EB-5 Economic Methodologies – Q&A Issued by USCIS

USCIS has recently published Questions & Answers on EB-5 Economic Methodologies. This Q&A document prepared by two USCIS economists came after a 6/22/12 public engagement where stakeholders sought clarification on issues related to hotel/resort development & acquiring real estate related to EB-5 program.

Two of the primary questions raised at the public engagement that needed clarifications were in regards to EB-5 projects involving Hotel or Resort Development and acquiring Real Estate.

When EB-5 petition is filed through a Regional Center, employment requirement can be fulfilled by creation of indirect jobs. Thus, if funds are invested through a Regional Center, the EB-5 requirement of creation of at least 10 full-time jobs can be satisfied through showing that as a result of the EB-5 investment 10 indirect jobs were created. These 10 jobs do not have to be directly related to the EB-5 project and can, for example, include jobs created at other businesses as a result of the EB-5 project being developed.

During EB-5 public engagement, in regards to projects involving development of hotels and resorts, the stakeholders sought clarifications on when it is economically reasonable to input projected funds spent by visitors into economic models to project indirect job creation resulting from the spending of these potential hotel occupants (e.g. on rental cars, dining, etc.)
USCIS has clarified that in general, job credit based on “visitor spending” is appropriate only where the petitioner can show that it is more likely than not that the development of the EB-5 project will result in an increase in visitor arrivals or visitor spending in the area. If the petitioner provides a reasonable estimate of how new visitor spending or tourism demand is driven by the specific project, it may be reasonable to conclude that the specific project has generated increased employment due to increase in visitor spending and the new visitor spending revenue can be then considered appropriate for the regional input-output model.

USCIS pointed out that regardless of visitor spending, jobs created from construction (lasting over two years), management, and operation of the hotel or resort, including hotel revenues, can be considered eligible inputs to an appropriate regional input-output model.

The second important issue raised by the Q&A that needed clarifications was the appropriateness of the use of EB-5 investor’s funds by the regional center to acquire real estate.

USCIS has clarified that real estate acquisition is not generally recognized as a job-creating activity in and of itself. However, USCIS points out that where some EB-5 funds will be used for real estate acquisition, such apportionment should be detailed in the business plan. A job-creating enterprise may propose to allocate some EB-5 funds to purchasing land and allocate other EB-5 funds to developing and operating a business on the purchased land, and the jobs thus created by the enterprise can be apportioned among all the EB-5 investors. In this scenario, USCIS does recognize that certain soft costs directly related to real estate transactions may reasonably be counted as valid job-creating expenditures. In addition soft costs related to the development and construction of EB-5 supported projects on designated land parcels may be considered on a case-by-case basis.