EB-5 capital redeployment is one of the most important issues concerning investors today. It impacts both existing investors, particularly those subject to EB-5 visa backlogs, and prospective investors, who in addition to evaluating the merits and suitability of an EB-5 investment must now consider the potential reinvestment of their capital following repayment of the original EB-5 investment. This article is intended to provide background information regarding USCIS’s policy on EB-5 capital redeployment and the implications for investors.
Defining “Sustainment Period”
The EB-5 Program requires investors to continue to maintain their capital investment at-risk (the “Capital At-risk Requirement”) in the new commercial enterprise (“NCE”) over the two years of conditional lawful permanent residence (“LPR”) in order to obtain non-conditional LPR status. Historically, CanAm adopted the most conservative approach and would issue capital repayments to investors only after they had received I-829 Petition approvals. If there were a small number of investors who would become eligible after any such repayment, CanAm would hold these investors’ funds in a temporary investment and issue a repayment once their I-829 Petitions were approved.
In June 2017, USCIS updated its Policy Manual to clarify that the Capital At-risk Requirement applies only to an investor’s initial 2-year conditional LPRperiod, which USCIS calls the “sustainment period”, and that an “investor does not need to maintain his or her investment beyond the sustainment period.”In accordance with USCIS’s guidance, CanAm now issues repayments to investors upon the expiration of their respective sustainment periods even if their I-829 Petitions are pending adjudication.
As I-526 Petition adjudication times have dramatically increased (now between 29-50 months), and with EB-5 visa backlogs in major markets such as China, Vietnam, and India, and projected for other countries in the coming year,a substantial number of investors will not be able to complete their resective sustainment periods by the time the original EB-5 investment is repaid to the NCE. Accordingly, these investors will have to continue to meet the Capital At-risk Requirement for a period of time following the repayment of the original EB-5 investment.
USCIS Policy on EB-5 redeployment?
EB-5 capital redeployment involves the reinvestment by the NCE of all or a portion of investor capital following the repayment or disposition of the original EB-5 investment. Essentially, it is a a means for investors to satisfy the Capital At-risk Requirement through the reinvestment of repaid capital by the NCE in accordance with certain criteria described below.
The USCIS Policy Manual indicates that redeployment, or “further deployment” in another investment as it is called in the Policy Manual, must be within the scope of the ongoing business of the NCE, and must occur within a commercially reasonable time. The Policy Manual further states that any redeployment of capital after satisfaction of the job-creation requirement must have the following three “at-risk” components:
• The immigrant investor must have placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk;
• There must be a risk of loss and a chance for gain; and
• Business activity must actually be undertaken
While a number of investments will likely meet these three “at risk” requirements, it is not clear what USCIS would consider compliant with the “scope” of the ongoing business of the NCE. The Policy Manualprovides only two examples – namely, (i) where the initial investment was related to construction, then a redeployment into another construction project would comply, and (ii) new issue municipal bonds, such as for infrastructure spending. While the EB-5 stakeholder community is presently advocating for USCIS to confirm that the scope of permissible redeployment vehicles (for example, to include any investments in marketable securities) is broader than these two examples, the USCIS has yet to do so. It is clear, however, that while USCIS maintains its position that funds must be “at-risk” throughout an investor’s sustainment period, the NCE may not simply invest the funds in an interest-bearing account (i.e., money-market account) or similar financial options upon repayment of the original EB-5 investment to the NCE.
Until USCIS provides additional guidance upon the issue, NCEs contemplating redeployment investments should consider whether such investments fall within the “scope of [their] ongoing business” by examining the stated purpose of the NCE and the full range of activities it is required and/or authorized to undertake. For example, where an NCE’s organizational documents authorize it to engage in a wide range of activities, such as acquiring securities, equity interests, loans, notes, bonds, etc., then the NCE may be able to select from a fairly broad range of redeployment investment options. Alternatively, if the NCE’s organizational documents provide for a narrower focus, such as investing solely in real estate projects, then the range of possible redeployment investments may be more limited.
Implications for EB-5 Investors
USCIS’s policy pronouncements on redeployment are particularly meaningful to investors who are subject to an EB-5 visa backlog – currently, investors from mainland China, Vietnam and India. Backlogs that are many years long inevitably delay the time when investors are able to enter the United States and commence their 2-year conditional LPR periods. In projects where the original EB-5 investment is 5 years (as in most CanAm projects), there is a significant likelihood that the investment will mature and be repaid many years before the backlogged investors have either commenced their conditional LPR period or fully completed their sustainment period. In these instances, any repaid funds will have to be redeployed to ensure that they are properly “at-risk” for the duration of the affected investors’ sustainment period in accordance with USCIS policy.
The main priority for both investors and regional centers should always be securing immigration benefits and preserving redeployed capital in accordance with EB-5 Program requirements. Accordingly, an “investor-first” mindset should guide any approach to developing redeployment strategies and platforms.
With three decades of experience promoting immigration-linked investments in theUnited States and Canada, CanAm has a long and established track record. Basing its business on a reputation of credibility and trust, CanAm has financed 60 projects and raised more than $2.8 billion in EB-5 investments. More than $1.3 billion in EB-5 capital from over 2,600 families has been repaid by CanAm’s 40 projects to date. CanAm exclusively operates seven USCIS-designated regional centers that are located in the city of Philadelphia, the Commonwealth of Pennsylvania, the metropolitan regions of New York & New Jersey, the states of California, Hawaii, Florida, and Texas. For more information, please visit www.canamenterprises.com.