With the passage of the EB-5 Reform and Integrity Act (“RIA”), and the resumption of the regional center EB-5 program, many developers are structuring new EB-5 projects for marketing to potential investors. Such projects require sponsorship by a designated regional center that has filed Form I-956 with USCIS.
In counseling such developers, we discuss 3 options:
Option 1
The developer can file Form I-956 to form a new regional center and apply for designation with USCIS. Even if the developer wants to incur the responsibilities and liabilities under the RIA, choosing this option is impractical unless the developer is prepared to defer the raising of EB-5 capital potentially for many years.
Although a regional center designated prior to the RIA does not need to await approval of Form I-956 in order to sponsor a new project, a regional center that was not designated prior to the RIA must await approval of Form I-956 before sponsoring a new project or investors. So how long will it take to obtain such approval? Although no one knows for certain, this author believes that a new I-956 application may not be adjudicated for many years. Why? Prior to the RIA, USCIS received a relatively small number of new regional center applications, and often took 18 months or more to adjudicate such applications. Since USCIS takes the position that all previously approved regional centers must file Form I-956 prior to December 29, 2022, to continue their authorizations, USCIS presumably will be receiving many hundreds of these applications prior to December 29, 2022. Previous history with USCIS adjudications would lead to the conclusion that a new I-956 filed by a new regional center could take many years to adjudicate. Therefore, although a developer may want to choose this option for purposes of being able to sponsor future projects, it likely will opt for options number 2 or 3 below for its first project.
Option 2
The developer can seek to have its project sponsored by an approved regional center. Although we have compiled comprehensive due diligence lists for a developer to use in choosing a regional center sponsor, there are at least three threshold issues:
- The regional center was approved prior to the RIA and has filed Form I-956 prior to December 29, 2022;
- The regional center has not been terminated and is not subject to a pending Notice of Intent to Terminate; and
- The regional center is approved for the geographical area of the proposed project.
In this regard, it is important to note that a previously approved regional center does not have to await the approval of Form I-956 in order to be able to sponsor a new project. However, it can only do so in the area of its approved geography. If the regional center seeks to expand its geography, it can only sponsor projects in the new geographical area when the I-956 seeking the geographical expansion is approved (which, as indicated above, can be a lengthy and indeterminate period of time).
It is critical for project developers to exercise appropriate due diligence (in connection with their counsel) in choosing a regional center to sponsor a project. A regional center that for any reason is terminated or chooses not to remain in business during the life of the EB-5 project could result in all investors in the project being denied.
There is no “normal” or “market” price for regional center sponsorship. Each regional center offers different services, different levels of reputation and different levels of experience, all of which factor into the fees charged by the regional center for sponsorship.
Option 3
The third option is for the regional center to purchase a previously approved regional center that has filed Form I-956. This would require the regional center to file an amendment regarding ownership and principals. The good news is that the project can proceed to raise capital immediately upon the filing of the amendment, and there is no need to wait for approval.
This has created an unprecedented demand for purchasing regional centers. At the same time, there is also an unprecedented supply of regional centers seeking to be purchased. The reason for this is the RIA. Many regional centers – – in the author’s opinion, probably hundreds – – do not plan to sponsor new projects under the RIA for many reasons – – substantially increased fees; substantially increased liabilities; substantially increased responsibilities; substantially increased need for staff; substantially increased compliance obligations. However, they want to make certain that their grandfathered investors are protected, which may not occur if they go out of business. Therefore, for that very large subset of approved regional centers, the best option for themselves and for their investors is to seek a purchaser. Rather than just go out of business, they have an asset of value that they may wish to monetize.
Much of what I stated above regarding the sponsorship option applies to the purchase option. Specifically, many of the same due diligence issues are possibly even more critical in choosing a regional center for possible purchase. Likewise, the purchase price of a regional center is dependent on many of the same criteria referenced above. Obviously, there is a huge difference in the value of a regional center with an excellent reputation, a huge staff, marketing capabilities, and many successful projects compared to a regional center that has never sponsored a project.
We regularly counsel our clients on these options, including guidance regarding regional centers available for purchase.
The material contained in this article does not constitute direct legal advice and is for informational purposes only. An attorney-client relationship is not presumed or intended by receipt or review of this presentation. The information provided should never replace informed counsel when specific immigration-related guidance is needed.
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