On Apr 10 2013 by H. Ronald Klasko

Creating and Representing EB-5 Regional Centers

The EB-5 program was implemented in 1990 as a program to provide legal permanent residence status to investors who invest $500,000 or $1 million (depending on the geographical area) in a business that creates employment for 10 full-time U.S. citizen or permanent resident employees.

[2] For various reasons, especially that fact that most businesses do not commence early operations with 10 full-time employees, Congress created the regional center program in 1993. A regional center is “any economic unit, public or private, which is involved with the promotion of economic growth, including export sales, improved regional productivity, job creation, and increased domestic capital investment.”[3] Today, regional center pooled EB-5 investments constitute over 90 percent of the total EB-5 petitions.

From the investor’s point of view, the major advantage of a regional center investment is that the investor’s petition can be approved as long as the regional center project creates 10 direct or indirect jobs. This allows regional centers to use economic forecasting models to project indirect and induced employment created as a result of the new project. The main disadvantage of a regional center for an investor is that the investment amount is being put toward a project that the investor does not control and generally the investor will not be working in the project in which he invests. In addition, he will be paying the regional center developer a sum of money (usually $45,000 to $50,000) to cover the developer’s expenses and profit.

Most, but not all, of the regional center projects are real estate-based projects. With capital becoming unavailable from traditional sources, EB-5 money is becoming an important alternative source of capital. As a result, the number of regional centers has increased more than sixfold in the past three years.

From the developer’s point of view, regional center certification provides an aura of legitimacy that may help in marketing to foreign investors. In addition, a particular regional center project may be preapproved by USCIS. Regional center designation is a one-time designation allowing future projects to be marketed without incurring delays. In addition to funding their own projects, regional centers can profit by sponsoring and overseeing projects developed by others.

However, seeking regional center designation does have some disadvantages. Regional center certification may take a lengthy period of time – presently 6 months or longer. Regional center certification may entail significant expense, including hiring multiple professionals as will be discussed below. Regional center certification is not the same as approval of any particular regional center project. With so many regional centers approved, many regional centers have not been able to attract investors; and some newer regional centers find it difficult to compete in their marketing efforts with long-existing regional centers with a track record of many immigration approvals. Finally, regional centers have ongoing administrative and filing requirements with USCIS in order to avoid decertification.

Other Options for Raising Capital under EB-5 Program

A developer might consider three other options for raising capital under the EB-5 program:

  • Having a project “adopted” by a certified regional center;
  • Purchasing a certified regional center; or
  • Pooling investments with individual EB-5 petitions.

Having a project adopted by an existing regional center saves the time and expense involved in developing a new regional center. The existing regional center may have a marketing plan in place, and may even have existing investors ready to invest. Furthermore, project pre-approval is available.

However, some of the developer’s profit will be siphoned off to the regional center operators. Furthermore, the developer needs to do serious due diligence with respect to the regional center to make certain that the developer is not affiliating with a regional center that may have a bad reputation in the marketplace or that may be at risk of decertification.

 Some developers have chosen to purchase an existing (sometimes dormant) regional center. Once an agreeable price is reached, the developer does not need to negotiate away profit or control with respect to any particular project. However, as with purchasing any other business, the developer needs to do serious due diligence regarding potential liabilities and negative good will.

Of course, there is no need for a developer to work through a regional center at all. If the project will create 10 full-time employees for every investor, the investors can invest without the developer creating a regional center. This eliminates serious time delays and expenses, as well as ongoing administration. However, the option of project pre-approval is not currently available. Also, marketing to foreign national investors may be more difficult without the aura of regional center designation.

Creating a Regional Center

In order to create a regional center, it is necessary to put together a team of professionals:

  • An EB-5 Economist is a critical professional in performing the economic projection of indirect and induced jobs; helping to establish a targeted employment area (“TEA”); and helping to determine the geographic bounds of the regional center.
  • A Securities/Corporate Attorney is necessary because the regional center investment offering is subject to securities laws. The securities attorney will prepare the private placement memorandum, including specific immigration risks of the investment, as well as the Subscription Agreement. Usually the same attorney will create two or three corporate entities – the regional center entity; the “new commercial enterprise;” and sometimes the separate job-creating entity.
  • The EB-5 Business Plan Writer will be preparing the comprehensive business plan to present a credible explanation of the project, the use of the capital, the timelines, the job creation and other aspects of the project. Sometimes, the EB-5 business plan writer will also prepare an operating plan for the regional center.
  • The Immigration Attorney generally acts as the “quarterback” of the professional team. He needs to ensure consistency between the business plan and economic report; make certain that the business plan is in conformity with USCIS policy; make certain that job creation is both understandable and credible and consistent with USCIS policy; provide advice regarding immigration risks for the private placement memorandum; review all documents for immigration compliance; prepare and file the regional center designation application; prepare and file any application for project pre-approval; and in some cases prepare and file the investors’ I-526 EB-5 petitions.
  • Marketing Firm/Commissioned Agents are a critical part of the process because all of the work done by the other professionals will be for naught unless the project can be successfully marketed to investors.
  • A Bank/Escrow Agent is often a part of the process since many regional centers offer a protection to investors of having the investment amount sit in an escrow account at a bank, not to be released until the EB-5 petition is approved.

