2012/06/22 -- Waltzing with USCIS economists on a hot summer day


Q&A Update dated July 3, 2012 from USCIS which clarifies or supplements certain unclear portions of the teleconference:

http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176...

The above link contains content regarding hotel or resort development and the effect of "visitor spending" and how to calculate jobs for a hotel project and acquiring real estate and its impact on jobs creation.

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We listened in on the teleconference, and as usual, the meeting created more questions than answers. When over 450 people spend time and money to participate on the call, you would think USCIS would take as much time as it can to answer all the questions, with as much specificity as it can; but instead, they spend only about 1 hour to answer questions. I actually felt sorry for the people who attended in person, who must have felt the sweltering heat wave that is currently enveloping Washington, DC. :)

However, after the meeting, USCIS posted additional Q & As, as if they realized their answers should have been clearer on some issues:

July 3, 2012 update content copied below in entirety:

Questions and Answers: EB-5 Economic Methodologies

On June 22, 2012, USCIS hosted a public engagement featuring two economists who work on the EB-5 Immigrant Investor program. Following that engagement, some stakeholders sought clarification as to certain points raised by the economists. USCIS is now pleased to provide clarification as to two of the primary questions raised.

EB-5 Projects Involving Hotel or Resort Development

Q: When an EB-5 project involves the development of a hotel or resort, when is it economically reasonable to input projected funds spent by visitors into economic models to project indirect and induced job creation resulting from the spending of these potential hotel occupants (e.g. on rental cars, dining, etc.)?

A: In general, job credit based on “visitor spending” is appropriate only where the applicant or petitioner can show by a preponderance of the evidence that the development of the EB-5 project or resort will result in an increase in visitor arrivals or spending in the area. Applicants or petitioners should provide reasonable estimates of how new visitor spending and tourism demand is driven by the specific project that is the subject of the application or petition. If the applicant or petitioner presents a reasonable case that the visitor spending and demand for tourism generated by a project is new then it may be reasonable to conclude that the specific project has generated an increase in demand, and thus, has generated increased employment in the region resulting from the projected increase in visitor spending. If the applicant or petitioner meets this burden and the application or petition can otherwise be considered reasonable, new visitor spending revenue can be considered an eligible input to an appropriate regional input-output model.

Regardless of whether visitor spending is shown to be attributable to a particular project, 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 assuming that the application or petition can otherwise be considered reasonable.

Acquiring Real Estate

Q: May a regional center use funds from EB-5 investors to acquire real estate?

A: In general, yes, subject to the requirement of Matter of Izummi, 22 I & N Dec. 169 (Comm’r 1998), that the “full amount of money must be made available to the business(es) most closely responsible for creating the employment upon which the petition is based.” For example, 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 created by the enterprise can be apportioned among all the EB-5 investors. It is important to note, however, that real estate acquisition is not generally recognized as a job-creating activity in and of itself. Thus, it is not generally reasonable to treat funds spent on real estate acquisition as inputs to an employment impact model. Where some EB-5 funds will be used for real estate acquisition, such apportionment should be detailed in the business plan.

USCIS does recognize that certain soft costs directly related to real estate transactions may reasonably be counted as valid job-creating expenditures and inputs to regional input-output models. 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. If the input-output model utilized in the economic impact analysis provides specific categories for the soft costs, the multiplier categories specific to these costs should be used instead of bundling such costs under general construction expenditures.

Last updated:07/03/2012

The overriding undercurrent of the answers from USCIS economists during the teleconference was "we will review everything presented and then decide, but the data should be as localized, current and accurate." Here are some specifics that were squeezed from this teleconference:

1. For tenant's employees to count in context of office buildings or hotel projects, there must be some significant, long-term business/financial relationship between the facility owner and tenants, such as rental rebates and revenue sharing. JV and partnership relationship will be looked upon as favorable factors by USCIS in its decision to allow the counting of tenant jobs. However, it appears that mere landlord-tenant (lease) relationships will not be enough. This stance bodes ill for any projects involving tenants and which attempt to count tenants' employees as new jobs, such as commercial office, retail shopping centers or hotel development projects.

2. Construction time lines should be detailed and justified in some way, and USCIS will generally assume that construction activities will not exceed two years unless demonstrated otherwise. Also, construction expenditures should be broken down in types as much as possible. Land acquisition costs will not be counted as job-creating expenditures. Some "soft" costs, such as architectural and engineering costs, can be included.

3. Workers being relocated from anywhere in the United States will not be counted. Must be "new" job or not simply transferred from anywhere.

4. About 70% of all RC applications being submitted involve tenant occupancy issues. Business plans must explain that tenants which move into the commercial or retail building must be new and not transferred or shifted from elsewhere. Biz plans should explain the linkage between EB-5 capital and the actual companies paying tenants employees' wages. USCIS looks as favorable financial arrangements such as equity stake, JV relationship between EB-5 funded company and tenants. Employees of management funded with EB-5 funds will count as "direct" jobs. Even if there is no such direct linkage, if there is a long-term sustained business/financial relationship between the facility owner and tenant business, i.e., rental rebates and revenue-sharing arrangement, then tenants' employees will be considered as "direct" jobs. [But do tenant's employee count as indirect jobs if these elements cannot be shown?] If these factors are not present, it's not clear how USCIS will adjudicate, but USCIS Chief Economist kept on saying "we will look forward to what you will present to us as the acceptable reasonable methodologies", pushing aside the fact that EB-5 stakeholders are looking for specific guidances.

5. Predictability based on specific guidances will not be provided; more uncertainties will reign. The direction hinted by USCIS Chief Economist seems to be "You provide us the best data and argument you can, and we will see if that seems reasonable to us, but try to use the best data and focus on the nexus; and we look forward to engaging with you."

I think EB-5 stakeholders should now see clearly that USCIS is not ready to provide clear answers but is asking EB-5 stakeholders to submit some good arguments. As for myself, I rather receive clear answers than engage with USCiS in this manner one hour at a time, and so would RC principals and wanna-be RC operators, whose frustration is probably growing every month. Since I do not operate or want to operate a RC (unless as a highly-paid professional staff), I am not at all frustrated but merely amused at the inefficiency of it all. This is not to say that I disagree with what USCIS economists are saying; some of what they are saying make good sense, but they need to provide clear guidances on what is acceptable and not acceptable.

In conclusion, the overriding theme was "do best you can and we will see, and we look forward to engaging with you." By the way, the USCIS Chief Economist appeared to be sincere and trying hard. To be frank, I wish he would have copied the CA Governor's Office and had been more clear, along the line of "No tenant jobs, period." That way, at least, there would have been a certainty. This stuff is getting very hard for laymen to understand or follow.

** For good information on how the hotel law and EB-5 law intersect, go to:

http://hotellaw.jmbm.com