Real estate developers looking for creative ways to obtain financing during the ongoing credit crisis should consider the Immigrant Investor or “Regional Center” Program. The Regional Center program for immigrant investors is a part of the EB-5 Employment Creation Program that came into existence in the early 1990s and is administered by the United States Citizenship and Immigration Services (USCIS). A Regional Center is an entity or economic unit, public or private, involved with the promotion of economic growth in specific areas within a defined geographic area. Of late, the Regional Center Program has become so popular that the total number of Regional Center applications filed during the first two quarters of this fiscal year has exceeded the total number of applications for all of fiscal year 2010.
Pursuant to the EB-5 Program, an eligible foreign national may acquire U.S. permanent residence by investing $1,000,000 or $500,000 in a qualifying forprofit enterprise that results in the creation or preservation of 10 full-time jobs for U.S. workers. The lesser amount applies if the investment is in a Targeted Employment Area or “TEA,” which is a “rural” area or an area of “high unemployment” as defined under the EB-5 Program.
Under the Regional Center Program, not only can direct jobs be counted toward the foreign investors’ job-creation requirement but also certain “indirect” and “induced” jobs. The foreign investors need not be involved in the day-to-day management of the investment enterprise.
Formation of a regional center is no easy task, but the access to capital resulting from a successful effort can be worth it. The combined talents of an immigration lawyer, securities/corporate lawyer, economist, business plan writer, bank/escrow agent and a marketing firm or commissioned agent are needed. This is because the regional center application must include such things as a business plan, identification of a geographic area and “industry scope,” operational plan, economic report for job creation, marketing plan and capital investment offering instruments and agreements—all complying with EB-5 Program requirements and securities law. Regional center adjudications require many months, sometimes six months to a year.
Once formed, a regional center generally performs multiple functions, including but not limited to due diligence regarding each investor’s source of funds and admissibility, preparing the appropriate filings and reports, obtaining signed subscription and escrow agreements, tracking the infusion of capital into job-creating enterprises, monitoring compliance with the business plan and foundation facts in economic reports and the like. The costs of creating and running the regional center can be daunting. Costs, however, can be recouped directly from the investors via a fixed additional fee or a percentage of the interest earned on their investment.
Instead of seeking approval of a regional center, another option for accessing capital under the EB-5 Program is to present a project for funding under an alreadycertified regional center. If an existing regional center includes the geographic location of the proposed development within its territory and project scope, this could save the developer the time and expense involved in establishing and marketing a new regional center.
There are some downsides to this approach. For example, some of the developer’s profit may be siphoned off to the regional center operator. Also, the developer must conduct careful due diligence with respect to the regional center. If the regional center operators are less than scrupulous, provide incomplete information or have a bad track record, the developer may regret the affiliation. Additionally, the developer will have to work closely with the regional center operator to ensure that EB-5 Program requirements are met and will be ceding some control to the regional center operator. This could all lead to potential liabilities and negative “goodwill.” Due diligence is definitely required.
Keep in mind that even if an existing regional center covers the geographic location of a project, the center’s scope may nonetheless be limited in a way that doesn’t permit inclusion of a particular type of real estate development. In such a situation, the regional center may seek to amend its certification with USCIS in order to incorporate the new project, but this would entail delay. Likewise, an approved regional center’s territory may be amended to include a greater geographic area.
Real estate developers can also look to pooled investments to raise capital with individual EB-5 petitions in a commercial enterprise without the additional expenses involved in obtaining regional center certification and ongoing administration. While this may also eliminate possible time delays related to seeking approval of a new regional center, it will mean that only direct employees may be counted toward the job-creation requirement and the investors will likely be more involved in the business.
There are currently approximately 147 approved regional centers in 39 states. Estimates indicate that more than 90 percent of all EB-5 individual investor petitions for U.S. permanent residence relate to regional centers. Indeed, USCIS has recently proposed steps to make the Regional Center Program more userfriendly. These include creation of a direct line of communications between a regional center applicant and USCIS, implementation of premium or accelerated processing of at least some of the filings related to regional centers and the establishment of an interview process whereby regional center applications may appear before a panel of USCIS experts to resolve case issues. The first of these measures—the direct line of communication—may occur as early as late September. If this avenue for accessing capital is of interest to you, now seems to be the time to act.