Published on May 8, 2014
Page 1 of 11 Comparing Certain Regional Center Notices By Joseph P. Whalen (May 8, 2014) USCIS adjudicators seem to love to sift through minutia (tiny and often tedious details). EB-5 stakeholders need to plan ahead and be prepared for the onslaught. The best way I know how to be prepared for what might be coming next from USCIS is to be proactive and track subtle changes wherever I find them. My major source materials in tracking changes are the Notices that USCIS generates. Such Notices might include: Approvals, Denials, Dismissals, Remands, Revocations, Motions and responses thereto, Intent to “whatever” (revoke, deny, terminate,…), and the elusive Notice of Derogatory Information. That last type of Notice is the hardest to come by. It seems that 99.999% of the time, in order to see one, you have to be the recipient of one. The only other time I’ve seen it is if it becomes a part of a Judicial challenge or review and it winds up in PACER (some court electronic filings can be found online but you have to pay for the service). Change is Inevitable Some changes are dreaded and feared. Other changes are welcomed and perhaps overdue. Improvements to the language used in USCIS Notices are a change I like and hope that the trend continues. In my last article, I examined some recent AAO I-526 Remands and a Regional Center Appeal Dismissal and noted that AAO was getting tough on USCIS. About time! We are also seeing more specificity in Approvals as well. I like it. Initial Regional Center Designation based on a Hypothetical Project1 Initial Regional Center Designation based on an Actual Project in an Exemplar I-5262 III. Job Creation USCIS approves the geographic area and industry categories noted III. The Project Effective the date of this notice, USCIS approves the applicant’s request to include the following actual capital investment project supported by an exemplar Form I-526. 1 See: http://ebfive.files.wordpress.com/2014/04/arkansas-regional-economic-development-center-llc- approval.pdf 2 See: http://ebfive.files.wordpress.com/2014/03/i-924-exemplar-approval-letter-sobe-eb5-rc.pdf
Page 2 of 11 above based on the economic impact analysis presented and reviewed in conjunction with the adjudication of this regional center proposal. This hypothetical project does not have the factual details necessary to be in compliance with the requirements described in Matter of Ho, 22 I&N Dec. 206 (Assoc. Comm’r 1998), and therefore, USCIS’s approval of the hypothetical job creation estimates presented in the Form I-924 will not be accorded deference and may not be relied upon by an individual investor when filing the Form I-526. The business plan and job creation estimates will receive a de novo review by USCIS when an Project Type of Project Organization Documents Date of Document NCE: Park Avenue EB5 Investors, LLC Geographic Location: Miami-Dade and Broward counties, Florida Focus of Investment: Loan to the JCE (Encotel) Exemplar Form I-526 Petition Project Business Plan Submitted 4/2/2012, Revised 9/16/2013 Economic Analysis Dated 9/16/2013, Revised 1/15/2014 Operating Agreement Dated 9/23/2013 (Draft) Memorandum of Understanding between SOBE Eb-5 Regional Center, Encotel, and Park Avenue EB-5 Investors Executed 9/18/2013 Confidential Private Placement Memorandum (Park Avenue EB5 Investors, LLC) Dated 9/23/2013 (Draft) Subscription Agreement Dated 9/23/2013 (Draft) Loan Agreement Executed Executed 4/5/2012 Secured Promissory Note (Exhibit A to Loan Agreement) 4/5/2012 Note: If changes to this project and its supporting documents are found in subsequent Form I-526 or Form I-829 petitions, USCIS will review the supporting documents once more to ensure compliance with EB-5 program requirements. The proposal identifies the new commercial enterprise (“NCE”) of the project as Park Avenue EB5 Investors, LLC, which was formed in the State of Florida on January 26, 2012. The project is located at 2216 Park Avenue in the City of Miami Beach, Florida. Ten (10) immigrant investors will subscribe to the NCE as limited partners in exchange for capital contributions of $500,000 each and an aggregate of $5,000,000. SOBE EB5 Regional Center, LLC
Page 3 of 11 individual investor files Form I-526. Once an actual project is adjudicated upon the filing of the initial Form I-526, USCIS will give deference to subsequent Forms I-526 when the critical assumptions remain materially unchanged from the initially approved Form I-526. When filing Form I-526, it will be the responsibility of the individual investor to submit a comprehensive, detailed and credible business plan, showing by a preponderance of the evidence that his or her investment in the new commercial enterprise will create not fewer The NCE will loan the $5 million of EB-5 capital to a third-party entity, Encotel, LLC. The EB-5 capital loan proceeds will be used to finance the construction/remodeling, and operation of the Park Avenue Hotel. The Park Avenue hotel will be a “boutique” hotel, expanded from 2 stories, 46 rooms and approximately 15,000 square feet to 5 stories, 60 rooms, and approximately 31,000 square feet. The projected total cost of the project is $12.76 million. The project will take more than two (2) years to complete and will generate approximately 118 jobs. A. Job Creation USCIS approves the geographic area and industry categories noted above based on the economic impact analysis presented and reviewed in conjunction with the adjudication of this capital investment project. The job creation methodology presented in the economic impact analysis and underlying business plan is found to be reasonable based on the following inputs, when applying the RIMS II economic model: NAICS [Industry Name]3 Input ($Millions) Multiplier Jobs 236220 Nonresidential Building Construction $2.52 28.85 72.7 531120 Lessors of Nonresidential Buildings $0.18 8.89 1.6 5617 Services of Buildings and Dwellings $0.17 43.53 7.4 721110 Hotels (except Casino Hotels) and Motels $0.93 28.17 26.2 7225 Restaurants and Other Eating Places $0.82 36.83 30.2 Total Jobs: 138.1 3 Table contained an error in original. This column was not labeled. This information was added in the first column by mistake.
