The Debate Over the EB-5 Investment Sustainment Period

On Friday, March 29, 2024, Invest in the USA (IIUSA), an EB-5 stakeholder trade association, filed a federal lawsuit challenging a recent USCIS interpretation of the RIA which advanced the 2-year EB-5 investment sustainment period to begin when the job creating investment was made. The lawsuit notes that USCIS still has not taken appropriate steps to cement this policy and that publication on its website is not equivalent to law. Separately, IIUSA petitioned the Department of Homeland Security to consider a change from the minimum 2-year EB-5 investment sustainment period to 5 years.

Key Takeaways:

• Behring is not a member of IIUSA.
• Behring is neither supporting the lawsuit nor IIUSA’s petition to USCIS in any manner.
• USCIS announced in October 2023 that the 2-year EB-5 investment sustainment period begins at the time of investment. Behring supports this position.
• Extending the sustainment period by 2.5x is unacceptable. USCIS’s new guidance offers the most flexibility and prevents the long-standing redeployment problem.
• The market has and will continue to dictate the investment landscape.

Regulatory Background

The 2-year EB-5 investment sustainment period refers to the minimum duration an EB-5 investor must maintain his or her investment in the project. The current federal regulations, promulgated by USCIS in 1994, provides that an EB-5 investor is eligible for a visa (assuming all other conditions have been met) if he or she has “continuously maintained his or her capital investment over the two years of conditional residence.” See 8 CFR § 216.6(c)(1)(iii). This regulation has not been repealed or replaced.

Historically, EB-5 investors were required to remain invested and could only be repaid by the EB-5 project after the investor has had the conditional green card for 2 years. As USCIS processing times have lengthened and investors from high-demand countries have experienced visa retrogression or backlogs, this 2-year conditional residence period has been substantially delayed. These processing or visa backlog delays have forced EB-5 investors to remain invested far longer than the traditional 5 years that most EB-5 projects have required. EB-5 regional centers have also been compelled to reinvest the EB-5 investors’ capital to subsequent projects even if investors have already fulfilled their obligation of creating 10 full-time US jobs per investor.

On October 11, 2023, USCIS announced that the EB-5 Reform and Integrity Act of 2022 (“RIA”), passed by Congress on March 15, 2022, “removed the requirement that the investor must sustain their investment throughout their conditional residence” and “added new language that investment . . . must be expected to remain invested for at least 2 years.” USCIS updated its website, viz. its EB-5 Questions and Answers page, reflecting this new interpretation. USCIS stated that although the RIA is silent as to the start date of the sustainment period, USCIS was interpreting 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, as appropriate.” Notably, as of today, USCIS still has not updated its Policy Manual regarding sustainment period requirements. But USCIS is notoriously behind in updating its Policy Manual, which is detrimental to the credibility of the EB-5 Program, because the USCIS.gov website and its online Policy Manual is the only non-industry-related source of public information available to EB-5 investors who rely on it for authenticity and accuracy.

On October 30, 2023, the USCIS Ombudsman held a public call, during which IPO officials reiterated its new interpretation, acknowledging that given historical USCIS processing times, it is conceivable that an investor might complete their 2-year EB-5 investment sustainment period even before approval of their I-526E petition. USCIS did clarify, though, that the new 2-year EB-5 investment sustainment rule represents “the floor, not the ceiling” and that the investment period may be extended to complete job creation requirements or as the commercial terms of any individual EB-5 project may require. Nevertheless, the EB-5 stakeholder community were left with many unanswered questions about this new interpretation’s implementation. At Behring, we’ve long expected and shared with our investor community that USCIS is likely to engage in the administrative rulemaking process to codify this guidance into a federal rule. Nevertheless, Behring welcomed this interpretation because it accomplishes 2 important things:

First, USCIS’ new definition of the “EB-5 investment sustainment period” decouples the investment from the immigration process, especially in the face of long processing times and visa retrogression.

Although USCIS seems to have quickened the pace post-RIA, USCIS processing times have been notoriously slow. Traditionally, the EB-5 investment sustainment period cannot begin until investors begin their conditional residence period – which begins at the time the investor enters the US on the immigrant visa or when an investor’s I-485 adjustment of status application is approved – and that start date can vary from investor to investor due to processing times or visa retrogression.

In several cases, particularly for investors from China, India and Vietnam, EB-5 investors’ projects have been successfully completed, but the regional center is compelled to reinvest the investors’ funds because they have not yet completed their conditional residence period and filed their I-829 petition. Admittedly, EB-5 investors did not bargain to have their funds invested beyond 5 years nor could they review a redeployment project at the time they made their initial investment and application. This is why it is crucial that EB-5 investors not only choose the right project, but also choose the right people and platform behind the project – a reliable platform that can responsibly manage EB-5 funds and invest in compelling projects that minimizes risks to investor capital.

