Article: COVID-19’S Impact On EB-5: A Panel Discussion By Christina Dilbone, Esq. & Mohit Karwasra

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COVID-19’S Impact On EB-5: A Panel Discussion
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</h3><h4><i>by <a href=”http://discuss.ilw.com/articles/articles/393745-article-op-ed-tweets-executive-orders-and-%E2%80%9Cxenophobic-scapegoating%E2%80%9D-unconstitutional-by-mona-shah-esq#bio”>
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Christina Dilbone, Esq. & Mohit Karwasra</span></span>
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<p>
This is a report based on a
<a
href=”https://mshahlaw.com/panel-discussion-covid-19s-impact-on-eb-5-episode-110/”
>
special episode
</a>
of EB-5 Investment Voice.
<a
href=”file:///C:/Users/ILW.COM/Downloads/COVID-19%E2%80%99S%20Impact%20On%20EB-5%20A%20Panel%20Discussion.docx#_ftn1″
name=”_ftnref1″
title=””
>
[1] </a>
Mona was joined by a panel comprising well-respected experts from the EB-5
industry – Ron Klasko of Klasko Immigration Law Partners, Carolyn Lee of
Carolyn Lee PLLC and Jeff Carr of Economic and Policy Resources (EPR).
Together they discussed the anticipated concerns for EB-5 investors and
developers, in lieu of the pandemic.
</p>
<p>
<strong></strong>
</p>
<p>
<strong>
Please see the link below for access to the podcast episode:
</strong>
</p>
<p>
<a
href=”https://mshahlaw.com/panel-discussion-covid-19s-impact-on-eb-5-episode-110/”
>
https://mshahlaw.com/panel-discussio…5-episode-110/
</a>
</p>
<p>
The EB-5 program has been in existence since the 1980’s, and until
recently, long-term stakeholders in the community thought that they had
seen it all. But with the pandemic continuing to impact every sector of the
U.S. and global economy, industry experts are now required to speculate as
to how the EB-5 Program will be impacted.
</p>
<p>
<strong>Anxious Investors</strong>
</p>
<p>
Lately, a lot of nervous investors have been reaching out to their
attorneys to get a better picture of what the future might hold for them.
Their apprehension is a direct result of the unprecedented business losses
that are being endured due to COVID-19, and the fact that they continue to
be vulnerable on two different fronts:
</p>
<p>
· The potential inability to satisfy regulatory requirements, such as job
creation, leaving them unable to immigrate to the U.S. despite all the time
and money spent by them.
</p>
<p>
· And, the potential delay or inability of EB-5 projects to pay back their
capital contribution, either due to a lack of sufficient profits or an
incapability to refinance. The investment – which is required to be “at
risk” – might never be returned to investors if a project is unable to
recover from the financial blows of this economic downturn.
</p>
<p>
While it might be a natural reaction for investors worried about the
security of their investments to consider withdrawing their capital from a
project, they must remember that an early removal of EB-5 funds from the
New Commercial Entity <strong>(NCE)</strong> may jeopardize their ability
to meet the sustainment requirement, for the all-important I-829 approval.
That said, investors with an approved I-526 petition may reinvest their
EB-5 funds in a different project while still retaining their priority date
– though they will be required to file a new I-526 petition.
</p>
<p>
While these concerns that are currently being faced by the investors might
seem all-consuming, the panel went on to highlight several other issues.
Issues that need to be dealt with on the project side and will require
significant attention going forward.
</p>
<p>
<strong>A <em>force majeure</em> event</strong>
</p>
<p>
<em>Force majeure</em>
– commonly overlooked as a standard clause in commercial contracts – has
been getting a much attention of late. It is a doctrine that dictates a
party’s performance obligations based on the occurrence of crucial and
noteworthy events that are beyond its control, such as natural disasters,
wars, etc. Carolyn gave this contractual principal a much-needed
immigration gloss, by putting it in the context of EB-5 projects.
