Kate: Hi, everyone. I’m very excited about today’s program. We’re going to discuss the direct EB5 program. And I’m joined today by Patrick Findaro from Visa Franchise, who’s going to give us a very interesting and unique overview of EB5 direct opportunities for investment. And I’m going to talk about what the program is, what are the requirements to apply and what are the recent changes in the program.
We can move on to the next slide. A little bit about myself. I chair the immigration group at Greenberg Traurig. I’ve been at the firm for 17 years and I started the EB5 practice at the firm. We have filed over 8,000 EB5 petitions in that time. And we have extensive experience working with businesses to structure them, to be compliant both from an immigration and corporate securities perspective, as well as helping investors prepare their source of funds, do due diligence on investment opportunities, and determine if they are the proper route for them to apply through the EB5 program.
The EB5 legal requirements
The direct EB5 was introduced by IMMACT90 in 1990. And when it was introduced, it was automatically a permanent part of the law. This differentiates this program from the EB5 Regional Center Program, which came later in 1993 and was always a pilot program. And until now that program requires reauthorization. The direct EB5 program does not. This is something with the pause of the Regional Center Program in the past 12 months that occurred many clients have been asking about.
What does it mean to be a direct EB5 investor?
You have to invest in a new commercial enterprise or a business as an equity investor. And that business has to be what’s considered new, which is not new to us anymore, but it was new when the law was initially introduced. It had to have been formed after November 29th, 1990. You have to invest funds that you are able to source and demonstrate come from a lawful source of funds.
This program was created to stimulate the economy during a period of time when it was needed. And this is a tax-free way to get foreign direct investment into the United States.
We’re going to talk about the investment amounts in a little bit. I’m not going to get into them initially. But I do want you to know that they were increased for the first time in the past few years. And they will be adjusting for inflation every five years going forward. In terms of the investor source of funds, the U.S., of course, as a public policy, wants to make sure that the money being invested in the country comes from a lawful source. We have to be able to demonstrate where the money originated at the time it was earned, regardless of how far back that goes. And then the movement of the money all the way until the time of investment into the EB5 business.
About the origin of the investment funds
Depending on where applicants are from this can sometimes be challenging because certain nationals of countries don’t always use banks, some countries operate more in cash. And we do have experience working with people from around the world, and we have been able to create creative ways to demonstrate the source of funds to the USCIS. But I will tell you if we feel that the source of funds is deficient, we would not file the application because it would not be beneficial to the investor and it would not be beneficial to us. That is something that we evaluate at the get-go. And sometimes one source of funds may not work, but we may find another. And we’ll talk about that in more detail as well.
The money has to be at risk to qualify for the direct EB5. And people often get scared by this concept, what do you mean at risk? Am I going to lose all of my investment money? Well, the answer is no. The law doesn’t allow for a guarantee of a return of funds. It also doesn’t allow you like in me other countries to get something in return for your investment. you can’t buy an apartment and have it qualified for EB5. Rather, you have to invest in an operating business and just like any other investment, if the fortunes of the business do not go well, you can lose the funds. If they do go well, you can get the money back at the end of the investment period.
How to generate returns and make money on your EB5 investment
It’s treated just like any other business investment you would make subject to lose or gain. Likewise, funds have to be put into use in a business. They can’t just sit in a trust account for the investment period that’s required. They have to be put to use. And treasonist for that is that the goal, as I mentioned, of the EB5 program is to stimulate the U.S. economy. And there is a component that you have to show by virtue of your investment that the business created 10 new full-time jobs for U.S. workers. U.S. workers are defined as U.S. citizens or permanent residents. And full-time is defined as at least 35 hours per week for W-2 employees.
Differences between EB5 program and Regional Center Program
There is a certain exception to this job creation for troubled businesses. I’m not going to talk too much about it today, it comes up rarely. But if it does, we would address it. I just mentioned when we began the Regional Center Program, and then I went right into the direct program.
The biggest difference between these two programs besides the fact that the Regional Center Program has to continuously be renewed is the way they calculate jobs. Whereas the direct requires W-2 employees on-site, the Regional Center Program has an economist model of job creation indirectly, and that job creation is based on expenditures or revenues of the business. It works for very large-scale projects. And it works for a lot of commercial real estate projects, but you also carry the risk that if the building isn’t constructed, if the money is not spent, jobs are not created and you may not get the EB5 in the end.
Likewise, when you work with an EB5 regional center, it’s different than a direct, because as a direct investor, you’re coming in as an equity investor directly into your business. And when you invest in a regional center, typically we form a fund, which is a special purpose vehicle. And investors pool their money into the fund. It can be either an LLC or a limited partnership depending on the structure chosen. And then that pooled money gets loaned to a project most commonly, or it can take a preferred equity stake in a project. the structure here is very different.
That petition has to demonstrate two things...
