After EB-5 Project Failure

After EB-5 project failure, is it possible to obtain a permanent green card for successful immigration? Kraig Schwigen

While I may be familiar to some of you, for those unacquainted, I have shared my background at the conclusion of this article.  Additionally, I am not expecting every reader to understand every aspect of what I have written. What I hope to accomplish is that each reader will understand that there may be a solution for those investors that have encountered a lack of job creation in their EB-5 investment however this solution pertains only to those investors that have already established Conditional Permanent Residence.

My research, as well as my understanding and involvement in the regional center program, leads me to believe that the best path forward is additional investment into a new NCE whereby additional job creation occurs which then satisfies the job creation needs of the investor. (The solution I see involves more than just this and I will outline the requirements that I believe need to be met.)

  1. The investor must have attained conditional permanent resident status and they must remain in lawful status.
  2. The investor must sustain their original investment. A return of capital (all or a portion) from the NCE to the EB-5 investor would mean that the investment has not been sustained and this would likely be an issue.
  3. The required investment amount is determined by each individual offering and the amount of such capital contribution may vary based on the capital needs of the job creating entity.
  4. The new investment funds would have to meet all source of funds requirements.
  5. The EB-5 investor would be required to demonstrate that their investment(s) has/have led to the creation, or is likely to lead to the creation, of no fewer than 10 jobs for qualified employees.

What I will be outlining here are my beliefs. These beliefs are not legal and/or financial advice. They are my thoughts only and any reader needs to conduct their own research as well as to engage qualified legal, immigration and financial advisors in order to validate the beliefs I am sharing.

The approval criteria for an EB-5 investor’s I-829 (Removal of Conditions) is very focused. The removal of conditions hinges on accomplishing three requirements as a result of each EB-5 investment. https://www.uscis.gov/policy-manual/volume-6-part-g-chapter-5

  • Investment: Has the EB-5 investor invested, or is in the process of investing, the required amount of capital?
  • Sustainment of Investment: Has the EB-5 investor sustained their investment for the requisite period of time? (The Reform and Integrity Act of 2022 now defines the sustainment period as 2 years so my belief is that any additional investment amount being made by an EB-5 investor that is an investor in a failed project, one lacking sufficient job creation, must remain invested for no less than 2 years even if an I-829 approval is issued. The actual period of investment may be longer than 2 years because of the needs of the business into which this investment is made.)
  • Evidence of Job Creation: At least 10 full-time positions for qualifying employees have been created or will be created within a reasonable time.

“History has proven that the hardest part of the “EB-5 bargain” to meet has been the creation of no fewer than 10 jobs for each EB-5 investor.”

The EB-5 Program is actually an agreement between the EB-5 investor and the United States of America. This agreement outlines what each party will do for the other if the terms of the agreement are met. Each party to the agreement is expected to hold onto their end of the agreement but only if the other party meets all of their obligations.

The hardest part in implementing a solution after EB-5 project failure will be finding the right new projects that will meet the objectives of these investors in failed EB-5 projects. These individuals have already made a significant investment and that investment did not provide the results they were seeking so I recognize that they are not going to be eager to invest even more money. Very few projects will be suitable for the unique needs of these investors. The creation of new jobs will remain paramount, however the additional investment this will require will be an investment that was never anticipated. The Reform and Integrity Act of 2022 has established investment levels of $800,000 and $1,050,000 so the additional amount of investment that will be required will be dictated by the new requirements of the EB-5 Program as well as the number of jobs that will result from each Job Creating Entity (JCE/the project that benefits from the EB-5 investment).

How is Success Measured in an EB-5 Investment?

Regional centers can use economic modeling tools such as RIMS II and IMPLAN to calculate the job creating impacts of a project based upon formulas such as capital expenditure, operating revenue, guest spending and others. RIMS II and IMPLAN are input/output models so the quality of the information going in dictates the value of the information coming out. Why this is important is that the inputs can be made based upon conservative and reasonable assumptions or they can be made based upon every possibility no matter the likelihood. As an example, a brand-new business that is being built from the ground up will involve construction before the business ever reaches its operations phase. The costs associated with construction are much easier to predict than the revenue the business will achieve once it reaches operations. In a large-scale construction project, there would likely be cost estimates as well as a “Guaranteed Maximum Price” contract (GMP) as well as a completion guarantee. In past EB-5 projects I have been involved in we have required a minimum spend requirement so we could calculate the least number of jobs that would result from the construction activities as this minimum spend requirement was a condition within the loan agreement. EB-5 investors then have the greatest assurance that the minimum spend requirement combined with a completion guarantee results in a certain number of jobs long before operations phase jobs would ever begin. (The next question should be: How do we know all the financing is in place such that the project begins construction?)

