Without a doubt, the process of project approval has made EB-5 visa investment a much smoother ride both for regional centers and for individual investors. But how project approval came to exist and what it has to do with a recent blog post from a decidedly anti-EB-5 organization is a different story.
On February 10, a blogger at the Center for Immigration Studies published a tirade about an EB-5 investor who was supporting renovation of the Watergate Hotel in Washington D.C.
Long story short: Upon submission of his petition, the investor received (as many investors did in the days before project approval) a Request for Evidence (RFE) from service center operations. The petition was ultimately rejected, the investor appealed, and the Administrative Appeals Office rejected the appeal.
Surface-level analysis of the event provides little more information than this, but there's really more to the story. According to EB-5 attorney Robert Divine of Baker Donelson (authorized by his client to talk with us), the saga of the treatment of filings associated with the Watergate Hotel investment ultimately provided a clear picture of the need for project approval apart from individual investor petitions and at least partly led to USCIS? recognition of the ?exemplar petition? process.
Divine did not initially represent the developer. Before he got involved, the regional center had received tardy official processing but unofficial encouragement about its fund documents to be used in numerous projects. By the time investors signed on and filed their individual petitions, USCIS program leadership had changed, and Texas Service Center adjudicators questioned various aspects of the project documents, ultimately denying some. Recognizing a process foul, new program leadership agreed with prior counsel to review and approve a regional center amendment containing revised program documents and to allow interfiling of those documents into the investors? petitions that were reopened and transferred to the California Service Center. Nevertheless, the CSC questioned the new provisions with requests for evidence to each of the individual investors and their counsel, who of course referred these RFE's to the developer.
The developer and regional center hired Divine, who helped prepare responses to the RFE's but meanwhile openly advocated for a dependable process under which a regional center could present a project to USCIS, discuss key issues with competent USCIS personnel in a businesslike manner, and receive an approval that investors could depend on. He argued that new regulations would not be required, since USCIS already had regulations for approval (and amendment) of regional centers. USCIS management agreed that project approval would be beneficial, and it began what became a process to develop a memo that ultimately was published on December 9, 2009. That memo allows an ?exemplar petition? by a regional center in the context of an amendment to the center?s designation. USCIS recognized the benefits of adjudicating the project documents one time, dealing with the regional center directly, and leaving only source of funds analysis for individual investor petitions.
As soon as USCIS issued the December 2009 memo, Divine filed a request to approve the Watergate project, and it was approved within two weeks. The investors were encouraged to file new petitions based on the project approval, and most did, but some investors had children who had reached age 21 in the meantime. Thus, they sought to maintain their original petitions and make their best arguments for approval. The published AAO decisions are those cases in which the AAO determined that all of the changes to the project documents along the way were too ?material? to be allowed to amend the original filings. As for the new petitions, unfortunately, financing for the project had fallen through by that time (a Lehman Brothers entity was a major participant originally), and the lender foreclosed on the property. Thus, they could not be approved.
The lesson: Using the EB-5 Visa Program to finance acquisition of the land on which a renovation will take place or to finance renovation of distressed properties creates a difficult ?chicken and egg? financing problem. USCIS has not shown itself willing to expedite petitions to meet participating financing parties? schedules or a bankruptcy court's deadline.
Although it reformed a restrictive processing approach, a move that has proved better for regional centers and investors, USCIS did not change things fast enough to save this particular initiative. If there can be any silver lining to the Watergate project, it is that EB-5 project approval might not exist without it.
Perhaps the name "Watergate" is one that can inspire a bit of optimism, after all.
The editor would like to thank Robert Divine for his expertise and assistance in developing this article. Without his input, many integral details would have gone unreported.