</p>
<p>
She emphasized the impact of the operational stoppages and developmental
delays that are being caused as a direct result of the spread of
Coronavirus. While operational EB-5 projects will experience a significant
reduction in revenues, those under development are reasonably expected to
be stunted in their ability to meet key targets. This situation is not only
dire from a business standpoint but also creates regulatory issues,
creating the possibility of – material change, potentially delayed and/or
insufficient job creation, or even no job creation.
</p>
<p>
Jeff pointed out that this is specially a concern for the many EB-5 hotel
projects, as the hospitality industry as a whole, accounts for almost 17
million jobs and has been impacted very adversely. Hospitality projects
with EB-5 financing in their capital stack might have a difficult time
hitting their job creation and income targets in the wake of COVID-19, as
people are expected to travel and vacation far less than what was expected
prior to the pandemic.
</p>
<p>
Mona also reminded us of Hurricane Sandy – an event that caused a lot of
damage in and around New York City – resulting in significant delays. And
that many of those impacted were able to take shelter under the doctrine of <em>Force Majeure</em> to avoid performance of their obligations, something
that we expect several parties attempting to replicate in the near future.
Ultimately, everyone on the panel agreed that this pandemic is of a much
larger scale and for a much more prolonged duration of time than anything
that has come before, making it unprecedented.
</p>
<p>
<strong>“Material change”</strong>
</p>
<p>
Not only was the concept of “material change” discussed in the context of
COVID-19’s impact on EB-5 projects, but the panel also took some time to
explain in detail for the listeners’ benefit. Simply put, the term refers
to changes in a project after the filing of an I-526, which when deemed
“material” result in a denial of that petition.
</p>
<p>
But Ron pointed out that USCIS does not have a specific definition for the
term and that it is not defined anywhere in the law as to what constitutes
a “material change”. He further explained that it was adopted by USCIS as a
policy the rationale behind which is as follows – if a project is not
approvable at the time a petition is filed, the petitioner will not be
permitted to keep their priority date, if changes are made to the project
thereafter in order to make it approvable.
</p>
<p>
To put it another way, if a project was approvable when filed, the fact
that there is a change should not be considered legally relevant. And so,
going forward it should be possible for immigration attorneys to
successfully argue that many changes – particularly those resulting from
the pandemic – do not constitute a material change.
</p>
<p>
In the wake of COVID-19, it is very likely that many businesses will see
changes that might be considered to be “material” by USCIS. This will
severely impact the investors in such projects who have not been granted
conditional green cards yet, making it potentially worthwhile to assert –
wherever applicable – that a change is not “material”, and also that
regardless of its materiality, it is irrelevant because the project was
approvable when filed. Everyone on the panel agreed that reasonable
alterations should not be considered legally relevant grounds for a denial.
</p>
<p>
<strong>Potential changes in Targeted Employment Areas (TEAs)</strong>
</p>
<p>
More than 30 million unemployment claims have been filed over the past
six-weeks, a figure that stood closer to 22 million at the time of
recording the podcast just two-weeks ago. While this makes for an extremely
sharp rise in unemployment, it is widely speculated that many of these jobs
will be regained in a short duration, however the same will be dependent on
the pace of economic recovery in the post-lockdown world. In relation to
EB-5 in particular, the panel offered unique viewpoints on specific aspects
of unemployment that impact the industry.
</p>
<p>
Jeff described how COVID-19 may actually alter existing TEAs <strong>. </strong>As widespread furloughing and layoffs continue across
the country, the national unemployment rate might swing from about 3.5%
percent in February – constituting a 50-year low, to well into the double
digits. But since these figures only become available in April of the
following year, they will not impact the TEA data until 2021.
