[HOT] Can EB-5 funds be used for land or building acquisition costs?

The June 22, 2012 Engagement with the USCIS Chief Economist, John F. Rodgers (not "Rogers") has brought up another issue: May EB-5 project use a portion of the EB-5 funds received for land or building acquisition costs?

Mr. Rodgers made it clear that he does not consider these costs to be job-generating activities and therefore these amounts cannot be plugged into the Input/Output methodology being used. While most EB-5 projects we have been involved with did not use EB-5 funds for either land or building acquisition costs based on our then understanding that these costs do not generate jobs, if the NCE is deemed to create necessary jobs, then it should not matter that some of the EB-5 money was used towards non-job-creating activities such as land acquisition. We also understand that such transactions do not generate jobs (direct or indirect) under RIMS II or similar methodologies. Therefore, if the EB-5 project operator was contemplating using EB-5 funds for these costs, thinking that the dollar amounts for these acquisition costs can be plugged into Input/Output methodology, they should reconsider.

This leaves another tangential issue, which was left unanswered by Mr. Rodgers: Does usage of any EB-5 funds towards non-job-creating activities violate the EB-5 law? Or put another way, does the EB-5 law require that all EB-5 funds be used towards only the job-creating activities, and would using a portion of the EB-5 funds for land or building acquisition cost be in violation of the EB-5 requirements? Our honest answer at this point is: Whatever CSC examiner or management thinks is the answer is the answer. We believe that CSC examiners may well take the position that a "significant" portion of the EB-5 funds cannot be used towards non-job-creating activities or expenditures such as land or building acquisition costs. We would not be surprised it comes down to the interpretation of the word "significant". For example, if the EB-5 project received $30 Million USD as EB-5 funds for a project with the total project cost of $200 Million USD, would it be in compliance with the EB-5 law if let's say $25 Million USD were spent in land or building acquisition (not a job-creating transaction), and the remaining $5 Million USD were spent in hiring workers (a job-creating activity)? Moreover, who knows how much in sync the USCIS' economists are with the CSC adjudicators, or how closely they communicate and work together?

In conclusion, it's gotten riskier for Regional Centers to do any development type of EB-5 projects. Also, it has gotten more difficult for potential EB-5 investors to ascertain whether an EB-5 project complies with the EB-5 requirements.