Under the new EB5 law that passed, previously under the direct program, you could pool direct investors into projects. This is no longer the case. There are no pools allowed for the direct EB-5 investment in terms of 829. And what is 829? 829. When we filed the EB5 petition, it was an application for an initial green card. And then once the individual gets a conditional permanent resident, they have two years to live in the United States. Then they file for a permanent green card. And that is called an I-829 petition.
One is the jobs created by the business. And second that the investment was sustained for that period. If you pulled your money out, you’re not going to be approved. And if the business didn’t create the jobs, you likewise need to explain why. It doesn’t necessarily mean you’re going to be denied. Perhaps there will be a delay of me sort. But you do have to show that the jobs will or are created.
About invest in a real estate business for e2 or eB5
Patrick: Kate, a question came up as you mentioned the Regional Center option that largely was into real estate big pooled projects. Can someone invest in a real estate business, real estate-related business on the E2 or EB5 direct path?
Kate: They can invest in a real estate business. the beauty of the direct EB5 program, and frankly, the Regional Center Program too, is there’s no limitation on the type of business you can invest in.
Anything that generates jobs qualifies. It can be a tech business, a home healthcare business, a kindergarten. Also, it could be real estate management, or property management. There is no limitation as long as the business can create jobs.
As I mentioned, the previous EB5 Regional Center law expired and it caused a pause in the regional center program. This did not happen to anybody who was applying through the direct program because the direct is permanent in the law. We’ve seen a big increase in people wanting to file direct EB5 petitions because they were unsure of when the regional center would be reauthorized, it took nine months and couldn’t wait to move forward.
The program was reauthorized by President Biden, on March 15th, of this year. And as part of that reauthorization, there were some changes that not only impacted regional center applicants. But they also impacted direct applicants. I want to go through what those specific changes were because they’re very important. Regardless of the path you choose to get your EB5-based green card.
We can no longer pool investments. But I think the biggest change that really concerned everybody was the increase in the investment amount. When the program was introduced in 1990, you had to invest $1 million, or you could do $500,000 in a high unemployment area.
The new law finally adjusted those prices. And now it’s $800,000 for what we call a targeted employment area. And that is still defined as a high unemployment area that’s 150% of the national average.
Details on the TEA
It can also be a rural area, and the definition of how you determine rural has not changed. The way the federal government designates it is the same way that it works for EB5. And then a non-TEA investment was raised by $50,000 to $1,050,000. How do you know if you’re in a TEA or non-TEA? Well, it’s based on the location of your investment. Keep that in mind.
And as I mentioned before, the government is going to increase these prices for inflation every 5 years beginning January 1st, 2027. Previously, the way we determined the TEA is we would go to the state workforce agency in the respective state where the project was located. And they would tell us if the area that the project was in was a high unemployment area or not. And if it wasn’t, we could join contiguous census tracts to get an aggregate that we would then average to create a custom area that’s 150% of the national average for high unemployment. We can no longer do that.
Now the process is going to be nationalized and determined by USCIS. They’re going to issue TEAs that are valid for two years. That’s not really going to impact direct investors because your price is locked in when you file. But it may impact regional centers if they’re doing a $250 million raise, and it takes them a couple of years to raise money, and this data changes.
Visa Set Asides
Now we can’t make a custom area the way we did before. We do sort of either a bull’s eye or donut, whatever you want to call it to approach. The census tracts can only be in this sort of shape to get a TEA. And that TEA custom area, of course, has to meet the 150% of the national average for high unemployment. Likewise, as I mentioned before, rural areas will be counted the same as they were before.
Now both of these are going to be prioritized for processing under the new law. It’s important to keep that in mind. The new law introduced the concept of Visa Set-Asides. This was not contained in the old law the way it is drafted here. Basically, the new law says 20% of EB5 immigrant visas will be set aside for rural projects. Ten percent will be for distressed urban areas. We’re going to call those TEAs, and 2% for infrastructure. And then if we don’t use up these numbers, they carry over to the next year. And then in the third year, they’re going to be available to everybody.
The source of founds matters: An exemplary case
If you’re looking to file an application, and you’re coming from someplace like China, where you have a quota backlog, this may be very helpful in terms of cutting down your processing times and wait times for issuance of the visa. We have to show that there’s a lawful source of funds in order to file an EB5 petition. And many times, a lot of parents give their kids money. Then they have to show where they earn the money.
They have to make clear that there’s no expectation of return, but that’s perfectly acceptable, and there doesn’t have to be a familial relationship either. We’ve seen it in many different, you know, instances. I did one couple. They were very sweet. They had a housekeeper for 30 years. And they couldn’t imagine leaving and coming back to the U.S. to retire without her. They gifted her the money to do the EB5 and she joined them. So, gifts are okay as a source of funds.
Unsecure loans are ok
No loans for direct EB5. That means you have to be an equity investor in the project. But the equity that you’re investing you can’t loan it to the project, you do have to give it to the project. You can get your capital contribution in the form of a loan. And typically, you have to show how it is collateralized. But now the government says unsecured loans are okay, but if it comes from a source that’s not a licensed banking institution or a loan institution, then you have to source it. You have to explain how it is.