</p>
<p>
He went on to state that TEAs were primarily designed by legislators to
make rural TEA projects more attractive to investors, but despite that
there has been a significant amount of investment that has continued to
take place in high-unemployment-rate urban TEAs. The current run-up in the
national unemployment rate has also led to concerns whether
high-unemployment-rate urban TEAs will keep enough pace to maintain their
designation, by continuing to have unemployment at or above 150% of the
national average. This is expected to benefit rural areas as they will
provide more certainty in providing a TEA designation to a project; making
rural TEAs more attractive for upcoming projects compared to
high-unemployment-rate urban TEAs – which will experience some uncertainty
till the new data starts impacting their TEA designations next year.
</p>
<p>
While there may also be concerns over whether a change in TEA status
constitutes a material change, Ron confirmed that in his experience EB-5
funds that were invested in a project which at that time was considered a
TEA, meeting all statutory and regulatory requirements, will not encounter
any such issues.
</p>
<p>
Mona brought up ongoing speculations regarding the EB-5 Program being
considered for inclusion in one of the upcoming waves of the stimulus
packages, possibly by relaxing the metrics for qualifying as a TEA – by
bringing down the required average unemployment rate from the current
standard i.e. 150% of the national average. The panel seemed divided on
this, as Mona remained optimistic whereas Ron and Jeff expressed doubt.
Making it worthwhile to recall, how during the 2008 economic downturn, the
Regional Center Program was instrumental in encouraging foreign direct
investments into the faltering U.S. economy through the inclusion of
construction jobs in the job creation count. Everyone agreed that there is
no playbook for a situation like this, and that it remains the federal
government’s prerogative to encourage economic stimulation.
</p>
<p>
Jeff also pointed out that unlike the financial crisis of 2007/2008 our
economy isn’t quite as starved for liquidity, and so compared to last time
there is expected to be a lower demand from developers for non-traditional
forms of financing such as EB-5. Thus, highlighting the countercyclical
nature of EB-5.
</p>
<p>
<strong>Job creation issues: different scenarios</strong>
</p>
<p>
Undeniably, one of the biggest causes for concern is the potential lack of
job creation, particularly in direct projects that are more at risk than a
regional center project. And so, it was very apt that the panel chose to
run through a few different likely scenarios, that a project or investor
might find itself in. At this point however, it is worth mentioning that
the following are potential solutions to problems that shall not be opted
as the first plan of action. They are counteractive measures that should
treated as such.
</p>
<p>
The panel laid out several different scenarios that illustrate this area.
For example, if all the required job positions had been created but then
due to COVID-19, employees were made redundant, as the positions have been
created, then this will not negatively impact a project’s ability to
satisfy job creation requirements.
</p>
<p>
Another scenario envisaged by Mona and Carolyn, considered a project
converting its W-2 employees to 1099 contractors, while still continuing to
control their activities and providing instructions as well as supplies for
completing tasks. The project will in all likelihood meet IRS’s control
test over these contractors to qualify them as employees. Thus, one might
also be able to argue that such workers are employees that filled a
position created by the project and are not independent contractors.
Additionally, one could argue that the position was filled for a reasonable
period of time, as this reasonableness standard has not been expressly
defined by USCIS.
</p>
<p>
For investors who are already in the U.S. on conditional green cards, Ron
made special note of a USCIS policy manual requiring that within three
years of a person becoming a conditional resident, all of the necessary
jobs that are projected to be created should be created, unless there are
extreme circumstances. And then juxtaposed that with what the regulations
i.e. the law says, that at the time that USCIS is adjudicating an I-829
application – which is often about three years after an I-829 is filed –
the adjudicator has to determine whether the jobs will be created within a
reasonable time after the adjudication. Which might be four years after
filing an I-829 instead of what the Immigration Service says in its manual.
Although, USCIS has not been giving much room on this so far, they may
change their approach now.
</p>
<p>
Ultimately, the panel also reminded the listeners that USCIS by policy has
a time period of 2.5 years after an I-526 petition approval for completing
job creation, though this is not by regulations so it can change at any
point. Also, its worth noting that USICS regularly chooses to point to the
specific timelines from business plans, which more often than not are more
restrictive than this policy providing for 2.5 years after I-526 approval.
