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COVID-19 Impact on EB-5 Hotel Projects
Many EB-5 projects involve the construction and operation of hotels. Obviously, the hospitality industry will be impacted by COVID-19 as income may fall, employees may be laid off and/or plans are delayed. Thus, COVID-19 may impact the necessary job creation for investors’ EB-5 applications. Here are some general EB-5 legal principles and scenarios of how COVID-19 may impact EB-5 immigration applications. Please note this discussion is not related to any investor or any specific hotel project.
While there are a number of EB-5 criteria, the principal one discussed here involves job creation, which relates to the following EB-5 rules:
- Each investor’s capital must create 10 new full time jobs.
- For a direct project, tax, payroll and other records are needed to prove full time job creation at the EB-5 project. For Regional Center projects, the jobs are proven by capital expenditure and income, measured by an economic model and verified by an economist’s opinion/report, which includes the direct, indirect and induced jobs created by the Regional Center’s project.
- There is no requirement for how long the jobs need to be maintained (most think the jobs have to be maintained for 2 years, but this is not the rule). The one exception is construction jobs, for which USCIS requires the project to be built over a 2-year time period in order to include the on-site construction jobs. Of course, the longer the jobs last, the better.
- USCIS recognizes that acts of God/Nature, such as hurricanes and presumably COVID-19, may disrupt business (in the law we call this “force majeure”) and the EB-5 cases may still be approved.
Here a few scenarios to consider with the application of the above principles:
- A hotel is built and the needed full-time jobs were created, and then layoffs occurred in 2020 due to COVID-19. The investors’ I-829s should be granted. For I-526s, approval is less certain.
- A hotel is built and just opened. Most full-time jobs were created, but not enough for all EB-5 investors due to COVID-19 fall-off of business. I-829 rules allow one more year for job creation, and slow processing of I-829 applications may mean a few more years to prove the needed jobs were created. But if the economy remains slow, then the force majeure argument can be used. The I-526 and I-829 applications will probably be granted.
- A hotel is half built and the investors’ capital is spent and then construction is paused as the economy for operating at a profit is uncertain. This would appear to be a force majeure situation.
- A hotel has not been built and construction is delayed while waiting for the economy to come back and investors’ capital is not spent. It is unclear if the force majeure rules will allow I-526 and I-829 approval. However, EB-5 immigration is rather slow and there will be time for business to hopefully recover from COVID-19.
- A hotel is built, jobs created or not, and the hotel is shuttered (or bankrupt) due to COVID-19. This appears to be a force majeure situation and I hope the I-829s will be granted.
The details and facts of each project may determine whether USCIS grants the I-526s and I-829s. It is important that the hotel project fully documents the impact of COVID-19 on its development and operations. And the regular reports the developer sends to the investors about the project every few months, as well as the accounting documents regarding expenditures, hiring, and hours the employees work, will be important evidence for I-526 and I-829 applications.
Please note this is not specific legal advice, but a general discussion of the legal principles involved with EB-5 job creation. I hope this is helpful. Good luck and stay healthy.