Analysis

Shielded From Green Card Ban, EB-5 Investors Still At Risk

By Suzanne Monyak
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Law360 (May 1, 2020, 8:25 PM EDT) -- Foreign investors were exempted from President Donald Trump's recent green card ban, but as the coronavirus pandemic shutters businesses, those would-be immigrants could soon be at risk of losing their money — or their green card eligibility — if the projects ultimately flop.

Under the program, known as EB-5, foreigners who invest at least $900,000 or more in a U.S. enterprise that creates at least 10 full-time jobs for Americans, which can include jobs created during construction, can get a green card to move to the U.S.

But foreigners who invested in projects that are still being built could have their green card hopes dashed if construction is halted during the coronavirus pandemic, either for a loss of financing or because the project was in a jurisdiction that didn't consider it essential.

"The real risk is deals under construction, more in the beginning phase, and they stop," said Ronald Fieldstone, a partner at Saul Ewing Arnstein & Lehr LLP. "If they stop for too long you could have a problem, because you have to have, under the law, continuous construction."

The risk is particularly acute for those with pending EB-5 petitions, who may need to alert U.S. Citizenship and Immigration Services of any significant changes to the project during the roughly two years the agency takes to process the petition.

If the agency concludes that the changes are significant enough, it could require the investor to file a new petition, causing the applicant to lose their spot in what can be a yearslong line for a green card.

"This throws the EB-5 program into absolute turmoil and ambiguity," said Angelo Paparelli, a partner at Seyfarth Shaw LLP.

Fieldstone said he was hopeful that USCIS would overlook those types of construction stoppages when deciding whether to grant an investor's immigration application and consider the pandemic a force majeure, or an unforeseeable disruption.

However, if the project completely defaults, investors could find themselves in particularly hot water, he said. Projects without enough financing locked in yet could struggle to come up with it during the economic recession, he added, particularly since it is difficult to market projects to potential investors from home.

"It becomes an immigration risk if you never complete the project," Fieldstone said.

A project failure alone won't render an investor ineligible for a green card if the petition is already approved, but if the project flops while the EB-5 petition is still pending, it could devastate the investor's green card chances, said Chad Ellsworth, a partner at Fragomen, Del Rey, Bernsen & Loewy LLP.

EB-5 investors whose projects have already been constructed, and who have already managed to already create the jobs to meet the requirements for a green card, may not be shielded from the pandemic's consequences.

Those investors could still take a financial blow, particularly if they invested in the hard-hit hospitality or retail industries, such as in a resort that now can't accept visitors or a store with no customers.

"Anybody who owns a hotel is having a hard time right now operationally. Anybody who's building a hotel right may or may not be able to get it finished," said Robert Divine, leader of Baker Donelson Bearman Caldwell & Berkowitz PC's global immigration group.

It's an "old fallacy" that EB-5 investors only care about getting their green cards, Fieldstone said. It may be their first priority, but "they do very much care about getting a chunk of their money back," he said.

"The advantage for these investors is, yes, the absolute requirement of job creation is going to be satisfied. But the danger for them obviously is if the deal goes under or goes south," said Rohit Kapuria of Saul Ewing. "They're going to lose access to their capital, or they may get paid out pennies on the dollar. That's the panic that we're beginning to see from investors."

Even investors whose petitions have already been approved and had consular interviews scheduled to get their green cards haven't been spared, as consular closures leave them abroad and in limbo.

"They want to complete their process because their investments are on the line, their lives are on the line," said Ellsworth, who has EB-5 clients stuck abroad waiting for visa stamps, though he said they appreciate that it's not safe to travel during the pandemic.

The EB-5 immigrant investor program, created by Congress three decades ago, became increasingly popular in the wake of the 2008 recession. The number of approved EB-5 visas tripled between the 2008 and 2009 fiscal years, according to a 2009 report by the nonpartisan Migration Policy Institute.

When issuing his proclamation to suspend new green cards abroad, purportedly aimed at protecting U.S. workers, Trump specifically exempted the EB-5 program, which has generally enjoyed bipartisan support as a tool to inject money and jobs into the U.S. economy.

However, as the country enters into another recession with job losses at a staggering 30 million, attorneys say that new EB-5 investment has been down recently.

"When you can't even get on a plane to come to the United States, the idea of plunking down a large piece of change seems premature," Paparelli said.

But the downturn in new investments may not all be due to the virus.

In November, the Trump administration raised the EB-5 investment minimum from $500,000 in a rural area or area of high unemployment, or $1 million elsewhere, to $900,000 in targeted areas and $1.8 million elsewhere. The administration also tightened the criteria for areas to be designated as lower employment areas that qualify for the lower investment minimum.

The changes spurred a surge in investments between July, when the changes were finalized, and November, when they took effect. Since then, new investments have "pretty much ground to a halt," Divine said, since most people who were planning to invest through the program made those investments before the minimums jumped.

"If EB-5 investments had been going more robustly before the coronavirus hit, then we might have seen a reduction," he said. "It's hard to reduce something that's already nearly nothing."

Attorneys agree that the program would likely be beneficial to the U.S. economy during the downturn. "EB-5's the reverse of a drain," Fieldstone said. "It's money coming in, jobs being created."

But to maximize the program's benefits, Congress needs to expand it, they said, particularly by increasing the number of green cards available and speeding up processing. Employment-based green cards, which include EB-5 visas, are capped at 140,000 annually and constrained by 7% country caps.

For countries that send more EB-5 investors to the U.S., like China and India, investors must wait years with an approved petition before a green card becomes available to them. Even those from countries without backlogs must wait several years for their petitions to be approved.

According to USCIS, processing times for EB-5 visa petitions currently range from 31 to 50 months, or up to four years.

"That's really hard to sell," Divine said.

But Ellsworth said he's seen a recent swell of interest in the program. And even as the U.S. tops the world in confirmed coronavirus cases, he said it still draws the interest of investors.

"The U.S. program is still very popular with these types of clients globally, even at the higher investment threshold and delays in adjudication," he said. "I think if the global economy continues on a downturn, it's just going to continue to be a more attractive place to invest."

--Editing by Brian Baresch and Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

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