Second, USCIS’s new EB-5 investment sustainment period recognizes that EB-5 projects are not uniform.

Some EB-5 projects are smaller and more agile and are able to complete construction, create the requisite American jobs and provide necessary economic stimulus to rural and high unemployment urban areas, and stabilize and exit the project within in a shorter timeframe.

Following USCIS guidance on the new 2-year EB-5 investment sustainment period, Behring launched its RISE Fund. The RISE Fund offers a 3-year minimum EB-5 investment term for a smaller, simpler projects that are quicker to completion, quicker to cash flow. The RISE Fund offers EB-5 investors the opportunity to invest in San Francisco East Bay Area entry-level, workforce housing apartments as well as student housing apartments catering to UC Berkeley students.

These are simple projects – 3-5 story, wood-framed construction with 24-month completion timelines. They are also designed to rent quickly, viz. studio and one-bedroom units at entry-level rents. The RISE Fund provides crucial diversification for EB-5 investors, particularly needed in this post-Covid, inflationary and high-interest rate market. 2 of the RISE Fund assets are already completed and cash flowing, and by the end of September 2024, 6 of the 14 properties will be completed.

Legal Arguments of IIUSA’s Lawsuit

IIUSA’s primary complaint is that USCIS “announced a new rule that changes the length of time immigrant investors must sustain their investments under the EB-5 Immigrant Investor Program” without formally going through the administrative rulemaking procedure.

USCIS will rely on the courts’ traditional deference to a federal agency’s role and responsibility to interpret and implement a federal statute. If the law is ambiguous, the court must defer to agencies so long as their interpretations are reasonable. USCIS will point out the ambiguity created by Congress when passing the RIA when it did not specify “conditional residency” when referring to the 2-year minimum investment period. USCIS will also argue that its announcement in October 2023 was an interpretive rule, clarifying what was already provided for in the RIA. As such, USCIS will claim that notice and comment period is not required for its new 2-year EB-5 investment sustainment definition to be legally binding.

The focus of this litigation will be procedural and may come down to whether USCIS amended or clarified the law.  In other words, if a judge finds that USCIS clarified the law, then USCIS will argue that no notice and comment period is required.  If a judge finds that USCIS amended the law, then a notice and comment period seems to be required as an amendment requires administrative procedures to take place.

A more conservative and safer approach by USCIS would have been for USCIS to go through the notice and comment period and avoid this litigation altogether. A clear conflict remains as the EB-5 investment sustainment period is defined in the USCIS Policy Manual to begin at the time of conditional permanent resident status, and not at the time of investment.  We encourage USCIS to resolve this conflict between its recent interpretation beyond the Q+A website and to the Policy Manual, to provide consistent guidance so investors know what to expect.

Policy Manual updates require time from several components of USCIS and levels of review. Post RIA, this is understandably less of a priority than other time sensitive matters.

Lawsuit’s Impact on Post-RIA Investors

If IIUSA is successful in its lawsuit, the immediate, temporary result will be that the EB-5 investment sustainment period is tied to the EB-5 investor’s conditional permanent residence.  If post-RIA investors are subject to the pre-RIA sustainment rule they will not be eligible for repayment of their capital unless and until they complete their 2-year conditional residence periods.

In other words, if USCIS loses in the early stages of this litigation, then it might initiate the public rulemaking process to codify its rule to decouple the 2-year EB-5 investment sustainment period from conditional permanent residence. While this process can take several months, because the rule would be implementing the RIA, the newly codified federal rule may then be applicable to all post-RIA investors and this outcome would resolve any further controversy on the matter.

Behring’s Position on the Lawsuit

Behring is not a member of IIUSA and is not supporting the lawsuit in any manner. Behring has long expected USCIS to publish a proposed rule to codify its October 2023 guidance on the new 2-year EB-5 investment sustainment rule.

Behring recognizes that following the implementation of the RIA, USCIS is behind in many respects to public agency rules implementing various aspects of the RIA. In fact, some provisions of the RIA expressly require USCIS to publish a federal rule within 1 year of the RIA’s effective date. Two years later, USCIS has not done so.

Behring recognizes that USCIS has been occupied with Behring’s own lawsuit which stopped USCIS from unlawfully cancelling previously approved regional centers, along with receiving public comments on and publishing new post-RIA forms and in processing hundreds of new I-956F project petitions and I-526E investor petitions faster than historical averages. Nevertheless, USCIS should provide the EB-5 Program, regional centers and EB-5 investor families more clarity and transparency to ensure a stable and predictable EB-5 investment and visa process. This includes public rules on defining priority processing, on the fee study and fee increases, as well as the implementation of its 2-year EB-5 investment sustainment period related to timing of investment in the NCE, the JCE, job creation and the filing of the I-829 petition.

