By Marta Lillo
Redeployment is a reality in the EB-5 process that investors must understand while undergoing an I-526 or I-829 application, especially those still waiting for approval because they filed before the EB-5 Reform and Integrity Act of 2022 (RIA).
This reinvestment practice emerged in 2017 from the United States Citizenship and Immigration Services (USCIS) as a solution to deal with cases when the EB-5 funds invested by the New Commercial Enterprise (NCE) in a Job-Creating Entity (JCE) were ready to be repaid to investors whose petitions had yet to be approved due to EB-5 processing backlogs, or their original projects were completed before the end of the EB-5 sustainment period of two years.
There is still debate within the EB-5 ecosystem on how redeployment should be conducted and how the USCIS applies the law. The main concern among investors and immigration attorneys is that applicants have no control over how the NCE reinvests their capital and that these reinvestments sometimes do not follow the same scrutiny investors applied when they chose their original investment.
Joseph Barnett, an immigration attorney and a partner at WR Immigration, explains: “There are numerous instances when an immigrant investor’s funds are redeployed without much input to the decision-maker. Really, it is the company operating agreement or limited partnership agreement and what was included in the offering documents that control the redeployment procedures.”
Influence of USCIS processing delays in redeployment for pre-EB-5 investors
With RIA, the main guideline the USCIS must enforce is that redeployed capital must remain “at risk” until the two-year conditional residence period ends. At risk means the NCE must reinvest the money in a commercial activity, not stocks or bonds.
“Failure to meet these requirements results in mandatory regional center termination, possible sanctions or debarment of the NCE or JCE, and possible denial of EB-5 immigration benefits of affected investors,” says Robert Divine, an EB-5 immigration attorney who leads the immigration practice group of Baker Donelson.
However, whether the EB-5 investor applied before or after RIA makes a difference in calculating the sustainment period and, thus, in redeployment effectiveness.
“For investors who filed I-526 before RIA enactment on Mar. 15, 2022, that period ends when the investor has completed two years of conditional residence (the expiration date on the initial green card). For investors who filed after RIA enactment, that period ends two years after the capital has been ‘invested,’ which USCIS says is when all the investor’s capital has been ‘made available’ to the JCE,” Divine says.
He adds that redeployment for post-RIA investors is rare. However, they are common for pre-RIA investors,” especially for EB-5 investors born in China who have had to endure long waits for visa numbers, redeployment can remain necessary for many years,” the attorney affirms.
Advantages and disadvantages of redeployment in EB-5
Divine highlights this practice protects EB-5 investors. “The advantage of redeployment is that it is necessary to preserve EB-5 investors’ immigration eligibility when the [JCE] repays capital to the [NCE] before the investor has completed the required period for sustainment of the EB-5 investment.”
Risk plays a crucial role when reinvesting these funds, Divine says. “Some redeployments are riskier than others, as with initial EB-5 projects. Redeployment opportunities can be hard to find and make arrangements for, given the unpredictability of (1) when the capital becomes available to the NCE, (2) how many of the investors want to engage in redeployment, (3) how long it will take for the different investors to complete their sustainment period, and (4) how long it will take for return of capital from a successful redeployment. This tends to result in redeployments that do not have the kind of liquidity and diversity that normal non-EB-5 investors tend to prefer, and some investors may need to endure more than one redeployment,” he says.
Another disadvantage is that the capital is “tied up longer and risking the capital being lost in the redeployment business. People who still want the green card normally are willing to endure the disadvantages to keep the advantages,” Divine adds.
The effectiveness of the NCE when redeploying EB-5 capital
The moment when redeployment occurs is also crucial for making good reinvestments of the EB-5 capital.
Christine Chen, chief operating officer of regional centers operator CanAm Enterprises, says that “for EB-5 redeployment, there are great opportunities in the current interest rate environment. We’ve seen very attractive opportunities in strong deals with first-class sponsors looking for ready capital, and we’ve been able to be selective about investing our investors’ redeployment capital. We have more than $450 million of repaid EB-5 capital redeployed into almost two dozen deals. It has resulted in a very diversified portfolio.”
Because redeployment mainly affects pre-RIA investors, Chen adds the main challenge is managing their expectations to maintain their filing eligibility. “Making sure they get their I-829 approvals is our top priority. These investors have made it so far through the EB-5 process, and their investments have met the job creation requirement. They know that post-RIA investors won’t need to redeploy, so it can be challenging to help them stay the course. We are seeing priority dates advance, and we need to make sure that their redeployment requirements have been met when it comes time to file their I-829 petitions.”
The effectiveness of the reinvestments also depends on how the NCE manages the opportunities for them. “As with initial EB-5 investments, some NCEs have done meaningfully better or worse jobs handling redeployment than others,” Divine says. “Ideally, an NCE should give regular reports to investors about the timing of capital returns from the initial JCE and the prospects for redeployment. The NCE should at least 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.”
The attorney adds that although an NCE could develop multiple redeployment options and offer a choice, it can be challenging. “NCE operative agreements differ about whether and to what extent the NCE must (1) observe restrictions in the type of redeployment or (2) consult investors about the nature of the redeployment. Some NCE managers have been irresponsible with their redeployment obligations and may face enforcement actions by the SEC (who apparently has a task force focused on redeployment irregularities) or investor lawsuits,” he says.
Redeployment in the near future and what EB-5 investors could expect
Two dominant EB-5 issues in the coming year will be further clarification on the two-year sustainment period by the USCIS and the safety of redeployed funds.
“Dire consequences make USCIS’ interpretation of tricky terms like ‘good faith’ and ‘material change’ critically important,” Divine explains. “Luckily, almost all initial EB-5 projects will use and keep the capital longer than the two-year sustainment period under the RIA, but failure of NCEs to use all EB-5 capital as planned and create the required jobs still can have tremendous adverse consequences on all parties. Happily, the RIA also allows redeployment to be anywhere in the United States (not necessarily in the original TEA or in the regional center’s jurisdiction), and that new statutory policy, along with some lawsuits, have caused USCIS to remove geographic restrictions on redeployment for pre-RIA investors, too.”
Until the USCIS provides clearer guidance as to how to approach the sustainment and redeployment language in RIA, Chen says CanAm will adopt a conservative approach to this practice. “We know that there’s a lot of discussion within the EB-5 industry about USCIS’s interpretation of the sustainment period language in the RIA. As always, CanAm will take a conservative approach until USCIS comes out with clear and definitive guidance. At CanAm, we know that the goal is the green card,” she insists.
Chen adds that although post-RIA investors do not have to redeploy, “there is too much open for interpretation for us to take an aggressive approach on what a minimum sustainment period is. For post-RIA investors, the last thing we want is for the original EB-5 investment term to be too short and for our investors to have to redeploy for six months or a year to meet the minimum sustainment period.”
Divine projects that next year, “most redeployment issues will involve pre-RIA investors. NCEs will continue to wrestle with when capital will be returned by the original JCE, how to identify and contract with redeployment businesses, and how to report to and gain any consent from affected EB-5 investors. Huge issues will involve failure of the original project to spend all the capital properly or create enough jobs and what options NCEs and investors have to try to salvage investors’ immigration benefits even if some or all capital may be lost. USCIS will need to determine whether and how new remedial provisions for ‘good faith investors’ will apply to pre-RIA investors in relation to such failures of original projects or to NCE errors in making or tracking redeployment. SEC [the Securities and Exchange Commission] will conduct enforcement actions against some NCE managers. Litigation about all these issues will ensue.”
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