The EB-5 Escrow Account

Generally, when an investor chooses a Regional Center project to invest in, she will wire her funds to the Regional Center's escrow account. The EB-5 regulations require that funds must have been "invested" (or be in the process of investing - though no one wants to take a chance on that anymore) in a U.S. business and over the years, the USCIS has agreed that placing the investment funds in an escrow account will be sufficient to meet the investment requirement. In other words, placing funds in an escrow account is not a USCIS requirement, but a business best-practice that has developed over the years. In other words, escrow terms are business specific and the escrow agreement is one of those documents that the investor must really read. (Well, the investor really should read ALL the documents given to her, but not many do.) Generally, the $500,000 principal will only be released to the project once the investor's I-526 is approved. The subscription fee (which ranges from approximately $40,000 to $50,000) may or may not be released immediately after the investor wires the funds to the escrow account.

Recently, however, I am seeing more Regional Center projects moving away from the traditional escrow model. For example, one well-established Regional Center with a fantastic track record has amended its escrow to say that the investment principal will be released to the project when i) an exemplar I-526 is approved or ii) when the first three I-526s are approved, whichever happens first. With I-526 approvals taking up to 8 or 9 months, it is no surprise that project owners and Regional Centers are trying to develop new ways to speed things up. But it is one thing when a "well-established Regional Center with a fantastic track record" does this. It is another thing when a brand new project for a brand new Regional Center has no escrow account at all. That the project has no escrow account in and of itself does not mean that it is a bad project. But I would think that it would be something that the agent selling the project points out affirmatively. (At least they were in the risk factors of the PPM.)

Autism Conference for Korean Families in New Jersey

This is not EB-5 related, but I'm trying to spread the word through as many channels as possible, so please excuse the digression. Some of you know that I have a special interest in autism in the Korean-American community because one of my children is autistic. So I've been planning an autism conference for the Korean community in New Jersey for quite some time now and it is finally happening on Saturday, June 16. Please visit www.autismkorea.com for more information on this upcoming free seminar. I've been able to gather a group of wonderful experts in the field for the conference. Thank you!

TerraCRG Brooklyn Real Estate Summit

Please come see me speak on the Foreign Investment Panel at the TerraCRG Brooklyn Real Estate Summit which will be held on Thursday, June 14, 2012. My fellow panelists will be: 

Steven Polivy, Chair – Economic Development & Incentives Practice, Akerman Senterfitt 
George Olsen, Managing Principal, New York City Regional Center 
Brian Su, President & CEO, Artisan Business Group 
Paul Travis, Managing Partner, Washington Square Partners

Please click here for more details about the conference.

USCIS announces "Engagement with Director Mayorkas and USCIS Economists"

Readers of this blog know that the new direction that the USCIS has taken regarding how to count tenant created jobs has thrown a monkey wrench into the program as we know it. If you haven't heard about this big EB-5 topic of the first half of 2012, you can read my analysis here. To better understand what these changes mean, the EB-5 community has been asking for a meeting with the USCIS economists for some time now and it is finally happening on Friday, June 22, 2012. Please click here for the USCIS invitation and directions on how to dial-in. I've signed up for one of the 75 in-person slots, but haven't heard back whether I made the cut. In any case, it should be an engaging conversation.

State of California will no longer issue TEA Letters

California announced on its website a few weeks ago that it would no longer issue TEA letters for individual projects. Instead, it has issued a blanket TEA letter designating certain municipalities as qualifying for TEA status. While providing certainty for some projects that will be located on this list, for many new projects that could otherwise qualify, this move by the state government will most likely dampen the introduction of new EB-5 investment projects being set up in California.

First, let's take a step back. Under the regulations, the minimum investment required to qualify as an EB-5 investment is $1 million. If the recipient project is located in a TEA, however, this minimum investment is lowered to $500,000. The number of jobs that must be created by the investor (regardless of the minimum investment) is ten jobs whether the minimum investment is $1 million or $500,000. (The common misconception is that if an investor makes a direct investment to run a business, the minimum investment is $1 million while the minimum investment is $500,000 if an investor invests in a Regional Center project. This is a misunderstanding. It is the location of the investment project/business that qualifies a project for TEA status.) Then, what is a TEA? The regulations define a TEA as being either a "rural area" or a "high unemployment area".

Rural Area

A rural area is defined as an area which is not in a metropolitan statistical area ("MSA") and not in the outer boundary or any city or town having a population of 20,000 or more. You can find out if your area is an MSA or not by going here. Pick any location on the map, drill down and scroll to the bottom of the page. (As the focus of this post is not on Rural Areas I won't belabor the fact that the regulations actually say that the location in question is either not an MSA OR not near a town/city with a 20,000+ population but the USCIS requires that the location be both a non-MSA AND a big town/city.)

