Presentation on theme: "Essentials of a Regional Center Proposal It’s just not that simple! By Joseph P. Whalen."— Presentation transcript:
Essentials of a Regional Center Proposal It’s just not that simple! By Joseph P. Whalen
Basic Project Plan Components Comprehensive and Credible Business Plan What kind of commercial enterprise will you chose to invest in? NAICS Codes: North American Industry Classification System bin/sssd/naics/naicsrch?chart =2007 bin/sssd/naics/naicsrch?chart =2007 Reasonable and Sound Economic Analysis What Econometric Model will you use for that economic analysis? RIMS II IMPLAN REMI REDYN [Regional Dynamics] Other?
Business Plan Matter of Ho, 22 I&N Dec. 206 (AAO 1998)206 The 5 th prong of the 5 prong holding is : In order to demonstrate that the new commercial enterprise will create not fewer than 10 full-time positions, the petitioner must either provide evidence that the new commercial enterprise has created such positions or furnish a comprehensive, detailed, and credible business plan demonstrating the need for the positions and the schedule for hiring the employees.
More from Ho: To be “comprehensive,” a business plan must be sufficiently detailed to permit … [USCIS]… to draw reasonable inferences about the job-creation potential. Mere conclusory assertions do not enable … [USCIS]… to determine whether the job- creation projections are any more reliable than hopeful speculation. At p. 213
Interpreting Ho: YOUR business plan must be sufficiently detailed to permit YOUR ECONOMIST to draw reasonable inferences about YOUR PLAN’S job- creation potential. Mere conclusory assertions do not enable YOU, YOUR ECONOMIST, or USCIS to determine whether the job-creation projections are any more reliable than hopeful speculation. If the projections won’t pass your own “laugh” or “sniff” tests, forget about getting it past USCIS or any prospective EB-5 investors!
More from Ho: A comprehensive business plan as contemplated by the regulations should contain, at a minimum, a description of the business, its products and/or services, and its objectives. …. At p. 213 [*There is some wiggle room.]
More from Ho: A comprehensive business plan as contemplated by the regulations should contain, at a minimum, …. (continued) …. The plan should contain a market analysis, including the names of competing businesses and their relative strengths and weaknesses, a comparison of the competition’s products and pricing structures, and a description of the target market/prospective customers of the new commercial enterprise. The plan should list the required permits and licenses obtained. If applicable, it should describe the manufacturing or production process, the materials required, and the supply sources. …. At p. 213 [*There is some wiggle room.]
More from Ho: A comprehensive business plan as contemplated by the regulations should contain, at a minimum, …. (continued) The plan should detail any contracts executed for the supply of materials and/or the distribution of products. It should discuss the marketing strategy of the business, including pricing, advertising, and servicing. The plan should set forth the business’s organizational structure and its personnel’s experience. It should explain the business’s staffing requirements and contain a timetable for hiring, as well as job descriptions for all positions. It should contain sales, cost, and income projections and detail the bases therefor*. Most importantly, the business plan must be credible. At p. 213 [*There is some wiggle room.]
Basic Project Business Plan A project-specific comprehensive business plan is one of the two basic building blocks for the Regional Center Proposal. It does not end there. A decent Regional Center Proposal will have more than one. [More on that later.] The Business Plan is the source of the categories of input for the Economic Analysis.
Basic Project Business Plan The project-specific comprehensive business plan is the source of the categories of input but it may or may not be the source of the actual input data. Depending on the level of development of the overall project, the plan might be an “actual” project or an “exemplar” project at the I-924 Application stage.
Actual/Real vs. Exemplar If a business plan is sufficiently close to becoming reality then it is the better source of “real” input for the economic analysis that will accompany it. USCIS may call this an “actual” or “shovel- ready” project. If the project is not yet sufficiently close to becoming reality, then estimates or best guesses will have to suffice in both the “exemplar” business plan and economic analysis.
Even “Actual” is not really “Real” A well developed business plan will allow for better estimates for the inputs into the economic analysis. A more developed plan can draw from more comparable real world data sources. The less developed plan does not allow for as close a match to the actual outcome that will result from the business venture. Therefore, exemplars are given slightly less weight at the I-924 and I-526 stages
Exemplars Vary in Value Some NAICS Codes: 44 Retail Trade Clothing and Clothing Accessories Stores Clothing Stores Mens Clothing Stores Womens Clothing Stores Childrens and Infants' Clothing Stores Design and build the store or mall or maybe remodel one? Lease it out or run it? Stock the store and hire people to sell the products or lease out the space? Which products will be sold? The variables you select for the business plan will directly affect the inputs for the economist to work with.