Issues for Regional Centers

Two of the most important initial issues to be addressed are:

  • How much must investors invest?
  • How much capital can be raised?

Virtually all regional center investments are $500,000 investments. The reason is that the projects are in “targeted employment areas” (TEAs)[4]. As a practical matter, if a project is not in a TEA, the chances of success for marketing of the project to foreign investors are rather slim.

There are three ways to prove that the investment project is in a TEA:

  • If the project is in a “rural” area, which is defined as outside of a metropolitan statistical area with a population of 20,000 or more, it qualifies as a TEA[5] ;
  • If the project is in a census tract with an unemployment rate of at least 150% of the national average, it qualifies as a TEA; or
  • If the economist is able to aggregate a number of contiguous census tracts which together have an average unemployment rate of at least 150% of the national average, and if the designee of the governor of the state provides a letter designating the aggregated census tract area as a TEA, USCIS will generally defer to the state designation[6].

It is important to note that the ultimate TEA designation is not made until each investor makes his investment[7]. Therefore, a developer risks the possibility that a project could commence at a time when the geographical area is a TEA; but by the time investors actually invest, it may not be a TEA.

The amount of EB-5 capital that can actually be raised for a project is obviously a critical issue. That amount is based on how many direct, indirect and induced jobs will be created. Ultimately, the maximum number of investors is determined by dividing the job creation projection by 10. Multiplying that number of investors by $500,000 (assuming a TEA) provides the maximum EB 5 capital raise. As a practical matter, investors will generally want to see that the job creation is far more (20-30% more) than the minimum required.

It is thus rather obvious that the economic job projection report is a critical document. Generally, economists will use one of four recognized “input-output models;” RIMS2, REDYN, REMY and IMPLAN. These models project indirect and induced employment generally within the geographic bounds of the regional center. However, although USCIS has equivocated on the issue, it now appears to be recognized that indirect and induced employment can be created outside of the regional center geographic boundaries if a credible case can be made as to why other areas of the country will benefit.

The immigration attorney, although presumably not an expert economist, should not just accept the economic report in an unquestioning manner. The immigration attorney should consider the following key issues in his review of the economic report:

  • It must be completely consistent with the business plan. The economic report will be premised upon certain input projections, which must come from the business plan, such as expenditures, revenues, direct employees, square footage, occupancy rate, etc.
  • The immigration attorney must make certain that the economic report is “transparent.” In other words, it should be clear from reading the report how the economist extrapolated job projection from the specific foundation facts.
  • The immigration attorney must be concerned with a projected timeline for job creation. USCIS policy is that the requisite employment must be created within two and half years of EB-5 petition approval.
  • The immigration attorney should be concerned with overly aggressive “inputs.” If the aggressive estimates are not met, some or all of the investors may not be able to get their conditions removed (see below).
  • The immigration attorney must make certain that the economist understands the difference between a “direct” job as defined by USCIS and what an economist normally considers to be a direct job. An economist may consider an employee of the construction company or of the construction project or target business to be a direct employee. However, the USCIS definition of employee is a W-2 employee of the “new commercial enterprise” in which the investor actually invests[8]. Often, this enterprise is different than the job-creating enterprise.

In reviewing the EB-5 business plan, the immigration attorney should be concerned with whether the plan is credible and whether it is consistent with the economic report. The timelines specified in the business plan are critical.

The geographic scope of the regional center often involves several considerations. If the scope is too large, it may be difficult to get the regional center designation approved, as USCIS may consider the area not to be a definable “region.” If it is too small, there may be a need to amend the regional center designation if a future project falls outside of the initially designated area. The economist can assist in determining the largest possible area that can be justified as an economically interdependent region. In this regard, it is important to understand that there is no exclusive jurisdiction for regional centers.

In most cases, there are three different entities involved in the regional center creation process:

  • The regional center itself is an administrative entity that applies to USCIS for certification. It has ongoing administrative and compliance responsibilities, markets for investors, performs due diligence regarding the investor’s source of funds and oversees the preparation of the investors’ EB-5 petitions. The regional center entity also obtains signed Subscription Agreements and Escrow Agreements; monitors employment creation; tracks infusion of capital into the job-creating enterprises; monitors compliance with the business plan and the foundation facts on which the economic report is based; allocates jobs between investors; prepares an annual reporting for filing with USCIS; oversees the preparation of condition removal packages for approved investors; and decides on new projects. Generally, an operational plan is prepared for the regional center. The operational plan often includes an overview of the regional center; information about marketing plans and recruitment of investors; explanation of the funding and budget for the regional center; explanation of the systems to be used for administrative oversight.
  • The “new commercial enterprise” is the entity into which the investor invests. This is generally a limited partnership or LLC. In all cases, the investors make equity investments into the new commercial enterprise. In many cases, the new commercial enterprise is in the business of loaning money to one or more job-creating enterprises. In fewer regional centers, the investors in the new commercial enterprise take an equity stake in the development project.
  • The job-creating enterprise is the actual development project or business. In the model where the new commercial enterprise loans money, the job-creating enterprise is the borrower. Repayment of the loan with interest provides the exit strategy and rate of return for the investors.

