Residential Real Estate is the Hardest Sell of them all in EB-5


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Residential Real Estate is the Hardest Sell of them all in EB-5

  1. 1. Contact: OR (716) 604-4233 OR (716) 768-6506 Page 1 RESIDENTIAL REAL ESTATE IS THE HARDEST SELL OF THEM ALL IN EB-51 By Joseph P. Whalen (June 8, 2014) Introduction I am disturbed by the huge influx of real estate-oriented EB-5 Regional Centers and projects that seem to be “crawling out of the woodwork”. While commercial real estate tends to offer more viable opportunities, it is a sad reality that residential real estate will only find a small niche within EB-5. That can only happen if the offering is skillfully crafted to fit into the tight EB-5 parameters that currently exist primarily due to the legislation rather than the regulations. Don’t waste your time, energy, resources, or money crying to USCIS about this, work on Congress instead. Even with all the extra effort required to make a residential real estate project work for EB-5, it will still likely have a small dividend or pay-off. I have always been of the opinion that residential real estate is best utilized as a small percentage within a mixed-use development project. Potentially Viable Avenues for Residential Real Estate in EB-5 With the above comments in mind and remembering the nature of the statutory constraints (minimum investment amount and 10 permanent, full-time jobs per EB-5 investor; with permanent meaning at least 2 ½ years), I can think of a couple of avenues to explore off the top of my head. First, the investor(s) can seek to infuse money into an existing development firm and/or a construction company but that would have to be in the context of “expanding an existing business” or quite less likely, coming to the aid of a “troubled business”. That said, if a developer or construction company qualifies as a “troubled business” then perhaps that would be indicative of a new home construction slump. I don’t know what a qualified investment advisor would say but from a layman’s perspective, I wouldn’t touch it UNLESS there is a construction boom just starting in the area. IF there is a boom THEN perhaps one could look forward to a large long-term development or serial construction projects that would justify increasing the employment rolls at the construction/development company. This set up could be a short-term association whereby the developer/construction company would buy out the EB-5 investors after they got their conditions lifted or the investors might want to stay associated for the long-term and have a vested interest in a steady source of income in their new country of residence, the United States of America. 1 See also: apr262011-01-k1610 and regional-center-appeal-dismissals and real-estate-speculator-methodology-rather-than-tenant-occupancy-methodology and eb5-petition-adjudication-processes and many more at: or
  2. 2. Contact: OR (716) 604-4233 OR (716) 768-6506 Page 2 Another strategy would be getting involved with a large scale new housing-complex development. It would have to be so big that it would need full- time employees to run business offices, have janitorial staff, maintenance and repair workers, and security, at the very least. In addition, if one were investing in a huge new “bedroom community” consisting of high-rise towers and townhomes then perhaps that new neighborhood would need and be able to support some retail, services, and restaurant development within or adjacent to it to serve the increased population base. The economist would need to have good plans to work from with reliable, comprehensive details, including realistic timelines, in order to determine how many jobs would result. Even if the net number of EB-5 qualifying jobs is low, the EB-5 money would be welcomed if cheap enough. If you are looking at a low number of EB-5 investors then you, as a Regional Center principal or, a development partner along with the EB-5 investors, should be looking for an owner-equity interest via the NCE that you form2, rather than a loan model. That way they can take credit for ALL EB-5 qualifying jobs, direct and indirect, in accord with 8 CFR § 204.6(g)(2) which states: (g) Multiple investors— * * * * * (2) Employment creation allocation. The total number of full-time positions created for qualifying employees shall be allocated solely to those alien entrepreneurs who have used the establishment of the new commercial enterprise as the basis of a petition on Form I-526. No allocation need be made among persons not seeking classification unde r section 203(b)(5) of the Act or among non-natural persons, either foreign or domestic. …[USCIS]… shall recognize any reasonable agreement made among the alien entrepreneurs in regard to the identification and allocation of such qualifying positions. One Last Concern Please have the business plan writer and the economist review the USCIS May 30, 2013, EB-5 Adjudication Policy Memo, pp. 15-20, and the USCIS June 17, 2009, EB-5 Job Creation and Full-Time Employment Memo. Make sure that they know what their work products need to address. Make sure that they know the difference between the standard “economics” definitions and the “EB-5 legal” definitions of direct and indirect jobs. Exactly what each number in the final Economic Impact Statement that draws from business plan and associated job creation predictions means should be explained. When building that plausible explanation, I recommend using an inductively-reasoned and well-constructed narrative (similar to a word-smithed legal argument) which leads the adjudicator in the right direction to make sound judgments as to inferences and conclusions that will support approval of the specifically-named EB-5 project. That’s my two-cents, for now. 2 NCE = New Commercial Enterprise. The implementing regulations allow an EB-5 investor to be a limited partner in a limited partnership and consider them qualifying. The Regional Center or the developer can be the General Partner who makes day -to-day decisions while the limited partners can have the standard policy ULPA rights which should definitely include voting rights on major decisions and policy concerns of the NCE (LP). See 8 CFR 204.6(j)(5)(iii).