Exemplar Project Business Plan Categories of input should be based in reality or a reasonable facsimile. NAICS Sector Retail Trade Shoe Stores See industry description for Shoe Stores This industry comprises establishments primarily engaged in retailing all types of new footwear (except hosiery and specialty sports footwear, such as golf shoes, bowling shoes, and spiked shoes). Establishments primarily engaged in retailing new tennis shoes or sneakers are included in this industry. Cross-References. Establishments primarily engaged in– Retailing footwear via electronic home shopping, mail-order, or direct sale--are classified in Subsector 454, Non-store Retailers;454 Retailing hosiery--are classified in Industry , Other Clothing Stores; Retailing new specialty sports footwear (e.g., bowling shoes, golf shoes, spiked shoes)--are classified in Industry , Sporting Goods Stores; and Retailing used footwear--are classified in Industry , Used Merchandise Stores
Comparative Data for an Exemplar Project-Specific Business Plan Categories of input should be based in reality or a reasonable facsimile. Al Bundy had a lousy time at work but he had a loyal customer base. Women buy a ton of shoes. Let’s check out his competition at Brown Shoe--Averaging 1.5 BILLION DOLLARS in annual sales! (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL YEAR 1999 FISCAL YEAR 1998 FISCAL YEAR 1997* OPERATING RESULTS: Net sales $ 1,592,532 $ 1,538,530 $ 1,567,202 Net earnings (loss) 35,501 23,669 (20,896) PER SHARE OF COMMON STOCK: Diluted net earnings (loss) (1.19) Dividends paid Shareholders’ equity FINANCIAL POSITION: Total assets 650, , ,988 Working capital 270,005 50, ,437 Shareholders’ equity 249, , ,190 Return on beginning shareholders’ equity 16.3% 11.9% (8.8%) Current ratio 2.2:1 2.0:1 1.9:1 * Fiscal 1997 includes after-tax restructuring charges and operating losses of $45.6 million related to the Company's Pagoda International marketing division, and a $1.5 million after-tax loss on the sale of the Famous Fixtures division of Famous Footwear. Real world information found at:
Econometric Model Economic Analyses are based on an accepted econometric model. The business plan will feed information into the econometric model in order to produce the economic analysis. The better the plan is will increase the reliability of the job creation projections or predictions that are gleaned from that project-specific economic analysis, “Actual” or “Exemplar”
Econometric Model There are a variety of existing econometric models to chose from. USCIS does not demand any particular model be used. It is a decision to be entrusted to the folks with the plan. The business experts and the economist have to have a serious discussion in order to arrive at the best model for the industry in which the investment will be made.
Econometric Model The nature of the business as presented in the comprehensive plan will guide the selection of the types and sources of the data to be used as input in a model; and the choice of the model itself. The type of analysis produced will dictate the types of evidence that will be required at the end of the process when the EB-5 investor has to prove job creation in order to lift the conditions on his and his family’s permanent residence status.
Econometric Models RIMS II https://www.bea.gov/regional/rims/rimsii/https://www.bea.gov/regional/rims/rimsii/ IMPLAN REMI REDYN The above are all varieties of regional input-output modeling systems. They vary in ways I don’t grasp fully. A professional economist is needed for that. A helpful government site is found at:
Transparent Complexity Once a Regional Center has mastered the basic building blocks needed for success, it can replicate that success. Start small until you figure out the basics. A Regional Center can grow later. HOWEVER, if one starts TOO small and the initial choice is a dud, the Regional Center will likely collapse and fail altogether.
Transparent Complexity In order to benefit from transparent complexity, sufficient planning is key. The core of this approach is to build in and plan for contingencies. The underlying structure of the investments is crucial. The New Commercial Enterprise would need to be a flexible investment group. Then, acting as a group, diversification is possible and desirable.
