The Effects of EB-5 Redeployment on Pre-RIA Investors

What is Redeployment?

One of the key requirements of the EB-5 program is that an investor’s capital remains “at-risk”, meaning they must face the risk of partial or complete loss of their investment funds.

Furthermore, most EB-5 investors apply through the regional center model, in which the regional center, operating as the new commercial enterprise (NCE), loans the investment funds to a job creating entity (JCE)—the EB-5 project. At the end of the loan term, the firm repays the loan, and the regional center returns the funds to the investor.

In the past, loan terms of five years often satisfied the at-risk requirement, providing ample time for an investor to file and receive approval of an I-526 petition, live in the United States for a conditional residence period of two years, and then file and receive approval for an I-829 petition.

However, as EB-5 wait times increased, such loan terms became insufficient, and EB-5 funds were, in increasing cases, ready to be repaid to the investor whose petitions had yet to be approved.

To combat this issue, redeployment emerged as a solution by allowing the NCE to continually deploy investment funds into new projects, ensuring the capital remains at-risk.

How USCIS Processing Delays Impact Redeployment

For EB-5 investors, the primary concern of U.S. Citizenship and Immigration Services (USCIS) is ensuring that redeployed capital remains “at risk” until the required periods ends, meaning it must be reinvested in a commercial activity. Failure to do so can lead to denial of EB-5 immigration benefits for affected investors.

However, the required sustainment period depends on whether the investor applied before or after RIA enactment. For those who filed their I-526 petition prior to March 15, 2022, the period ends when they have completed two years of conditional residence, i.e. the expiration date on their initial Green Card. For investors who applied after March 15, 2022, the period ends two years after the capital has been “made available” to the JCE.

While redeployment for post-RIA investors is rarely necessary, it remains common practice for pre-RIA investors. This is especially true for investors born in high-demand countries such as China and India, where wait times for visa numbers can take years. Due to such extreme processing delays, redeployment will likely remain necessary for many years to come.

Pros and Cons of EB-5 Redeployment

At its core, the practice of redeployment is designed to protect EB-5 investors by preserving their immigration eligibility. When necessary, the benefit of redeployment cannot be understated, as it protects investors from EB-5 denial and being left with no other option but to restart the immigration process.

However, redeployment is not without risk, and, as with initial EB-5 project offerings, some redeployments are riskier than others. Moreover, redeployment opportunities can be difficult to find and make arrangements for, especially when considering (a) the unpredictability of when the investment funds become available to the NCE, (b) how many of the investors wish to engage in redeployment, (c) how long it will take for different investors to complete their sustainment periods, and (d) how long it will take for return of capital from a successful redeployment.

These factors often result in redeployments that lack the liquidity and diversity that non-EB-5 investors tend to prefer. On top of that, some EB-5 investors may need to go through multiple redeployments to preserve their immigration eligibility.

Another major disadvantage of redeployment is that the investment capital is tied up longer, thus increasing the chances of it being lost in the redeployment business. However, investors who wish to obtain a Green Card are often willing to endure these disadvantages to maintain their path to permanent U.S. residency.

NCE Efficiency When Redeploying Capital

As with initial EB-5 investments, it is crucial for redeployment to be done with careful planning, and the effectiveness of the reinvestments also depends on how the NCE handles the opportunities for them.

Ideally, an NCE should provide regular reports to investors about the timing of capital returns from the initial JCE and the prospects for redeployment. At the very least, the NCE should offer investors the choice to receive return of their capital if they have met the sustainment requirement or no longer wish to pursue immigration benefits or to engage in redeployment.

Furthermore, while an NCE could develop multiple redeployment options and offer a choice to investors, this can prove challenging. NCE operative agreements differ on whether and to what extent the NCE must follow restrictions in the type of redeployment and consult investors about the nature of the redeployment. NCE managers who fail to meet their redeployment obligations may find themselves faced with investor lawsuits or legal action from the U.S. Securities and Exchange Commission (SEC).

What EB-5 Investors Can Expect for Redeployment in the Future

Since the implementation of the RIA, clarification on the new sustainment period and the safety of redeployed funds have remained key talking points in the EB-5 industry, and for good reason. While most initial EB-5 projects will use and keep the capital longer than the two-year sustainment period, failure of NCEs to create the necessary jobs and use all capital as planned can have consequences on all parties. On top of that, USCIS will need to determine whether and how new provisions for “good faith investors” will apply to pre-RIA investors regarding failures of original projects or NCE errors in making or tracking redeployment.

Fortunately, the RIA allows redeployment to be anywhere in the United States instead of being restricted to the original targeted employment area or regional center’s jurisdiction. As such, USCIS has removed geographic restrictions on redeployment for pre-RIA investors as well.

In the coming years, most redeployment issues will involve pre-RIA investors; NCEs will continue to contend with timings of capital return, managing redeployment opportunities, and how to include affected investors in redeployment processes. Failure of the original project to properly spend all the EB-5 capital and create enough jobs will create major issues. In such cases, NCEs must try to salvage investors’ immigration benefits, even if that comes at the expense of capital loss.