Behring supports USICS’s view that the  2-year EB-5 investment sustainment period should begin at the time of investment and not at the time of an unpredictable government adjudication.  However, the EB-5 community would be better served through measured rulemaking than through litigation. Administrative rulemaking is a better process than ad hoc updates to a frequently inaccurate and outdated government website. Behring hopes this lawsuit will at least expedite this process and cement their policy direction with finality.

Behring’s Position on IIUSA’s Petition for 5-Year EB-5 Investment Sustainment Period

Behring does not support IIUSA’s petition for a 5-year sustainment period. At the same time IIUSA announced its lawsuit against USCIS, IIUSA published its petition calling on USCIS to enact a 5-year sustainment period for all investors and all projects.

The IIUSA Petition has no immediate impact on USCIS and the suggestion to adjust the EB-5 investment sustainment period to five years is simply that – a suggestion within the Petition. While there is room for economic arguments for and against this position, the clear tradeoff is to benefit developers by pulling the rug on immigrant investors who they lured with faster processing times and priority adjudications under the RIA.

“5 to 7 years is the status quo”

IIUSA claims that USCIS reduced the EB-5 investment sustainment period to two years, although the sustainment period has always been two years, measured by the period of conditional permanent residence. Their point seems to be that because of adjudication delays, investors should hang in for at least five years even if processing times improve.

They allege that “Nothing in the RIA suggests that Congress intended to lower the investment holding period below the five to seven years that has been the industry standard for two decades.”

However USCIS, DHS and IIUSA themselves have the processing data to see that this claim is false – EB-5 petition approvals have been historically less than two years until disruptive events took place related to COVID, budget impacts, program lapses and arbitrary changes to the program.

Despite the assertion in IIUSA’s petition, the RIA clearly intends to decrease processing times. With target times for adjudication stated in days, not months or years, an argument that investors have been in “status quo for two decades” lacks historical support and impeaches the language of Congress to speed things up.

“It’s in the best interest of all investors”

IPO knows very well that the failures and compliance issues of last two decades of EB-5 led directly to the RIA.   IIUSA claims that most EB-5 projects historically have been 5-7 years investments, and that longer investment timelines have attracted higher quality projects, without reference to the notable failures that have disrupted investor families as well as the under the radar losses that occurred with extensive market exposure.  If status quo was working, there would be no need for increased compliance and integrity safeguards.

When USCIS clarified that the timeline for the two-year EB-5 investment sustainment period should begin at the time of investment, they surely leveraged much more information than the assumptions provided by IIUSA to defend the integrity of the program from developers who are willing to leverage their investor’s timelines without notice.  Yet IIUSA claims that a longer sustainment period is “in the best interests of all EB-5 investors.” The authenticity of this sweeping statement is a current subject of debate amongst stakeholders.

Imposing a flat 5-year requirement increases liquidity risk to investors despite projections of best-case scenarios. It also squeezes out small businesses and rules out smaller projects that are quicker to reach completion while still meeting EB-5 job creation requirements. EB-5 needs to remain flexible to be sustainable long-term and as the market responds accordingly, IIUSA seems unable or unwilling to progress.

Fear of competition

It is inevitable that some projects will require longer investment terms, and some projects will be more transparent than others about realistic timelines. Larger-scale projects, even infrastructure projects, may remain attractive to investors for many reasons notwithstanding longer investment timelines: (1) institutional participation and due diligence; (2) infrastructure set asides; (3) higher investment returns, and more. The market was the main driver that created the traditional 5-year investment period, and the market can continue to drive standards.

Behring firmly believes the investment timelines should remain decoupled from the immigration timeline. Doing so removes the risk of redeployment of an investor’s funds even when the investor’s initial project has been successfully completed and all US job creation requirements have been met. It’s simply unfair for the investor to maintain his or her investment – often the family’s life savings – in subsequent projects they did not choose only because of USCIS processing times, visa backlogs, or the needs of one corner of the market.

Behring supports USCIS’s new 2-year EB-5 investment sustainment rule as it enables EB-5 investors to invest and create jobs in the projects they choose without being forced to extend their investments because of USCIS processing times or visa backlogs, factors that EB-5 investors cannot control.

A mandated 5-year EB-5 investment sustainment period, proposed by a cohort of large regional centers represented by IIUSA is inappropriate. The market is adequate to the task of determining a natural investment term for high-quality EB-5 projects, without further leveraging the journey of EB-5 investors.