Page 4 of 11 than 10 full-time positions. If prior to filing a form I- 829, the job creation estimated in the business plan submitted by the individual investor materially changes or will not be realized, then it will be the responsibility of the EB-5 investor to notify USCIS of an agreed upon methodology to allocate job creation among eligible investors. The approval of this Form I-924 application supported by an exemplar Form I-526 petition is based upon the assumptions and estimates used as inputs in the business plan for job creation. Please refer to the input and multiplier analysis table above. When an actual project is specifically named in this notice and the critical inputs remain materially unchanged, USCIS will give deference to the job creation methodology when adjudicating Forms I-526 associated with the named project. The same business plan and the same reasonable job creation methodology and projected inputs must be submitted when the individual investor’s Form I-526 is filed in order to receive deference. It will be the responsibility of the individual investor to demonstrate that the assumptions and estimates presented as inputs to the job creation methodology remain materially unchanged when he or she files a Form I-526. When filing Form I-829 for removal of conditional status, the individual investor has the burden of demonstrating that the assumptions and estimates presented as inputs to the job creation methodology have not materially changed and have been realized (or can be expected to be realized within a reasonable time). If the job creation estimated in the business plan materially changes or will not be realized, then it will be the responsibility of the EB-5 investor to notify USCIS of an agreed upon methodology to allocate job creation among eligible investors.
Page 5 of 11 Critical Inputs, Assumptions, Conditions Precedent, & Finality [Plus a Whole Lot More!] I have written on these various subjects before but it appears that some folks missed it or missed the points made therein. Here is an abbreviated list of links to prior articles and discussions: http://www.slideshare.net/BigJoe5/a-trade-off-between-quality-and-quantity- in-eb5 http://www.slideshare.net/BigJoe5/material-change-v-authorized-modification- issue-in-eb5-revised-12132011 http://www.slideshare.net/BigJoe5/issue-identification-basics-in-eb5 http://www.slideshare.net/BigJoe5/material-change-in-eb5-investment-projects http://www.slideshare.net/BigJoe5/material-change-in-eb5-investment-projects http://www.slideshare.net/BigJoe5/question-regarding-regional-center-project- size-requirement-july-12-2011-jw http://www.slideshare.net/BigJoe5/there-is-still-no-such-thing-as-preapproval- in-eb5 http://www.slideshare.net/BigJoe5/eb5-reality-check http://www.slideshare.net/BigJoe5/interim-eb5-tenantoccupancy-gm- december-2012 http://www.slideshare.net/BigJoe5/failing-to-meet-an-initial-threshold-in-the- eb5-context http://www.slideshare.net/BigJoe5/regarding-the-preponderance-of-the- evidence-standard-of-proof http://www.slideshare.net/BigJoe5/insufficient-vs-sufficient-support-for- tenants http://www.slideshare.net/BigJoe5/chart-of-eb-5-timelines-and-processes http://www.slideshare.net/BigJoe5/legal-framework-for-regional-center- proposals-and-associated-eb5-petition-adjudication-processes http://www.slideshare.net/BigJoe5/here-is-an-idea-to-consider-registered-eb5- agents http://www.slideshare.net/BigJoe5/proposed-agenda-items-for-next-eb5- engagment-submitted-9152012 http://www.slideshare.net/BigJoe5/taking-on-the-eb5-communitys-confusion- about-exemplars http://www.slideshare.net/BigJoe5/role-of-the-regional-center-in-eb5 http://www.slideshare.net/BigJoe5/how-do-you-rescue-a-troubled-business-via- eb5 http://www.slideshare.net/BigJoe5/real-estate-as-a-capital-contribution-for-eb5 http://www.slideshare.net/BigJoe5/some-eb5-facts-that-have-been-forgotten http://www.slideshare.net/BigJoe5/suggested-agenda-items-for-uscis-eb5- economist-engagement http://www.slideshare.net/BigJoe5/indebtedness-as-capital-for-an-eb5- investment http://www.slideshare.net/BigJoe5/issue-preclusion-potential-as-to-the-tenant- occupancy-methodology-in-eb5
Page 6 of 11 http://www.slideshare.net/BigJoe5/rc-affilated-eb5-structure-option http://www.slideshare.net/BigJoe5/failing-to-plan-equals-planning-to-fail- 11435740 http://www.slideshare.net/BigJoe5/due-diligence-in-eb5 http://www.slideshare.net/BigJoe5/depictions-of-eb5-money-to-jobs-nexus http://www.slideshare.net/BigJoe5/everything-old-is-new-again-in-eb5 http://www.slideshare.net/BigJoe5/escrow-agreements-in-eb-article-june-30- 2001-jw http://www.slideshare.net/BigJoe5/eb5-and-eb2-entrepreneur-cheatsheet A Closer Look at Some Recent AAO Regional Center Decisions I have been able to locate the following AAO Decisions as of this writing but will confine this article’s discussion to only four of them [highlighted]. Two have been discussed before so they will merely be drawn upon for discussion