So now, when thinking about a project that meets the concerns of an investor in a failed EB-5 project, we need to focus upon not only the jobs that would result from the construction activities, but also how these construction activities will be paid for. In other words, will the project be built even if all the proposed EB-5 funds are not raised? There are developers that are prepared to “bridge” these costs with either their own additional equity or another financing source that would be replaced as EB-5 funds are raised. This way EB-5 investors (both failed and new) have the greatest likelihood, that the project’s construction will be completed, and a minimum number of jobs will be created. Construction costs beyond the minimum spending requirement create additional jobs as do the operations and other aspects of a project. There are developers that are willing to approach their projects in the manner that works best for the job creation needs of EB-5 investors. The hard part is knowing how to find those projects and in determining if the project is truly structured to achieve these goals.

Remember, the EB-5 program and the United States Citizenship and Immigration Service foresee one of four possible outcomes for every EB-5 investment.

  1. The EB-5 investor could be successful at both the immigration aspect and the financial aspect. (Green cards and a return of capital as the measurement of success.)
  2. The EB-5 investor could fail at both the immigration aspect and the financial aspect. (No green cards and a return of less than the initial capital invested or no return of capital at all as the measurement of failure.)
  3. The EB-5 investor could achieve immigration success but incur a financial failure. (Achieve green card success and a return of less than the initial capital invested or no return of capital at all as the measurement of failure.)
  4. The EB-5 investor could encounter immigration failure but receive a full return of capital. (This could occur based upon an I-526 denial which triggers a return of capital by the New Commercial Enterprise or through a project that never moves forward with job creation; however the funds of the New Commercial Enterprise were held in escrow at the project level.)

The second most important consideration is the preservation of one’s capital investment. This will be even more true for someone that has already been involved in an EB-5 project failure. In my experience from having worked with thousands of EB-5 investors, the worry never goes away until green cards are obtained, and capital is returned. What someone worries about shifts depending upon where they are in their immigration journey, but the worries are always there.

A return of capital is much harder to predict than how many jobs will be created as the result of an EB-5 investment. Return of capital is normally dependent upon a sale of the underlying asset or a refinancing of that asset. Some of the risk associated with repayment can be mitigated by working with a well-established developer that is experienced in the industry in which the EB-5 investment will be made. Has the developer successfully completed similar projects and has the developer repaid those that have financed those projects. The EB-5 investor does not care whether the project is either sold or refinanced. What the EB-5 investor wants to understand ahead of time is whether there will be a market for either the sale or the refinancing once the project completes construction. (There may be a need for the project to reach what is called stabilized operations so the sale or refinance may not occur immediately upon completion of construction.) Not every EB-5 project can provide a solution.

“From its inception, the EB-5 Program has required an “at risk” investment with no promises or guarantees that an investor will obtain the immigration benefit(s) they are seeking and/or a return of the capital they have invested”

I hope what I have written can become a conversation between any reader that has questions and individuals truly knowledgeable in the EB-5 Program and the solution I present.

Not every EB-5 project can provide a solution. Not every EB-5 investor in a failed project has the same solutions available to them. The first step towards a solution is seeking out answers and as I stated at the beginning, I am not expecting every reader to understand every aspect of what I have written. I hope this article can shed some light for some readers. Please feel free to contact the person below for any questions or concerns. Discussion is welcome!

Stephen (Steve) Parnell, Registered Representative of Winlo Management Group 151 Calle San Francisco, Suite 200, San Juan, Puerto Rico 00901 – Mobile: 1.561.306.6927 – email:  steve.parnell@winlogroup.com

Broker-Dealer Disclaimer – Winlo Management Group, LLC

Please be advised that the information provided in this article is for informational purposes only and should not be construed as legal and/or financial advice. The content presented here serves as a reference for individuals seeking clarification on EB-5 investments and successful immigration. It is essential to recognize that each individual’s situation is unique, and the information provided may not apply directly to specific cases. For making well-informed investment and immigration decisions, we strongly encourage you to seek advice from qualified immigration attorneys, financial advisors, and individuals with extensive experience in the EB-5 industry. These professionals can offer personalized guidance tailored to your specific circumstances and objectives.

Kindly note that engagement in communication does not establish a client relationship with Winlo Management Group, LLC nor does it constitute personalized advice. Any exchanges are for informational purposes only and should not be interpreted as creating any legal or financial obligation on the part of Winlo Management Group, LLC.

“Immigration success has been able to be achieved even after an EB-5 project failure and I believe the pathway to success is more defined now than it has ever been in the past”. Kraig Schwigen

Author Profile
Kraig Schwigen

Kraig Schwigen

Managing Member at American Investment Migration LLC

Kraig Schwigen is a recognized industry expert in the EB-5 business with over a decade of experience. As the former Chief Operating Officer of one of the largest regional center groups in the industry, Kraig grew the company from 40 investors to over 5,400, representing over $2.7 billion in EB-5 investment capital raised.

Today, as a key member of the American Investment Migration (AIM) team, Kraig is dedicated to sharing his extensive experience and expertise to assist developers seeking EB-5 investment capital.

This website is owned and operated by American Investment Migration LLC. (AIM) - American Investment Migration LLC provides consulting services to developers seeking investment capital by way of the EB-5 program. American Investment Migration LLC is not a registered broker dealer. It is anticipated that any Securities that may be offered associated to a project in which AIM has consulted to a developer will be offered directly by the issuer or through a Broker/Dealer Member FINRA / SIPC.

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