Transparent Complexity A Limited Partnership (LP) is the most common structure for the “Investor Group”. The LP can pool funds in order to make diversified investments, funneled through a variety of for-profit businesses that create direct and indirect jobs. The Regional Center usually acts as the General Partner in each LP consisting of EB-5 and “other” investors.
Transparent Complexity The Regional Center concept only exists as part of the Immigrant Investor Pilot Program. The Regional Center has to be authorized by USCIS. An alien investor can only count “indirect jobs” if filing under the auspices of a USCIS authorized and designated Regional Center. The Regional Center has a responsibility to set the stage on which the investors perform.
Transparent Complexity The Regional Center has its work cut out for it. It is not an easy task to plan a variety of potential investments that are capable of creating the number of jobs demanded by the EB-5 visa program. This very difficulty justifies the fees charged by the Regional Centers for the planning services they provide to the EB-5 investors. It’s worth it if you have a comprehensive, credible, & detailed plan.
Limits on Investment Flexibility One must understand that once an I-526 is approved that an individual alien investor is pretty much locked-in to a plan which needs follow through. Guidance on the limits to a Regional Center’s (RC’s) plans and structure of investments are crucial but limitations need not merely be restrictive, limits can also be expansive and inclusive.
Limits on Investment Flexibility A non-precedent AAO Decision of April 23, 2010, relates to an I-829 but does discuss Regional Center issues as well, and perhaps it is even more pertinent to an I %20and%20I- 829/Decisions_Issued_in_2010/Apr232010_01B7203.pdf 526%20and%20I- 829/Decisions_Issued_in_2010/Apr232010_01B7203.pdf
Limits on Investment Flexibility “The business plan stated that the objective of the partnership would be to operate as an ongoing series of investments that serve the best interests of the limited partners and in a manner that furthers the economic development of Philadelphia. The plan references a PIDC advisory agreement with the Partnership that requires PIDC to recommend investments to the Partnership...” (At p.5) There would appear to be a certain amount of flexibility built in to the referenced “Advisory Agreement”. USCIS should not move away from that flexibility but rather embrace it and define it appropriately within the forthcoming revised form instructions.
Limits on Investment Flexibility That same decision goes on to state: “The full amount of the requisite investment must be made available to the business most closely responsible for creating the employment upon which the petition is based. Matter of Izummi, 22 I&N Dec. 169, 179 (Comm'r. 1998). While counsel notes on certification that the job creating enterprise and the new commercial enterprise are not always the same and notes that Matter of Izummi does not preclude prospective investments, nothing in that decision suggests that the alien is free to move his investment from the prospective project presented to USCIS in support of the Form to a project that USCIS has never reviewed in any respect.” (At p.11) [Emphases added.]
Limits on Investment Flexibility That same decision supports the concept of preserving investment flexibility through comprehensive advance planning: Pay close attention to the phrase “employment upon which the petition is based” and remember that this involves the certified denial of an I-829 which is a petition that requires proving the jobs have been created. Working from that position, the value in the use of “exemplars” is made quite clear. (continued next slide)
Limits on Investment Flexibility That same decision supports the concept of preserving investment flexibility through comprehensive advance planning: (continued) In order to preserve the desired flexibility to shift to a different project or supplement an investment portfolio with an additional previously only “prospective investment” requires sufficient advanced planning. The Regional Center desiring such flexibility needs to have an inventory of “prospective projects” in the form of sufficiently “USCIS-vetted exemplars” on-the-shelf from which to choose.
Proof is in the Planning The RC cannot afford to lose sight of any pertinent detail in their specific investment maneuvers and the advanced planning for those possibilities or contingencies is critical. It would also be incumbent upon the Regional Center to invest the needed resources in creating a sufficiently variegated overall Regional Center business plan that is well supported with exemplar projects and economic analyses with reliable and credible job projections based on a valid econometric model. In essence the more successful Regional Center is going to be one with a large library or catalog of “USCIS-vetted” exemplar project plans and economic analyses.
Proof is in the Planning A broad, credible, comprehensive business plan that is wide-ranging in scope and breadth submitted at the Regional Center (RC) Proposal (I-924) stage is critical. If a RC asserts a flexible investment approach and builds such flexibility into its written supporting documentation with a certain amount of specificity sufficient to put USCIS on notice, then shifting from one vetted “actual” project to another project based on a “previously vetted exemplar” project remains a possibility. Preserving such flexibility is not a simple task.