of a single point to track a change in AAO’s approach to one critical detail and what I think of as the make or break prerequisite to filing for Regional Center Designation. The other two are discussed because I only just found them posted. I don’t know when they were posted but the other two for that year (2012) were previously addressed in other articles. Nov182008_01K1610.pdf Coastal Washington. First AAO RC Appeal Decision (Dismissal) the applicant did not exist as a legal entity. Dec222009_01K1610.pdf What is “contiguous”? Dec222009_02K1610.pdf Almost exactly the same as above. Nov102010_01K1610.pdf The “Math Wiz” with the 65 room motel that needs 101 employees! Nov162010_03K1610.pdf “… [D]irect employment projection for the Holiday Inn Express lacks credibility. In addition, a review of the proposed limited partnership agreement reveals a term that is problematic.” Nov232010_01K1610.pdf Merely whining without substantive rebuttal to the reason for denial. “The director determined that the economic analyses provided were insufficient. On appeal, the applicant asserts that the pertinent regulations are ambiguous, inconsistent and have been superseded by statute and that U.S. Citizenship and Immigration Services (USCIS) improperly issued a policy memorandum that continues to violate congressional intent rather than promulgate new regulations consistent with that intent. Regardless of whether the promulgation of new regulations would be useful both to adjudicators and regional center applicants, it remains that we are bound by the current regulation at 8 C.F.R. § 204.6(m), which has not been overturned by
Page 7 of 11 a federal court or, for the most part, Congress. Other than Congress' explicit reversal of the program's prior focus on exports, Congress has not expressly negated the provisions set forth at 8 C.F.R. § 204.6(m).” Jan182011_01K1610.pdf Ambiguous business plan; insufficient information about job creation; and lacks verifiable detail. “By requesting approval of the entire state of Nevada as the geographic area for the regional center and including eight industries and economic clusters, the applicant bears the burden of demonstrating how investment in each of the eight areas will impact the economy of the entire state of Nevada. We concur with the director that this burden is a result of the applicant's broad request. Counsel has not explained why USCIS should approve the regional center for all eight industries where the general proposal does not cover each industry. ….” Apr262011_01K1610.pdf “The director determined that the applicant had not demonstrated how the purchase of vacation suites in a resort community under construction could be considered an investment in the construction of that community. The director also determined that the petitioner had not demonstrated the economic impact of the community. …” May022011_01K1610.pdf Dr. REDACTED places all his eggs in one basket BUT that basket has a gaping hole in the bottom. Dec212011_01K2610.pdf Victorville RC Termination. Jul232012_01K2610.pdf El Monte RC Termination. Aug062012_01K1610.pdf “The applicant proposes to use make [sic] "qualifying investments to commercial enterprises in the enumerated industries . . . pursuant to debt and equity offerings, with debt being the primary focus." The financing will be below market rate and offered to commercial enterprises that are primarily unidentified. The director determined that the economic analysis and business plan were insufficient to allow USCIS to approve the application. On appeal, the applicant submits a brief and exhibits, including a new economic analysis. The applicant asserts that the director applied the wrong standard, and improperly relied on instructions to the Form I-924, Application for Regional Center Under the Immigrant Investor Pilot Program. That AAO finds that the director properly relied on the pertinent regulations, and not the instructions to the Form I-924, and affirms the director's other findings.” Dec042012_01K1610.pdf Extremely Vague Proposal: “…The director determined the applicant failed to meet the regulatory requirements outlined for regional centers, including those related to funds committed to the regional center, verifiable detail of indirect job creation, and a discussion of the positive impacts of the regional center on the regional or national economy. …” MAR142013_01K1610.pdf Vague proposal lacking in verifiable detail: “The director determined that the applicant had failed to submit the necessary economic analysis and that the
