With so many new EB-5 regional centers coming onboard, it's easy to forget that USCIS actually denies a number of proposals for regional center designation. And while a couple of recently released AAO decisions on applicants' appeals of their denial are clearly just two of many such decisions, they reveal much about the kinds of applications USCIS now receives and how the agency deals with them.
Both decisions are almost a year old but were just released in recent months. Although USCIS redacted most proper nouns from each decision's text, certain details from the first one indicate that the application came from Washington state ? in particular from a proposed seaside resort project near the City of Brinnon. The second, it seems, also came from the Pacific Northwest and included proposed projects in the Spokane, Yakima, and Portland-Vancouver-Beaverton MSAs among other areas.
Merely a "marketing strategy"
The first decision bears an April 26, 2011 date stamp. According to the AAO, the applicant failed to "[demonstrate] how the purchase of vacation suites in a resort community under construction could be considered an investment in the construction of that community." Furthermore, it appears that the applicant was unable to "[demonstrate] the economic impact of the community."
Submitted by the Statesman Group, a Canadian developer, the application sought regional center status for an area that would include the Pleasant Harbor Marina and Golf Resort, a proposed waterfront development. Though the Statesman Group claims that Pleasant Harbor "would create 2000 jobs during the construction and afterward" according to local press, the AAO saw the proposal as little more than a "marketing strategy" to attract homebuyers.
Under the proposed plan, foreign nationals would purchase a vacation suite to serve as a primary residence, a vacation or "second" home, or investment property. The AAO found this plan little more than an attempt "to attract buyers for vacation suites rather than investors of capital in a new commercial enterprise," an understanding that ultimately inspired the denial.
A number of attorneys and EB-5 experts published their own opinions following the decision's release. According to Suzanne Lazicki, who writes business plans for EB-5 regional centers, the AAO's decision was "interesting, if unsurprising."
At least two noted immigration law firms also referenced the AAO's decision in recent newsletters. According to a recent newsletters from the Miller Mayer and Serotte Reich Wilson firms, the conclusion to the AAO's decision sums things up nicely:
[T]he applicant has proposed an investment plan whereby alien investors would make independent, passive, personal real estate investments that garner them no equity ownership in a new commercial enterprise. Instead of presenting a plan for a pooled equity investment of capital into a new commercial enterprise, the applicant has merely put forth a marketing strategy to attract sufficient buyers to fund later phases of development. This plan does not meet the letter or spirit of [the law and regulations] designed to encourage pooled investments in a new commercial enterprise benefitting a geographic region.
And since, as the AAO also notes, "[every] retail establishment uses at least some of its sales proceeds to purchase additional inventory," every customer who enters its doors does not automatically become an investor in the business. Here, the comparison to the Statesman Group's application seems extremely appropriate ? not to mention telling.
The same newspaper article detailing the number of jobs this project seeks to create also states that Garth Mann, President of the Statesman Group, is now working closely with his attorney and a professional writer. With better assistance, perhaps his next attempt at USCIS approval will pan out.
This will be his fourth try.
According to one observer and former USCIS officer we interviewed, this application failed to pass the "laugh test." It simply could not be understood as a serious approach to meeting core elements of the regional center approval process. Had the applicant shown how the purpose, scope, focus, and operation of the proposed regional center would actually benefit the economy and create new jobs, its chances for approval may have been greater.
An "overly broad" proposal
Dated May 2, 2011, the second decision tells us much about what USCIS looks for in the economic impact report and in TEA data.
First of all, the applicant's proposal offered five different scenarios:
- Conversion of an abandoned warehouse into commercial space
- Conversion of an abandoned office building into a hotel
- Development of a new, mixed-use building that would house, among other things, a bank
- Investment in a computer game development company
- Investment in a farm that will become a vineyard & winery
According to the AAO, the applicant sought approval for all of these potential investments, and its submission also stated that projects within its proposed geographical area would be of no fewer than seven different types. Among them were commercial/industrial developments like "hospitality, retail, industrial, flex, office, and transportation facilities," public-private partnerships that would develop "civic/public facilities and infrastructure," investments in lending institutions, establishment of agricultural endeavors, and renovation of "functionally-obsolete buildings."