Proof is in the Planning It is up to the investor to comply with EB-5 legal requirements from the very beginning. An EB-5 investor is no-more free to abruptly change investment plans after-the-fact than USCIS could change regulations after I-526 approval, however, if the possibility is already built into the USCIS-vetted and approved plan in advance of a shift, then it is not an impermissible material change outside the I-526 approved plan.
The Best Laid Plans… Transparent Complexity “Up Front” Is Key To Reasonable Reliance On The Prospect Of Enjoying Future Deference Within EB-5 Based on Regional Center Affiliation. Flexibility can be built into a complex Regional Center Proposal supporting the I- 924 if it fully embraces each and every aspect of the implementing regulations and statute, as amended.
Plan Ahead or Fail If flexibility has been presented up front through the use of transparent complexity then additional previously only “prospective investments” or “contingency plans” that had been previously presented and vetted as “exemplars” can become realities. Possibilities can be added into an evolving and/or revolving investment structure or possibly even substituted in place of a failing project. It is key that a substitute or addition has already been vetted by USCIS at the very least as an “exemplar” that is similar enough to the “actual” project that it is not interpreted and branded as “a project that USCIS has never reviewed in any respect.”
Plan Ahead or Fail Possibilities can be added into an evolving and/or revolving investment structure or possibly even substituted in place of a failing project. IF a Regional Center is involved in more than one project at a time, it could shift EB-5 investors from one project to another. This is neither easy nor desirable. IF the I-526 plan references the multiple RC project plans associated with the I-924 and states that a shift from one project to another is reserved as a “contingency plan”, then USCIS has been put on notice AND the multiple projects are plans that USCIS has, in fact, vetted, at the very least as an “exemplar” but possibly as an “actual” or “shovel-ready” project.
Failing to Plan = Planning to Fail Having a sufficient variety of possible project types vetted and on-the-shelf is a key component for any Regional Center. Some developer may approach a Regional Center at any time and if the RC already has a previously vetted and approved “exemplar” similar enough already on hand, then the “actual” project can get underway quicker.
Failing to Plan = Planning to Fail If an I-924 amendment is needed to cover some kind of commercial enterprise never previously vetted in any respect it will slow things down. Consider the preparation time before submission as well as the adjudication time after filing. An amendment of a new project that is a “close match” to a previously vetted “exemplar” should speed the process and turnaround time for both the RC and USCIS.
Create Business Plans Select Econometric Model & Inputs Prepare Economic Analyses Submit Regional Center Proposal Obtain Regional Center Approval 6. Seek EB5 and Domestic Investors 3. The EA Will Project Direct & Indirect Jobs Created & Determine the No. of EB-5 Investor Slots Available and; Should Include Domestic Investors and Benefits to U.S. and/or Regional Economies. My Recommended Approach to RC Applications 4. Include: EB-5 Compliant Standard Investor Documents, Due Diligence Plans, RC Sponsor’s Funding Source(s), Promotional & Marketing Plans, Investor Services and Fee Structure. 1. Don’t be Vague or Stingy at this step! Be Proactive and plan for Contingencies. The Comprehensive, Detailed, & Credible Plan will Guide Selection of the Econometric Model and Data Inputs for the EA! 2. This choice WILL affect the I-829 Evidence Needs and the EA’s Job Creation Projections/Predictions. 5. Beware! Do Not Claim Approval in Advance of Approval! It is OK to Say you are Seeking Approval until you get it. If an Amendment is needed, don’t market it yet as if it were ALREADY approved.
Select or Create Project Specific Business Plan Select or Create Project Specific Economic Analysis Execute EB-5 Compliant Documents & Agreements Add Alien’s Financial Evidence Regional Center Affiliated I-526 EB-5 Visa Petition Approval Alien & Family File for Visas or AOS Creating Project Specific Plan & EA Can be Skipped IF Vetted Plans & EA’s Are Already in the RC’s “Exemplar Library”!!! Minor changes might be needed. Better Prepared RC Investments Begin Here for the Alien. Many RC’s Vet the Funds Before the Previous Step! Better Prepared I-526s Should NOT get an RFE! What the Alien Investor Should Expect Many RC’s Vet the Funds Before this Next Step!
