We again compliment Director Mayorkas of USCIS (U.S. Citizenship and Immigration Services) for his openness to engage the community.  On Friday, April 27, 2012, he led a discussion over the “Tenant-Occupancy Economic Model” used by many real-estate-project based RCs (Regional Centers). 

Unfortunately a session meant to clarify some nagging issues raised more questions than it answered. 

What Was Said By USCIS

Absent fraud, material changes, new sets of facts, or misrepresentation:  

  • in traditional EB-5 investment projects, USCIS will not revisit the validity of the job creation methodology or business plan used in the I-526 petition at the I-829 petition stage.
  • for RCs, approved methodologies used for job creation will not be revisited when individual investors submit their I-526, I-485, and I-829 petitions.   

This is the “deference” policy that Director Mayorkas intended to confirm.  He insisted that there had been no change in USCIS policies or standards with respect to these issues.  Director Mayorkas explained that the “reasonableness” of economic methodologies used in calculating job creation in RC are “fact specific” and “fact dependent” inquiries.  

A firestorm of questions by the audience followed.  Many respectfully disagreed with the Director that there had been no change in USCIS policies, as evidenced by the onslaught of RFEs from USCIS.  

What Is The Problem?

The problem is that USCIS has issued a wave of RFEs on new RC applications, as well as some existing RCs that used the “Tenant-Occupancy Economic Model” to calculate job creation.  In simple terms, some RC projects involve building new commercial or mixed-use buildings using jobs created by the tenants of these buildings to calculate the total direct and indirect jobs created.  USCIS now argues that if a job is created by a tenant of a building, only the tenant can credited for job creation, not the landlord, which in this case, is the RC.  

Sound reasonable? Perhaps, except that many RCs used the “Tenant-Occupancy Economic Model” in the past to calculate job creation, and it was accepted by USCIS.  However, these RC are now facing potential denials of their RC designation or at the second phase of a project, after incurring thousands of dollars preparing the RC submission to USCIS.  

The audience also questioned RFEs that claim that “contemporary methodology” would exclude these “tenant jobs,” but fail to disclose which contemporary methodology is now followed by USCIS.  

The audience urged Director Mayorkas to organize an engagement meeting between USCIS’ economists and the RC community’s economists, so that they can understand each other.  One individual even suggested a meeting the following Tuesday, (four days later), because an RFE response deadline was imminent.  The aggressive time-table for a meeting was declined by the Director. (The poor questioner clearly did not understand the “ways” or “pace” of USCIS.)

A Couple Of Things Were Said That Particularly Caught My Ear:

Director Mayorkas illustrated USCIS’ position by suggesting there would be no job “creation” if tenants moved from one building to a new building created by an RC, but  job “displacement” or “re-allocation”.  Again, there are no clear guidelines from USCIS on how this situation would or should be treated.  My problem with the Director’s response is that it is a lot to assume that a new building would only attract people from a nearby building, leaving unoccupied space in the first building.  He provided no support for his reasoning.  

A practitioner mentioned that his client, an existing RC, was receiving several rounds of RFEs related to the “Tenant-Occupancy Economic Model.”  It was not previously known that USCIS would re-open existing and approved RCs to challenge economic models that USCIS had already approved.  This is unacceptable and will create uncertainty in the EB-5 program.  The discussion did not include the facts critical to determine what had really happened to that specific RC.  However, if USCIS challenges existing RCs on their economic and job creation methodologies, it will create chaos in the currently successful EB-5 process.  

The Takeaway

Never underestimate the risks of the EB-5 program.  I like the program and feel strongly that it is a successful programs beneficial to the U.S. economy and investors from outside of the U.S.  The popularity of the program and recent high approval rates almost made us forget the fiasco that happened to the program in the early 1990s.  Based on what I heard at the meeting, it seems that unnecessary uncertainties and bureaucracies are seeping into the program again.  

To investors:  Beware and don’t take your due diligence responsibilities lightly: the EB-5 program is not for the faint-hearted.  

To the RCs:  Please work closely with USCIS to sort these definitional issues out; they are critical to the long-term survival of the EB-5 program.