Some promises, we hope, are for forever. However, when it comes to a “guaranteed return” on an EB-5 investment, the answer depends on the specifics of the situation. Carofin advises applicants to rely on their immigration attorneys to clarify what guarantees are permissible within the EB-5 program.
One guarantee that is explicitly prohibited is a return on investment. Under EB-5 regulations, the investment an EB-5 applicant makes into the New Commercial Enterprise (“NCE”) must be “at risk,” just like any other investment. While project sponsors hope to turn a profit, there is no assurance of success. Consequently, an NCE may not promise (or guarantee) to return the EB-5 investor’s capital, nor can it “guarantee a return, interest, or distribution of profits to the investor.” Because of this concept of risk, the investor’s principal investment may not be amortized.
When reviewing an investment’s Private Placement Memorandum (“PPM”), investors should expect to find appropriate language indicating the possibility of distributions or interest. However, according to Catherine Yen, an immigration attorney at Jackson Walker, there are three specific circumstances in which guarantees are permissible. Carofin recommends that an attorney review the language carefully to ensure compliance with U.S. Citizenship and Immigration Services (“USCIS”).
As a reminder, investors place their capital irrevocably in an NCE, where funds are held in escrow. The NCE, in turn, invests in or loans money to a Job Creating Enterprise (“JCE”), which must be approved by USCIS. Importantly, the investor’s relationship is with the NCE, not the JCE.
Meanwhile, EB-5 applicants file Form I-526 or I-526E, seeking Conditional Lawful Permanent Resident (“CLPR”) status.
Permissible Guarantees
- Capital Refund in CLPR Admission is Denied
An investment agreement may include language that guarantees the return of an investor’s capital if their I-526 or I-526E petition, visa, or CLPR status has been denied.
- Refund Guarantee Post-Fund Release to JCE
Given the extended processing times in recent years, funds often are released to the JCE before I-526 or I-526E approval. USCIS permits language in which the JCE guarantees a refund to the investor if CLPR admission is denied, even after fund release.
- JCE’s Guarantee to Repay Loan to NCE
The NCE may secure its loan with an asset or a combination of assets in the event the JCE defaults on the loan’s repayment. Additionally, a JCE may guarantee that it will repay the loan to the NCE, both of which are acceptable to USCIS.
The answer to the question of EB-5 investment guarantees is complex and continually evolving. Before you “accept the proposal” of a guaranteed return, Carofin encourages each applicant investor seeking Green Cards to consult a qualified immigration attorney well-versed in current USCIS guidelines. For further information, you may reference the 2016 analysis, “Permissible and Impermissible Guarantees in EB-5.”
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure.
Real estate investments are speculative and generally illiquid. They are suitable only for investors who do not anticipate a need for liquidity or can afford to lose their entire investment.
The actual amount and timing of distributions paid is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of capital. These programs can give no assurance that they will be able to pay or maintain distributions, or that distributions will increase over time.