Know Your Place The Regional Center only exists as part of the Immigrant Investor Pilot Program. [Pub. L , title VI, § 610 (a), Oct. 6, 1992, as amended, found at: 8 USC § 1153 Note] The Regional Center has to be authorized by USCIS. [§ 610 (a) & (c), 8 USC § 1153 Note and 8 CFR § 204.6(m)(3)] An alien investor can only count “indirect jobs” if it is filing under the auspices of a USCIS authorized and designated Regional Center. [§ 610 (a) & (c) etc…] In order to become a Regional Center, the “sponsor” [I-924 applicant] must put forth an acceptable plan which, in pertinent part, establishes that it will be “concentrating pooled investment”. [§ 610 (a)]
Statutory creation of the Immigrant Investor or Employment Creation “Pilot Program”: § 610 (a): “…. Such pilot program shall involve a regional center in the United States, designated by the Secretary of Homeland Security on the basis of a general proposal, for the promotion of economic growth, including increased export sales, [an optional aspect] improved regional productivity, job creation, or increased domestic capital investment. …”
Statutory Definition of a Regional Center: § 610 (a): …. “A regional center shall have jurisdiction over a limited geographic area, which shall be described in the proposal and consistent with the purpose of concentrating pooled investment in defined economic zones. ….”
Statutory framework for RC application procedures: § 610 (a): “... The establishment of a regional center may be based on general predictions, contained in the proposal, concerning the kinds of commercial enterprises that will receive capital from aliens, the jobs that will be created directly or indirectly as a result of such capital investments, and the other positive economic effects such capital investments will have.”
Size Matters USCIS says: There is no project size requirement in a Regional Center application. Without all of the details, USCIS cannot speculate about what may or may not be qualifying. The regulations at 8 CFR 204.6(j)(4) outline the requirements for job creation for regular program investors and Regional Center investors. In short, regular program investors must directly create at least 10 full time positions for qualifying employees, while Regional Center investors must show that at least 10 full time positions for qualifying employees will be created either directly or indirectly.
Size Matters What is the minimum number of investors required to “pool their investments” in a particular project presented at the I-526 petition stage that could still be considered as being affiliated with a Regional Center and thus utilize “indirect jobs” in the count?
Size Matters I highly doubt that USCIS would allow a stand-alone investor to claim affiliation to a Regional Center (for a fee) and then count “indirect jobs” in contravention to, or subversion of, the law. To become a Regional Center, the “sponsor” [applicant] must put forth an acceptable plan which, in pertinent part, establishes that it will be “concentrating pooled investment”.
How can a single individual’s investment reasonably be termed as “pooled”? It can’t! Each EB-5 investor must demonstrate that his or her own individual funds add up to the minimum required amount of either one or one-half million dollars. There is no “pooling” allowed for that minimum even if it really is from a husband and wife and any independently wealthy minor children pooling their personal funds. In such a case, for the EB-5 investment amount purposes, it is “family money” or joint or community property. While for immigration petitioning purposes, one spouse is the principal and the other is a derivative (along with any kids), for obtaining their visas.
Minimum Number of EB-5 Investors in a RC Group? Taking the MOST generous reading possible, a project might be qualified as a Regional Center affiliated investment and could count “indirect jobs” if it has at least one EB-5 investor contributing his/her minimum amount of funds with at least one non-EB-5 investor (foreign or domestic) in order to be considered as “concentrating pooled investment”.
Minimum Number of EB-5 Investors in a RC Group? However, a less generous reading, giving full effect to every word in the statute and one might read the statute to require at least one EB-5 alien and at least one other foreign investor whether seeking an EB-5 visa or not. The RC plan must address “the kinds of commercial enterprises that will receive capital from aliens,….”
The Question Then Remains: What Is The Minimum Number Of EB-5 Investors Required For A Qualifying Group? Only because of the use of the word “or” in the statute, a domestic investor is not an absolute requirement but it is clear that it is among Congress’ desires in passing EB-5 into law that there should be some increased domestic capital investment. An argument could be made that the domestic capital would be among the indirect and induced jobs and further positive economic effects. One would have to advise their economist to specify that in the economic analyses. With this in mind, USCIS might conclude that at least one EB-5 investor can be paired with one domestic investor and qualify for Regional Center affiliation and thus “indirect job creation” benefits.
