The new year is starting out with some exciting news from the last few days of 2012.

Press

On December 30, the New York Times ran a prominent article about Jay Peak’s EB-5 program. This article was one of the most emailed articles on its website. The link to this excellent, positive article ishttp://www.nytimes.com/2012/12/31/us/31vermont.html?_r=0.

New “Tenant Occupancy” Policy

On December 20, 2012, the USCIS issued an operational guidance memo  on its “tenant occupancy” policy for counting jobs. Some of it is written in economist jargon and is thus difficult to understand. It is also vague and provides few examples to demonstrate how USCIS will apply its new policy to projects. However, it does have some helpful points. Here is my understanding of this memo — it is based on my own initial analysis as well as consultation with several EB-5 economists who have briefly reviewed the document and have given me their first impressions:

The USCIS has identified two paths for approval of tenant jobs.

• The first involves capital invested in the tenant business from EB-5 investors either directly, through another entity (such as a limited partnership owned by EB-5 investors), or as a subsidy.
• Second, one can count what USCIS calls a “facilitation-based approach” that does not require any direct financial connection between the EB-5 capital and the tenant’s employees. This approach requires applicants to demonstrate that the EB-5 project will “remove a significant market-based constraint.” USCIS states that one way to do this is to show how the project will “correct market imperfections and generate net new labor demand and income.” “Market imperfections” appear to be anything that interferes with trade, which would conceivably include a lack of commercial space, for example. Therefore, it appears that an applicant could rely on the tenant occupancy model for job creation by providing commercial space that would enable a tenant business to create more jobs and generate more income than it takes away from any competing businesses.
• USCIS singles out high unemployment areas, stating that in such areas applicants should “generally indicate how a specific project will fill an existing investment void . . . to generate new demand for the tenant business.” This is speculation, but possibly if it can be shown that a new building with a tenant grocery store where there are few in the poor area – the TEA – and it will provide a new economic benefit to the TEA, the grocery store jobs may be allowed.
• The overall deficiency of the memo is that there is still uncertainty in how to count the jobs until the USCIS decides a regional center’s I-924 amendment or an investor’s I-526 petition. However, it is clear USCIS will not count jobs that already exist in businesses that are merely moving across town into the EB-5 project. According to USCIS, these are not new jobs. The key is going to be to figure out what the yardstick is for  proving that tenant jobs meet the new standard.

Material Change 

USCIS provides guidance regarding what a “material change” is in this memo. Specifically, even if the actual type of tenant differs from what was originally planned or the occupancy rate is lower than anticipated, an exemplar I-526 project can be approved and will not require a full review when individual investors’ petitions are filed. Likewise, an I-829 petition can still be approved in these circumstances. For example, if the exemplar I-526 is based on a restaurant tenant and, instead, a retail tenant moves in, USCIS will not deem this a “material change” and will still defer to the original project preapproval except to ensure that the new economic analysis shows that the retail tenant will still create sufficient jobs. The same policy applies to occupancy rates – the job creation must still be enough for the individual investors.

At the same time, the exemplar I-526 application must still define the type of tenant that is anticipated. This is necessary on a practical level as well since the economic job creation forecast requires an industry to forecast indirect and induced jobs. USCIS’s memo confirms that the tenant’s anticipated direct jobs can be used as an input into the economic employment forecast.

Other Points:

• This memo leaves in place the USCIS’s illegal and inappropriate 2.5-year time frame (for I-526 approval) for job creation (which it does not always apply). Your lobbying against this policy is encouraged.
• The new memo reiterates what we have seen since February — that USCIS wants “verifiable details” to support project economics and job creation.

Others may take a more pessimistic view of the operational guidance memo, so I look forward to obtaining more clarification from USCIS. As I receive more information, I will let you know.

Have a great 2013.

Martin