Continued from page 23 many long-term, full-time jobs. To remedy this situation, developers turn to regional centers and economic methodologies. Accounting for regional impact, industry cluster multipliers, and indirect and induced jobs, the project will likely get much closer to the 500 jobs requirement.
Consider a different example; not all projects are residential or mixed-use. What about a hospital? Same numbers— one year construction time frame and a cost of $ 25 million— only this time construction would yield 200 hospital beds. How many long-term, full-time physicians, nurses, assistants, and various levels of support staff are required to run a hospital with 200 beds? How many executives, accountants, and professional staff are required? Not something we often think about in the EB-5 field, but likely a lot closer to the 500 jobs than one would think.
Advanced direct investment structures – the new private equity fund model
What is a private equity fund? In its most basic incarnation, a private equity fund is an entity that aggregates investor funds for future investment into multiple projects at a desirable rate of return. This model is not often used in the EB-5 program because there may be uncertainty about how the funds will be aggregated and distributed, and whether the funds will directly create jobs. But what if the private equity fund knew exactly how the funds would be distributed? What if the model of the private equity fund was specifically designed to raise EB-5 investor funds to deploy into a wide array of job creating projects? As we saw above, the regulations allow this model as long as the“ capital is deployed through a single commercial enterprise and all jobs are created directly within that commercial enterprise or through the portfolio of businesses that received the EB-5 capital through that commercial enterprise.” Yet the hurdle of job creation remains; how could the private equity fund ensure that there would be pro rata job creation for each and every EB-5 invested project?
Table 2:
General Partner( GPs) LLC / Inc 1
New Commercial Enterprise Limited Partnership 1
100 % Ownership Required Loan With Promissory Note OR Equity Interest
purpose of accepting equity investments from potential EB-5 investors, only this time rather than lending to the JCE, the NCE will lend to a wholly owned subsidiary. From there the wholly owned subsidiary will perform the function of a private equity fund, by lending to multiple JCEs. The role of the wholly owned subsidiary is not absolutely crucial, as it could instead be the role of the NCE to ensure proper job creation pro rata to each investor. However, the wholly owned subsidiary, by performing accounting, marketing, training, pay roll, and additional functions, may qualify as the“ place of principally doing business” for each wholly owned JCE— meaning that job creation for each and every single JCE will be counted at the wholly owned subsidiary level. This is potentially very important, as the prospect of one JCE falling short of the pro rata requirement by creating nine jobs rather than 10, resulting in the denial of the investor’ s petition, may be avoided. The investor will not rely on one specific JCE, rather all created jobs across the JCEs will be divided amongst the investors.
Conclusion
The direct investment model may not suit the needs of every interested party, but for some it may be the more efficient and cost-effective approach. The direct investment model often times requires less documentation in that economist reports are not required, and direct projects that create sufficient jobs need not form relationships with existing regional centers for sponsorship. Additionally, direct investment I-526 petitions are currently adjudicated far more rapidly, regardless of how many times USCIS denies this.
This analysis is in no way meant to drive developers or investors away from the regional center model, but rather, it is only intended to shed light on some common misconceptions. The presented direct models can be treated the same as the regional center model for all intents and purposes.
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Nima Korpivaara is a partner at David Hirson & Partners, LLP. Prior to joining the firm, Nima was a senior EB-5 attorney at Fragomen, Del Rey, Bernsen & Loewy, LLP, and worked inhouse for a Fortune 100 company. Nima can be reached at nk @ hirsonimmigrationlawyers. com
Wholly Owned Resource Center( principal place of business) lending to wholly owned subs **
Nima Korpivaara
LLC 1 LLC 2 LLC 3 LLC 4 LLC 5
Compare this chart to Table 1. It is essentially the same structure, but it follows the regulations word for word. Capital is deployed through a single commercial enterprise, and all jobs are created directly within that commercial enterprise or through the portfolio of wholly owned businesses that received the EB-5 capital from the wholly owned parent, the new commercial enterprise. Again, the NCE is formed for the
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