The Question Then Remains: What Is The Minimum Number Of EB-5 Investors Required For A Qualifying Group? On the other hand, USCIS might conclude that one EB-5 investor is insufficient to qualify for Regional Center affiliation status even with multiple domestic investors. USCIS might conclude that the underlying statutory requirements of the EB-5 Pilot Program requires a minimum of two EB-5 investors because the pooled investments of a Regional Center must contain the funds of “aliens” (plural in the statute) in order to count “indirect jobs” for EB-5 purposes and it is a Pilot Program specifically for the benefit of EB-5 Immigrant Investors. Anything beyond that is just “icing on the cake” for the U.S. economy.
The Question Then Remains: What Is The Minimum Number Of EB-5 Investors Required For A Qualifying Group? Demanding a minimum of two EB-5 investors to pool investments in a Regional Center Project in order to count “indirect jobs” would affirmatively prevent Regional Centers from “selling” affiliation to “stand-alone” or “mom & pop” investors who really don’t qualify for the Pilot Program.
The Question Then Remains: What Is The Minimum Number Of EB-5 Investors Required For A Qualifying Group? In the final analysis, USCIS could arrive at one or several minimums for EB-5 RC Group composition: One EB-5 alien and another alien; or Two EB-5 aliens; [I vote for this one.] The previous two, include indirect domestic investment benefits and growth; OR One EB-5 alien and one domestic investor; or Two EB-5 aliens and one domestic investor.
RC Can’t Sell Affiliation A stand-alone alien investor even contributing two million dollars all by him/herself cannot just “join” a Regional Center in order to count “indirect jobs”. Regional Centers are not social clubs or fraternities, they are not community-based- organizations or cultural associations. Regional Centers cannot just market their USCIS designation for a fee in order to act as an “umbrella organization” or “small business incubator” to foster stand-alone or mom & pop investments seeking to count “indirect jobs”.
Statutory creation of the Immigrant Investor or Employment Creation “Pilot Program”: § 610 (a): “Of the visas otherwise available under section 203(b)(5) of the Immigration and Nationality Act (8 U.S.C. 1153(b)(5)), the Secretary of State, together with the Secretary of Homeland Security, shall set aside visas for a pilot program to implement the provisions of such section. ….” INA 203(b)(5) is entitled: “Employment Creation”.
RC MUST Help EB-5 Investors Qualify for an Immigrant Visa The whole point of getting Regional Center Designation is lost if the RC does not help its investors and their families get their visas. The Regional Center is morally obligated to get the EB-5 preliminaries in good order. This is done in order to facilitate the visa process for the alien investors and submit high quality I-526 petitions and later submit fully supported I-829 petitions.
Just Say NO! to Bait & Switch Once a Regional Center is in possession of USCIS Designation, it will be in possession of fully vetted evidence of prima facie eligibility as to EB-5 compliant investment documents, business plans, and economic analyses. Any alterations after-the-fact could be branded an impermissible material change and derail a project for EB-5, domestic and any other investors. Beware! Don’t get into that position, plan ahead. An I-526 exemplar is less expensive than an I-924 amendment, IF required in order to make a real material change. Check with USCIS first.
RC MUST Help EB-5 Investors Qualify for an Immigrant Visa The requirements of the I-526 and the I-829 petitions are best reviewed and planned for in the I-924 application. In order to create viable investment vehicles that will produce sufficient jobs that will allow the alien investors to have their conditions lifted at the end of the permanent residence process, the RC has to plan for the end results, “upfront”. If you can’t or won’t do it right, don’t even try. Just stick to real estate or naturalization law.
Disclaimer These are my personal opinions and interpretations. I have thoroughly studied this subject on my own and as a former government employee who was once involved in this subject matter and a variety of other adjudications. I cannot and will not consult on any matter in which I have had any personal involvement. Don’t even ask. Contact: I am willing to prepare training materials or compile research such as this slide show, or any of the research articles, or opinion pieces posted here. I can monitor topics and subjects of specific interest pending in courts or particular rulemakings. I will not consult on specific cases. Subject matter is open-ended based on need. The author is not an attorney. I do have a B.A from SUNY-Buffalo and M.A. from San Francisco State University in anthropology, concentrating in (historical) archaeology. I am familiar with NEPA and CEQA in addition to the INA.