Page 8 of 11 explanation of job creation was "speculative and not supported by valid analysis to give credence to any of the claims made."” Derogatory Information: “… As the applicant has not overcome the evidence that the entity seeking designation as a regional center has a revoked status in Nevada and no status in California, there appears to be no entity in existence which USCIS could designate as a regional center.” JUN052013_01K1610.pdf Bad economics: “The director determined that the applicant failed to meet the regulatory requirements outlined for regional centers relating to job creation. Specifically, the director concluded that the September 25, 2011 economic report does not sufficiently project a rise in payroll. The director also questioned the economist's use of the RIMS II final demand multiplier, particularly, the economist's use of a scaled local ratio rather than the national ratio if salaries were projected to be at the national average level. The director denied the proposal accordingly. On appeal, the applicant submits a brief and additional evidence. While the applicant has now overcome the director's finding relating to the final demand multiplier, the applicant has not overcome the director's finding that the projected payroll increase to $13.4 million is inconsistent with an increase of direct jobs from 57 to 145. As such, the AAO affirms the director's denial of the applicant's proposal as relating to this basis. As the petitioner has filed a proposal based on hypothetical projects, USCIS will not review the organizational documents as part of this adjudication.” JUN122013_01K1610.pdf “… The director's decision will be withdrawn and the request for an amendment will be approved. The matter is returned to the director for issuance of a formal letter to the applicant consistent with this decision. “ Amendment no longer required and general proposals are OK but get no deference. JUL192013_01K1610.pdf “…The director's decision will be withdrawn and the proposal for designation as a regional center will be approved. The matter is returned to the director for issuance of a formal letter to the applicant consistent with this decision.” General proposals are OK but get no deference. FEB212014_01K1610.pdf “The regulation at 8 C.F.R. § 204.6( e) defines a regional center as "any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment." Accordingly, the regional center must establish that it was an economic unit within the meaning of 8 C.F.R. § 204.6(e) as of the filing date of the application
Page 9 of 11 through the adjudication of any subsequent motion or appeal. 8 C.F.R. §§ 103.2(b) (1), (12). …” Status as an LLC did not exist upon filing, this could not be cured after filing and proposal lacks verifiable details. “… The director determined that the proposal was deficient because it did not demonstrate how the regional center would maintain its approval by demonstrating its administration, oversight and monitoring of investment activities under its sponsorship. See 8 C.F.R. § 204.6(m)(6) (requiring that a regional center annually update users with information demonstrating that it continues to promote economic growth, improved regional productivity, job creation, or increased domestic capital investment in the approved geographic area). As the application may not be approved on the other grounds the director identified, the AAO need not determine whether 8 C.F.R. § 204.6(m)(6) imposes evidentiary requirements on an applicant when it applies for designation as a regional center.” Latest Regional Center Appeal Dismissal—Existence of Entity as Economic Unit The February 21, 2014, RC Appeal Dismissal I read harkens back to the very first AAO RC Appeal dismissal back in 2008 (also non-precedential and not cited). In 2008, AAO bluntly stated that in order to apply for any benefit, the applicant had to actually (and legally) exist. In 2008, a fictitious business name was given as the name of the applicant. Here is what AAO said about on that issue: “……For the reasons discussed below, the proposal appears, at best, to have been filed prematurely, before the entity to be designated a regional center even existed and before specific investment projects had been developed in cooperation with the entities that would utilize the invested fund. …..” (Emphasis added) Nov182008_01K1610.pdf at p. 2 * * * * * “The regulation at 8 C.F.R. § 204.6(j) notes that additional evidence other than that specified in the regulations may be required. Clearly, only an entity that exists can be designated as a regional center. Thus, it is reasonable to require evidence of the proposed regional center's existence. We concur with the appellant, however, that the absence of organizational documentation is the type of issue that can, under certain circumstances, be easily resolved with a request for additional evidence. The evidence submitted on appeal, however, reveals that the appellant is not capable of resolving this issue as of the date the proposal was filed. As the nonexistence of the regional center at the time the proposal was filed is not a flaw that can be remedied for the reasons discussed below, remanding this matter to the director for further action would be repetitive and unreasonably delay final action in this matter. See generally
