must be repaid prior to EB-5 debt or investment.

Repayment Timing Will Ultimately Depend on the Terms of the Project’s Offering Documents

This new USCIS policy does not require that every EB-5 investor be repaid after exactly two (2) years. Furthermore, 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 EB-5 investor consent. It is therefore essential to review the offering documents carefully.

Also, it is important to understand the capitalization structure and payment priority of the other financing in the project. This will help determine whether the exit strategy at the end of the two-year period is realistic.

EB-5 investors should carefully read an EB-5 project’s offering documents before investing. While the USCIS policy currently allows for repayment after two (2) years, the offering documents and the debt structure of the project ultimately dictate the conditions and timeframe for the return of capital.

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 unilaterality 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.

Prioritize Financial and Immigration Safety

The 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 potential. 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.

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.