Author: Julia Yong-hee Park
Then, what is the value of an exemplar approval?
To understand this we have to talk a little about the background of the Regional Center Program. First introduced in 1993, the Regional Center Pilot Program was not actively used until 2003 when the cloud of litigation surrounding the program which basically shut down the project for over 6 years was lifted. Originally there were only a handful of projects offering mostly straight-forward equity-based projects. Prior to 2005 there were only around 25 Regional Centers approved – and most of them didn’t even have any projects. It is well-known that only 5 – 7 Regional Centers were operating at the time. Then, in 2008 the program started to become more popular and according to the June 2010 EB-5 Stakeholder slides, at the time there were 94 Regional Centers. Today there are well over 600 approved Regional Centers (though again, only a fraction of these Regional Centers have real projects on the market).
As the program became more popular and more and more businesses and developers started entering the marketplace, new deal structures that the USCIS had never seen before started emerging. For example, urban-area Regional Centers began to get TEA letters from state authorities or the loan-model was introduced. Also offering documents such as the PPM and operating agreements became more sophisticated and the capital stack of the projects started including pieces that were unfamiliar to the USCIS such as New Market Tax Credits or Brownfield Credits. In the case of economic reports, what was once simple expenditure based reports started to incorporate revenue based jobs or new types of expenditures (for example, “visitor expenditures” in the case of hotels). In short, because of the sudden growth in the program, the USCIS was not well-equipped to deal with the barrage of new deal structures and this lead to a lot of delays and uncertainties.
So the I-924 exemplar process was theoretically a good way to get a project structure pre-approved by the USCIS so that it could reduce the uncertainties caused by new developments. However, because of the timing issue that I discussed in the previous post, the I-924 exemplar process didn’t actually help that many projects and any issues with projects ended up being resolved in the individual I-526 RFE stage anyway.
Then, what does it mean for a project to have I-924 exemplar approval today in November 2014?
If the USCIS keeps its promise to honor the I-924 exemplar designation, and the project is materially the same as what was originally approved, investing in an I-924 exemplar approved project could decrease the waiting time for your individual I-526.
However, at least recently, it does not seem like the USCIS is particularly honoring exemplar designations at least in terms of shortened adjudication timelines. So if the project has an exemplar I-924 approval and there are people whose I-526s have been approved ahead of you, then it is reasonable to expect that your petition will be approved sooner than an non-exemplar project.
But if the project has an exemplar approval and despite that no I-526s have been approved for a long time, you kind of have to assume that the USCIS is not honoring the exemplar designation so there is no special benefit you can expect from the exemplar approval.
Also you have to recognize that because the EB-5 industry and the USCIS itself knows so much more about what the USCIS wants, it is not that difficult to structure a good project that will pass the I-526 review stage easily.
While there are still many uncertainties surrounding the EB-5 marketplace today, these uncertainties have been greatly reduced in the past 4 – 5 years. There have been enough deals on the market and I-526s approved for these deals that EB-5 professionals today have a good understanding of what will work.
For example, despite what was at the time in 2011 a big controversy, we now know for sure that the USCIS will honor urban area TEAs that are based on census tracts. We also know for sure that the USCIS will let a project use revenue based job counts. We have learned that two Regional Centers can sponsor the same deal as long as they can clearly indicate how jobs will not be double counted. We also know what not to do in an EB-5 project. For example, we know that any sort of deal where the EB-5 investor is promised real estate at the end of the investment will not work.
A few years ago, these were all new issues for the USCIS so people wanted the comfort of having an I-924 exemplar approval. Therefore in a well-structured, solid, not-too-big project, the cost of waiting for an I-924 exemplar approval to go out on the market far outweighs the benefit of having the approval.
In other words, if you work with EB-5 professionals and Regional Centers that know what they are doing, there are plenty of good deals to be had that don’t necessarily have I-924 exemplar approvals. And if the investor is looking for a smaller project, because smaller projects will sell out before the I-924 exemplar approval is secured, by limiting yourself to just projects with “pre-approvals” the investor will be reducing the pool of good investments that can potentially be reviewed.