</p>
<p>
<strong>Miscellaneous new issues</strong>
</p>
<p>
Mona brought up how, in light of the pandemic several requests are being
made to make changes to offering documents, to include and amend the <em>Force Majeure</em> clauses as well as to include specific language
pertaining to COVID-19. To which Jeff added that business plans and
offering documents across the board can be reasonably expected to start
carrying specific COVID related language from a credibility standpoint.
</p>
<p>
Although it is the last thing one would want to think about, given the
multitude of fatalities around the world and here in the U.S., the death or
incapacity of a principal investor or that of an essential EB-5 project
team member, is unfortunately a growing concern that needs to be addressed:
</p>
<p>
· Ron stated that on the investor front, if the primary investor dies the
dependents’ petitions can still be saved, as long as the surviving spouse
and children were living in the U.S. at the time when the principal
investor passed away, and are still continuing to live in the U.S.
</p>
<p>
· On the project side, as per Carolyn, depending on the role held by the
individual who has passed away, a project’s viability may be impacted. This
is something that new commercial enterprise managers should consult on with
their securities counsel.
</p>
<p>
Finally, the panel also noted that site visits have been a valuable tool
for USCIS to ascertain the legitimacy of projects. But with the current
norms on social distancing, it is highly unlikely that USICS will be able
to conduct their site visits at the same pace, if at all. Thus, it is
expected that there will be a delay in I-829 adjudications as well as
regional center compliance reviews.
</p>
<p>
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<br/>
</p>
<div>
</div>
<p>
<strong></strong>
</p>
<p>
<strong>
Please see the link below for access to the podcast episode:
</strong>
<strong></strong>
</p>
<p>
<a
href=”https://mshahlaw.com/panel-discussion-covid-19s-impact-on-eb-5-episode-110/”
>
https://mshahlaw.com/panel-discussio…5-episode-110/
</a>
</p>
<div>
</div>
<p>
<strong><u></u></strong>
</p>
<p>
<strong><u>About the Authors</u></strong>
<strong>:</strong>
<u></u>
</p>
<p>
<strong><em>Christina Dilbone</em></strong>
, Esq. is an associate attorney with Mona Shah and Associates Global. She
works with EB-5 non-public offerings, SEC compliance, and foreign direct
investment (FDI) matters. Christina received her J.D. from the University
of Florida and is a member of both the New York Bar Association and the
Florida Bar Association.
</p>
<p>
<strong><em>Mohit Karwasra</em></strong>
is a dual qualified attorney with a background in commercial dispute
resolution Mohit received his LL.M. from Fordham Law School and BBA-LLB
from Symbiosis International University. Mohit currently focuses on
different aspects of EB-5 petitions as well as offerings for Mona Shah
&amp; Associates Global.
</p>
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title=””
>
[1] </a>
<a href=”https://mshahlaw.com/podcast/”>EB-5 Investment Voice</a>
is the first Podcast series that focuses on the United States
immigrant investor visa, EB-5 and foreign direct investment. Mona
Shah, Esq. welcomes guests from the industry, including:
Developers, Regional Center Operatives, Attorneys, Legislators and
Politicians.
</p>
</div>
</div>
</div>
<hr/><h4>
<a name=”bio”></a>
About The Author<br/>
</h4>

<!–AUTHOR BIO START–>

<p><a>Christina Dilbone, Esq.</a> is an associate attorney with Mona Shah and Associates Global. She works with EB-5 non-public offerings, SEC compliance, and foreign direct investment (FDI) matters. Christina received her J.D. from the University of Florida and is a member of both the New York Bar Association and the Florida Bar Association. </p>

<p><a>Mohit Karwasra</a> is a dual qualified attorney with a background in commercial dispute resolution Mohit received his LL.M. from Fordham Law School and BBA-LLB from Symbiosis International University. Mohit currently focuses on different aspects of EB-5 petitions as well as offerings for Mona Shah & Associates Global.</p>

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