Regional Center Application Process

With all of that as background, the immigration attorney is ready to prepare the application for regional center designation. The application is made on Form I-924 with a volume of additional documentation. Generally, the documentation will include most or all of the following:

  • A detailed map illustrating the contiguous geographical area of the proposed regional center, together with an explanation regarding the economic interdependency of the region;
  • Economic projection of job creation;
  • Business plan;
  • NAICS code for each industrial category;
  • Documentation of TEA;
  • Operational plan for the regional center;
  • Marketing plan;
  • Organizational structure and budget of the regional center;
  • Statement from the principal of the regional center that explains the methodologies that the regional center will use to track the infusion of each investor’s capital into the job-creating enterprise and to allocate the jobs created;
  • Draft Subscription Agreement;
  • Draft Private Placement Memorandum;
  • Draft Escrow Agreement;
  • Corporate documentation for the regional center;
  • Hard copy of any marketing materials;
  • Plans to remain in compliance with ongoing USCIS monitoring requirements;
  • Proof of the investor’s involvement in the business;
  • Procedure the regional center will use to perform due diligence on the source of funds of the investors; and
  • Documentation of community or political support.

At the same time as the regional center requests designation, it can also file an application for pre-approval of its initial project. This procedure is completely optional, and investors can file I-526 EB-5 petitions without project pre-approval. Also, project pre-approval can be filed independently for subsequent projects. If the regional center opts for project pre-approval, it must file a complete package containing everything that would be required in an investor’s I-526 petition except the investor’s source of funds and path of funds.

The advantages of project pre-approval are the possibility of avoiding multiple adjudications of projects and a clear marketing advantage. The disadvantages are that project pre-approval can add significant time unless it is filed concurrently with the request for regional center designation.

Assuming the regional center designation is approved, and the marketing effort is successful, the developers want to know when the money will actually be available for the project. Generally, the investor must invest 100% of the investment before the I-526 petition is filed. The developer has the option of either using the money immediately or putting the money into escrow to be released when the investor’s I-526 petition is approved. Either option is fully compliant with EB-5 rules and policies, but the latter certainly provides a marketing advantage.

Because of the substantial processing time to obtain the regional center designation, particular project pre-approval (if requested) and approval of the investor’s EB-5 petition, developers often obtain interim or bridge financing to enable the project to move forward pending receipt of the EB-5 capital. The EB-5 capital then often replaces the bridge financing. This is normal business practice and should not create an issue for EB-5 petition approval, because it is the new commercial enterprise (and not the investor) that must create the jobs. However, some USCIS adjudicators have questioned whether the EB-5 money actually creates the jobs in this scenario.

Another sometimes controversial issue involves the requirement that the investment must be “at risk.”[9]This principle prevents an investor from being assured of a guaranteed redemption at a specific price. Redemption at fair market value is acceptable. Third party guarantees of the investment have been allowed.

In addition to dealing with investors, regional centers have ongoing reporting requirements. Every year, the investor must file form I-924 A providing, inter alia, the total amount of EB-5 capital invested; the amount of job creation; the industry focus; the number of approved and denied I-526 petitions; and the number of approved and denied I-829 petitions.

Once all of the investors’ EB-5 petitions are approved, the regional center’s job is not done. Within the window of 21 to 24 months after each investor’s conditional permanent residence is approved, the investor must file an I-829 petition to remove the conditions on permanent residence and become a full permanent resident. In order to get that petition approved, the investor must prove that he has sustained his investment and that the projected jobs have been created[10]. The latter two issues require amplification.

It is certainly best if the regional center can prove that all of the projected direct jobs have occurred and that all of the foundation facts that provided the input for the economist’s projection of indirect and induced jobs have actually occurred. What if all of the jobs have not actually occurred by the time of the filing of the condition removal petition? The USCIS regulation allows for proof that the jobs will be created “within a reasonable time” from the date of filing of the condition removal petition[11]. USCIS has defined one year as a “reasonable time.”

The regional center EB-5 option is a classic win-win-win program. Developers are able to move forward with projects that otherwise might not have sufficient financing; jobs are created; and investors get green cards. However, the program remains a “pilot program” that needs to be renewed by Congress at various intervals[12]. Efforts are underway to get Congress to make the program permanent, which would likely spur its growth well beyond present levels.


[2] 8 U.S.C. § 203(b)(5).

[3] 8 CFR § 204.6(e).

[4] 8 CFR § 204.6(e).

[5] 8 CFR § 204.6(j)(6)(i).

[6] 8 CFR § 204.6(j)(6)(ii).

[7] 8 U.S.C. § 203(b)(5)(B)(ii).

[8] 8 CFR § 204.6(e).

[9] Matter of Izummi, 22 I&N Dec.169 (Assoc. Comm’r, Examinations 1998).

[10] 8 CFR § 216.6(c).

[11] 8 CFR § 216.6(c)(1)(iv).

[12] Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriation Act of 1993, Pub. L. No. 102-395, § 610,106 Stat. 1828, S. Rep. No. 102-918 (1992).