Page 10 of 11 Deering Milliken, Inc. v. Johnston, 295 F.2d 856, 867 (4th Cir. 1961) (finding that a second remand by the National Labor Relations Board would cause unreasonable delays).” (Emphasis added) Id. at p. 5 In March 2013, and 2014, similar situations cropped up. While they are not all exactly the same they are close enough such that these three AAO RC case decisions (including 2008) should be read together. The 2013, case went a bit further in stating it this way: “… As the applicant has not overcome the evidence that the entity seeking designation as a regional center has a revoked status in Nevada and no status in California, there appears to be no entity in existence which USCIS could designate as a regional center.” [Emphasis added.] The most recent case, in 2014, involved an applicant business that stated it was an LLC in good standing. As shown within a larger quote above in the AAO RC List of Decisions, AAO added regulatory references to reinforce the point made in 2008: “… Accordingly, the regional center [applicant] must establish that it was an economic unit within the meaning of 8 C.F.R. § 204.6(e) as of the filing date of the application through the adjudication of any subsequent motion or appeal. C.F.R. §§ 103.2(b) (1), (12). …” [Emphasis added] However, when AAO once again checked with the state’s Secretary of State website for the case decided in March 2014, they found out that what was stated in the application was (at its most generous) “incorrect information”. AAO has been checking with state websites for years in a wide variety of business and employment based applications and petitions. Also, USCIS as a whole has VIBE. The misinformation was not only a clear case of ineptitude but lead AAO to present a deep discussion of consequences of presenting misleading, incorrect, or fabricated information. AAO went on and on with numerous case citations about unsupported, uncorroborated, false, contradictory, and unverifiable “assertions” by counsel (or an applicant). Please read all about it in AAO’s own words. The bottom line to all of this is the “diminished evidentiary weight” then given to ALL testimony (oral or written); briefs (if any); or narratives presented by the “liar” caught with his or her “pants on fire”! Anyway, back in 2008, AAO discussed an “entity” not existing when it filed and basically created the only real filing prerequisite for a RC Proposal (now an I-924 application). The form instructions (which are then incorporated into and made
Page 11 of 11 part of the controlling regulation as per 8 CFR § 103.2(a) (1)) specifically ask for the RC entity’s documentation of its structure such as articles of incorporation, or legal creation as partnership or LLC, etc… In 2014, AAO zeroed in on the term “economic unit” found in the definition of “regional center” as per 8 CFR § 204.6(e). Additionally, in an I-526 remand, AAO instructed the adjudicator (either at CSC or IPO4 ) to look into whether or not a project’s sponsoring entity’s status which had lapsed as per the state’s website; continued to meet the definition of a “commercial enterprise”. In that the regulatory definition contains the element of “ongoing conduct of lawful business” the question of the lapse in status needed further consideration. The state may have a retroactive remedy available. Heck, the EB-5 “Pilot Program” lapsed in the past and Congress reauthorized in retroactively. The concept of a remedy at the state level is not out of the question. Last But Not Least: Bad Economic Studies Abound The last AAO Decision I will address is the June 5, 2013, RC Appeal Dismissal that I only recently stumbled upon. Shortly after the May 30, 2013, Memo came into play, AAO rushed to post two decisions that cited to that memo. I already wrote a separate article about them. Both resulted in the CSC Director’s decision being withdrawn and AAO approving the requests. One was an amendment to extent the geographic boundaries of the RC while the other was based on a general proposal. The June 5, 2013, case involved really bad “plans” and worse “economics”. The jobs were merely being shifted from one state into the neighboring state. That however, is not the worst of it! There was extremely little change in the payroll amount in the plan’s budget (virtually none) BUT they claimed that the number of jobs would increase from 57 to 145. When questioned about it they gave some double talk but what I got out of it was they were moving jobs to a place where they could hire cheaper labor. That, my friends, in NOT what Congress, USCIS, or anyone with half a brain would consider a worthy thing to put forth as an EB-5 investment! AAO said: “Given the inconsistencies and the unexplained projected increase in employment by a greater factor than the increase in payroll, the use of that payroll amount in the RIMS analysis does not provide verifiable detail of indirect job creation pursuant to 8 C.F.R. § 204.6(m)(3)(ii).” That’s my two-cents, for now. 4 IPO = Investor Program Office.
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