High Unemployment Area

High unemployment is defined as an area that has experienced an unemployment rate that is 150% or more of the national unemployment rate at the time of the investment or the I-526 filing, whichever comes first. There are two ways an investor can prove to the USCIS that the location in question qualifies as a TEA under the high unemployment prong. You can either a) provide evidence (presumeably through public data) that the location in question in fact as the requisite unemployment rate OR b) have a designated state agency certify that a certain area qualifies for the high unemployment numbers and it thus a TEA. The latter is what people call a "TEA Letter". Not surprisingly, the majority of EB-5 projects that otherwise do not qualify for Rural Area TEAs, choose option b). And the State of California is not saying, we won't do b) anymore if you are not on "the list" because you can do it yourself (now do you get the picture for this post?).

What does this mean? Many things! Click on the EB-5 Alert that goes into detail about the implications.

How to Dial-in to the EB-5 Quarterly Stakeholder Engagement

April is coming to an end and you know what that means: the EB-5 quarterly stakeholder meeting is just around the corner! Four times a year, the USCIS "engages" with the EB-5 community via conference call. Anyone can dial in and ask questions and these quarterly engagement calls are one of the EB-5 community's main way to interact closely with the USCIS. (In the spring the meeting is open to the public at the California Service Center and in Washington D.C in the fall. I will be attending the California meeting in person this year.) The calls begin 1 pm EST and last about 3 hours. Click here for sign-up information.  

What will happen if the EB-5 Regional Center Pilot Program sunsets?

As many of you have been hearing ad nauseum, the EB-5 Regional Center Pilot Program is scheduled to sunset on September 30, 2012. For the avoidance of confusion let me make it clear that the subject of the potential sunset is NOT the EB-5 visa program but the Regional Center Pilot Program. The Pilot program was introduced in 1993 to make EB-5 investments more attractive. By investing in a Regional Center project, the investor is allowed to count indirect jobs that are created in the region, making it possible for even more investors to be pooled for a given project than in a non-Regional Center Program. So even if the Pilot Program is not extended, investors will continue to be able to invest the minimum investment amount ($500,000 in a Targeted Employment Area (TEA) or $1,000,000 in non-TEAs) and obtain a greencard as long as 10 direct, full-time jobs are created.

First, I must point out that the Pilot Program has always been extended every three years since its introduction in 1993. Second, there is a lot of activity to ensure that the required votes can be secured to extend the program or even make it a permanent part of the law so that we won't have to scramble like this every three years. And finally, there will be a lot of people who potentially have a lot to lose if the program is not extended, while nobody really stands to benefit. That said, there is always a first time for everything so this is a legitimate concern.

So what will happen? Well, nobody knows for sure now, and when asked, the USCIS has declined to discuss the matter. We can, however, turn to USCIS guidance in 2009 for a clue of what might happen. In 2009, the Pilot Program was set to expire on March 30 and because Congress could not make up its mind, it extended 6 months until September 30, 2009 as a first step. (Kind of reminds you of the whole debt ceiling debacle, albeit on a smaller scale.) Then as September 30 drew nearer and nearer and the extension didn't happen, USCIS was finally forced to issue some guidance on what they planned to do IF the program wasn't extended.

Basically what they said was the following:

1. I-526 petitions that are submitted by September 30 will not be affected.
2. Any I-526s that come in after September 30 will be accepted but we will adjudicate based on the project's ability to create direct jobs and will disregard any indirect jobs.
3. All pending Regional Center applications (at the time the I-924 didn't exist) will be "held in abeyance" if they count indirect jobs (which if you think about it, they all do because that's the whole point of a Regional Center). 

So assuming they adopt a similar plan of action this time around what this means is the following:

1. If you are a potential investor debating whether or not to apply for EB-5 through Regional Centers (in other words, you are not interested in setting up your own business for the greencard), you should probably act quickly. Even if your I-526 is not approved by September 30, 2012, as long as it has been submitted, you are okay.
2. Same as #1. (Because the possibility of a Regional Center project having enough direct jobs to save your petition is very small.)
3. If the program is not extended and you have an I-924 pending, they won't throw it in the paper shredder just yet, because there is always a possibility that Congress will get its act together and "reauthorize" the program even if it doesn't "extend" by the deadline. (Click here to read my thoughts on whether you should be applying for a Regional Center under these uncertain circumstances.)

Click here for the USCIS's guidance on the issue published in September of 2009. (Note how the USCIS never takes down old memo from its website. That's why it is dangerous to google your way around the internet for legal advice. All the old stuff is still floating around like this.)