As quickly as the EB-5 marketplace has grown, so too has its complexity. Issuers and investors today face challenges their predecessors never dreamed of.
One of the hottest topics in the EB-5 space right now is “redeployment.” The basic problem is this: investors are required to keep their funds “at risk” throughout their conditional residency period; yet, because of limited visa availability for mainland Chinese-born investors, their original investments are likely to mature before they can file their I-829 petitions and remove the conditions on their green cards.
The question is: what types of reinvestment, or “redeployment,” structures will USCIS approve of?
The white paper “Standards and Guidelines for the Redeployment of EB-5 Funds” provides a detailed explanation of the dynamics of visa caps, processing backlogs and retrogression. More importantly, it addresses the developing guidelines from USCIS surrounding redeployment — and provides a best-practices approach to minimizing risk to New Commercial Enterprises (NCEs) in this uncertain landscape.
What investments are appropriate? What responsibilities do NCEs have to their investors regarding disclosure and consent? What best practices are necessary to satisfy fiduciary obligations? What securities laws must be adhered to?
The authors, which include three NES Financial | JTC Medallion Partner law firms (Klasko Immigration Law Partners LLP, Arnstein & Lehr LLP, and Jeffer Mangels Butler & Mitchell LLP), put forth recommendations for best practices for compliance with USCIS policy, securities laws and the fiduciary obligations of the general partner or manager of the NCE.
But before NCEs can even think about implementing best practices, they need to be clear on how USCIS defines “at risk.” The EB-5 marketplace has sought guidance from USCIS on this point for years, and finally, they issued an amendment to their Policy Manual on June 14, 2017. The white paper examines the implications of the amendment, in conjunction with existing case law, and finds a number of opportunities for investors and issuers alike.
For example, the authors point out that once the job creation requirement has been met, reinvestments in existing positive–cash flow businesses would be acceptable. A reinvestment of this type, such as in a fully operational multi-family apartment building, would minimize risk to investors and offer flexibility to NCEs.
Many NCEs would prefer to simply redeploy funds into their next project. However, this may raise issues of possible conflict of interest, breach of securities law and/or violation of fiduciary duty to investors. To steer clear of these issues, the authors recommend several guidelines and best practices, including the following:
- Engagement of an independent Registered Investment Advisor (RIA) to assess reinvestment options and communicate advantages and disadvantages to investors
- Written communication with investors detailing how investment funds will be redeployed and why the investment was chosen, supported by an independent report from the RIA analyzing the level of risk and the appropriateness of the investment, as well as other critical considerations
- Selection of a reinvestment option that is liquid enough to return capital to investors soon after they successfully complete the sustainment period of their immigration process
- Engagement of a third-party fund administrator to provide fund tracking, reporting and transparency to investors
These best practices and more are built into the EB-5 Redeployment Solution, recently announced by Capital United, Greystone and NES Financial | JTC.
To help navigate evolving standards, best practices and guidelines in the EB-5 marketplace, the authors of the white paper have provided a road map to mitigate risk to both investors and issuers. Download “Standards and Guidelines for the Redeployment of EB-5 Funds” — and gain a better understanding of the implications of the new guidelines.