For example, if my mother gives me a loan, I have to explain how she earned the money to give me the loan. Likewise, many projects charge administrative fees. These are the out-of-pocket costs that they incur in preparing an EB5 offering. Different documents need to be prepared. And there are accountants involved, lawyers involved, and franchise brokers involved. There’s a whole army of people that have to come together to put together an EB5 offering. And so, those costs are often passed on in the form of administrative fees.
One of the most beneficial and I think exciting changes in the new EB5 law that is so positive for investors is that previously if you were in the United States, you could file your EB5 petition, but you have to wait for it to be approved before you can move on to filing your green card application. And I’m not just an EB5 lawyer, I’m an immigration lawyer. I would help to figure out for people that were here, if they were finishing school or if they were ending their work on an H-1B, whatever status they were in, how we could keep them here and so this process moved along.
Now you can file your EB-5 petition and your green card application simultaneously with USCIS.
And as part of that green card application, you can also apply for work authorization or international travel authorization. And so, while the application is being reviewed, theoretically, you will have the right to work and travel. Now, I say theoretically because we do have to take into account that there are also processing times for USCIS. Unfortunately, they have slowed down significantly since COVID started. But the good news is they have stated their goal is to bring those down and to be more reasonable.
There may be a break in work and travel authorization, but you will eventually get that and you do have the right to remain in the U.S. now while they are reviewing your application. However, have certain conditions. You have to be in the U.S. If you’re applying from overseas, you don’t get the benefit. You have to wait for the petition approval. And then you process in your home country for the immigrant visa, enter the U.S. The first day you come in on your immigrant visa, you become a green card holder.
You also have to have a current priority date. So, we’re talking about people who are backlogged. And by that I mean their U.S. public policy only allows in each immigrant visa category, no more than 7% of a particular country’s nationals to be allocated immigrant visa numbers each year because the government wants diversity in people immigrating to the United States. When more people apply, then there are numbers available, and what we call a quota backlog or a visa backlog develops and they have to wait in line.
Right now, for Chinese nationals, if you’re looking at the regional center dates, they’re quite backlogged about 2015. You have to check the Visa Bulletin if you’re Chinese to see if you are current, but all other nationalities right now are current for applying for EB5.
EB5 program to Chinese nationals
Patrick: From what I saw, Kate, because we had a prospective Chinese investor ask us about this, and we looked at the Visa Bulletin. It seems like if they do a rural investment, that’s current. But if they’re just doing a direct investment right in Manhattan, then they’re going to have to wait a while to get to that.
Kate: That’s right. This goes back to what I was saying about the Visa Set Asides that for many of them, it’s advantageous to invest particularly in those projects to get around this backlog issue. And the new law gives them the flexibility to do that.
Patrick: Playing this out, foreign students wrapping up their undergraduate education, or maybe they’re in a one or two-year graduate program in the U.S, instead of dealing with H-1B, OPT, all that, could they start the investment into a direct project, whether it’s their own business, or startup, a franchise. And then start this process and get the I-485 sorted so they can then travel back home for the breaks?
Kate: You can apply while you’re a student. Absolutely. And so, you can get this process underway, you can get the EAD, which is the work authorization. Then the advance parole travel document issued. And then you don’t have to deal with a lot of these things like OPT, CPT. You can get it all through the adjustment of status. And so, it is a great thing. But the only other thing to keep in mind here is the principal applicant either has to file with their family members. Remember, spouses and children under 21 can also derive the green card benefit. But if the principal applicant is overseas and the children are here, they can’t file unless the principal applicant files first or together with them.
Answering frequently asked questions about the EB5 program
Can a potential investor use 829 periods of 2 years valid visa to raise money in the U.S.?
Once you become a permanent resident in the U.S., this is the amazing thing about the EB5 program. You’re essentially sponsoring yourself for permanent residency.
You have the flexibility to do that because you’re a permanent resident of the United States. But if you’re asking do you have to invest all of the money to file?
The answer to that is no, not necessarily because of the way the law is drafted, you can be in the process of investing, but by the time your 526 petition, which is the EB-5 petition is reviewed, they will want to see that you have committed all of the funds.
Another question came in. I plan on purchasing an existing multi-unit franchise in Florida under an E-2 visa. Down the road, I will be opening a new store with at least 10 new jobs. Is it possible to apply for an EB5 while already in the U.S. and working under an E2?
Absolutely. We do a lot of them, and we may need to discuss the structure with you and how to do it because sometimes when people do E2, they don’t always contemplate EB5 at the time, and then EB5 comes later. But we can help to structure this and it is possible.
We can help with the franchises as well, setting it up, and doing the corporate securities work. We have a big and robust franchise practice in addition to the immigration work. At Greenberg, we sort of help clients with the full-service package because we are a large law firm. We do have those capabilities. And I think we have probably one of the top franchise law practices in the country across the United States. We can help to structure that.