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Immigration Law

Impact of EB-5 Retrogression on the Regional Center Loan Model: Cyrus D. Mehta

"The China EB-5 retrogression will result in other unique problems not experienced in other immigrant visa preference categories.  Most EB-5 regional center investments are based on a loan rather than an equity model.  EB-5 investors invest into the new commercial enterprise (NCE) of a regional center.  The NCE in turn invests in a project or a business, known as the job creating enterprise (JCE).  The JCE is a project that will result in at least 10 indirect jobs per EB-5 investor, such as a hotel or assisted living home or some other business operation.  The NCE’s investment in the JCE can either be through an equity investment or a loan.  The loan model is more favored than the equity model in EB-5 projects.  Although a direct loan by an EB-5 investor is disallowed, as the investment is not at risk if the loan is guaranteed to be paid back, the EB-5 investor makes an equity investment in the NCE as a limited partner, which in turn loans the investors’ aggregated funds to the JCE.  Thus, the EB-5 investor still has an equity interest in the NCE, while the NCE makes a loan to the JCE.  The loan model has been permitted by the USCIS as the EB-5 investor is really buying an equity interest in the NCE while the NCE makes a loan of the aggregated investors’ capital to the JCE.  When the NCE makes a loan to the JCE, there is an agreement for the JCE to pay back the loan to the NCE.  If the time frame is 5 years or more, this period would cover the point of time when the investor obtains conditional residence, and two years later, when the investor applies for removal of conditional residence.  With the EB-5 quota retrogression, these two events will be stretched out even further in time, and it is likely that by the time that the investor applies for removal of conditional residence, it may be beyond five years from the date of the initial adjudication of the Form I-526 application.  Would the USCIS now take the position that the investment is longer at risk if the JCE pays back the loan to the NCE before the investor has removed the conditions on residence?" - Cyrus D. Mehta, Sept. 22, 2014.