Unfortunately for the applicant, the AAO found its proposal severely lacking in credible economic analysis. Although the submission "presumes a bank will rent space in mixed use development the regional center constructs," says the AAO, the applicant "does not contemplate that the new commercial enterprise would establish or invest in the bank, a project the applicant specifically requests approval to pursue."
Furthermore, the applicant apparently conceded that its input-output model could not "include a government sector" and even went so far as to state that "[a] more complete explanation of methodology for such a project will be developed in the future should such a project actually be proposed."
Unsurprisingly, the AAO responded that USCIS "will not approve a regional center covering potential investments in projects for which the applicant has submitted no economic analysis whatsoever."
It also seems that the proposal included an exemplar economic analysis for a hotel, which would fit into the "hospitality" category, but failed to offer similar exemplars for proposed investments in a transportation facility. Even ignoring the applicant's lack of analysis and exemplars for certain proposed projects, this omission alone would make the proposal much too vague to garner USCIS approval.
"[T]he proposal is overly broad," writes the AAO, "covering several potential projects, some of which are not even identified, for which the applicant has provided no economic analysis at all."
The applicant also failed to provide sufficient input data to support economic models used in the proposal. For the abandoned office building conversion, the proposal specified neither the size of the building nor of the hotel that would replace it. The applicant did, however, state that local hotel operators "inform the developer that for every $1 million in hotel revenue, the developer can assume that hotel guests will spend another $1 million at nearby businesses" and mentions surveys that provide a "statistically valid basis" for such estimates.
But since the applicant failed to cite any sources, studies, or reasonable methodologies to support such a claim, USCIS considered the assertion less than convincing. The agency simply could not objectively evaluate whether such a notion was reasonable or credible.
It looks like the proposal lacked evidence that apartment rental income (presumably from the mixed-use development) would necessarily benefit the geographic territory of the regional center. And that hypothetical computer game development company? It apparently projects revenues of $15 million per year, but the applicant never showed any data to support that assertion.
In a thorough (and sometimes humorous) analysis of the decision, former INS adjudicator Joseph Whalen suggests that the economist performing the analysis never received the necessary guidance from his or her regional center sponsor:
As mean as it may seem, I don't think Dr. [REDACTED] will be getting too many Regional Center gigs after this. To be fair, I don't think that Dr. [REDACTED] was ever informed what his WORK PRODUCT needed to accomplish or what specific items needed to be addressed.
Are you asking yourself: "What is his WORK PRODUCT?"
Well, presumably, he is an economist and he was asked to create an Economic Analysis, right? What specifications was he given? Was he given any at all? Did the client ever even hand him a copy of the pertinent statutes and regulations or precedents? I would guess not.
Additionally, the "Business Plan(s)" handed to the Economist (if there were any) probably lacked sufficient detail. (I know I may be stating the obvious BUT as this very case shows us, it obviously is not obvious to everyone attempting to jump on board). Did the Business Plan writer (the idea person/true entrepreneur) ever even talk with the Economist? Again, I think not.
Therefore, I blame the Regional Center Sponsor/Applicant and his/her/their EB-5 attorneys, consultants, and/or advisors.
Proving that its investments would occur in a TEA also caused problems for the applicant. While the proposed geographical limits for the regional center included counties in the Spokane, Yakima, Portland-Vancouver-Beaverton, Longview, Lewiston, and Wenatchee MSAs, the applicant accounted for population data in only eight counties out of a 26-county total.
Those eight counties are located in MSAs, which means they can't be considered rural for TEA purposes.
And since only four counties in the proposed geographical area had an unemployment rate that was 150% of the national rate in 2007 and the applicant conceded in its response to an RFE that none of the counties in question had an unemployment rate in excess of 150% in 2009, there was no way USCIS could approve the regional center for the $500,000 investment threshold.
As Whalen explains it, the applicant "submitted information addressing projects in TEAs however, the entire geographic area selected contained ZERO known TEAs and they could not even show any probability of finding one TEA in there at all!"
He concludes that the applicant's submission was "substandard" and contained "immaterial supporting documentation."
Clearly, USCIS found these regional center applications deficient in basic tests of whether they were "reasonable" and "credible." Future EB-5 regional center applicants should take heed and consider themselves forewarned.
For anyone wondering whether USCIS plans to release more decisions like these, the odds are good that it will. After all, the agency denied 44% of all regional center applications in the first quarter of this fiscal year.