EB-5 Project Risk: Will my EB-5 project get denied by USCIS?
The Berkeley Regional Center has received the same email question about EB-5 projects many times before: What is the chance that my EB-5 project will get denied? How to I avoid EB-5 project risk? Unfortunately, as with many things in EB-5 investment, the real answer is that “it depends”. My answer to you is that “Projects don’t get denied, the developer just quits”. Before I explain, lets focus on a few important concepts first:
What does USCIS look for to approve an EB-5 Investors I-526 petition?
USCIS will review an I-526 petition and make sure that it meets the 5 major requirements for EB-5 Investment. David Hirson of David Hirson & Partners, a world renown Immigration Lawyer who has specialized in EB-5 since the programs beginning in 1991, refers to these items as the “Qualification for Favorable Consideration”
- The Investment is being made in a “new commercial enterprise” (8 CFR 204.6(e) and (h));
- The investment is being made in a Target Employment Area” for the purposes of reducing the threshold investment from $1,000,000 to $500,000. (8CFR 204.6(j)(5)(iii);
- The investor will be engaged in the management of the new commercial enterprise (8 CFR 204.6(j)(5) and 8 CFR(204.6(j)(5)(iii);
- The investment is creating the requisite number of full-time positions given the fact that there are multiple investors in the qualifying investment enterprise (8 CFR 204.6(g));
- The investment capital is “at risk for the purpose of generating a return on the capital placed at risk” (8 CFR 204.6(j)(2)
Getting RFE’s From USCIS
If you don’t cover the above mentioned requirements you (or your immigration council) will receive an RFE (request for evidence) from USCIS. I will say firstly, getting an RFE is normal. according to Wright Johnson Ltd, one of the foremost experts on EB-5, economic impact analysis and EB-5 business plan writing, “USCIS always has something they would like to inquire about. Even a small thing will result in an RFE.” So don’t be scared if you receive an RFE. It is a great sign to receive an RFE and find that there are no major issues that can’t be dealt with. This means you are on your way to being approved!
SOOOO…. Everyone wants to know about EB-5 risk and “will my EB-5 project get denied?”.
EB-5 Projects Don’t Get Denied, Developers Quit.
During the RFE process, USCIS acts much like a planning commission during the development process. They never really say “NO” or “DENIED”. They just ask you to change a few things and just meet their requirements. USCIS will say exactly which items they would like to see more evidence regarding, or which items should be adjusted to fit EB-5 law or EB-5 policy. When you hear a project has been denied by USCIS, it really hasn’t. The developer just gave up because they made the decision that their project was not really feasible as it was originally envisioned. They wanted $50 Million, USCIS could only find $25 Million worth of real job creation, then the developer says forget it… It is the developers responsibility to be flexible enough to make the changes and get the project approved.
Tell me more about EB-5 Risk, what kind of projects get “denied”
The kind of EB-5 projects that get denied are ones that potentially have a major sensitivity as to how many jobs may get created. Here are what I personally see as the highest risk job creation catagories:
1) Rescuing or Recapturing Job Creation through restructuring a business.
Very FEW people on earth can do this successfully, let alone plan out 5 years in advance exactly how it will play out, which is what USCIS and your future EB-5 investors want to see.
2) Direct Hiring
People are just simply an unknown. Its an additional variable which produces additional risk. Are they American citizens? Are they really employed Full time? Is there paperwork sufficient? Did the employer structure the hire correctly? Did the job last 2 years? Did an employee quit and his job was not re-filled? There are too many “?” in this paragraph which tells you its difficult…
3) Revenue or “Operational Success” based job creation
Revenue based or “Operating jobs” are created when a business operates successfully and generates sales revenue or income. If your business does not open on time or the revenue is far less than the business plan originally estimated, your job creation will be affected accordingly. Many hotels, restaurants and senior living facilities claim a majority of their job creation from successful operations. Should it make you nervous that over 90% of restaurants fail within the first 2 years of operation?
In conclusion, USCIS is your friend, they want you to succeed in EB-5, they want to bring investment to the United States. They will do everything they can to assist you in having your I-526 approved. Investors just need to make sure that they have chosen a regional center and a developer that will never quit on them.
One other leading reason that EB-5 Investors may not be successful perhaps has nothing to do with the project at all: the Source of Funds Report. Contact a professional such as David Hirson & Partners or David Appel from Marcum Accounting to learn more about preparing a strong source of funds report.