COVID-19 and EB-5 World
Needless to say, the COVID-19 pandemic ("Pandemic") has had a tremendous impact on the EB-5 world. We have included a sample that an EB-5 Issuer can adopt either for notifications to its EB-5 investors or for its offering documents. As a matter of practice, our Firm builds out similar language for each client notice and/or offering document supplement.
The Pandemic’s effect on the EB-5 world and some suggestions on how to address them to EB-5 Investors are summarized below:
- One needs to provide immediate disclosure to EB-5 Investors on the effect that the Pandemic has on the EB-5 Program from both operational and immigration standpoints (see also point 5 below). EB-5 Issuers are receiving many inquiries from panicked EB-5 investors who are either seeking re-assurance and/or seeking to withdraw from their EB-5 investments. Be proactive; do not wait for more investor inquiries;
- Need to address the CARES Act and what help it may have on real estate development and operational activities given that new or existing EB-5 projects are in different stages of development, completion and/or operations;
- Need to address landlord/tenant issues, if applicable, and the effect the Pandemic will have on the particular projects. For example, projects that are operational and which depend on tenant leases may face financial issues given that tenants may be unable to service their lease obligations during the Pandemic. This will impact the project’s cash flow and ability to service, among other expenses, the EB-5 financing costs (see next point below);
- Need to address loan documentation/modifications in response to forbearance issues related to both senior loan and EB-5 loans and likely requests from developers to postpone payments;
- Use this opportunity to discuss the status of immigration-related effects on the EB-5 Program. This would include the status of pending or approved I-526 petitions; status of visas issued; status of conditional residency for certain EB-5 investors; status of the two-year sustainment period (as defined in the EB-5 Issuer’s offering documents); and also status of all I-829 petitions and approvals, as applicable. The point is to ensure EB-5 investors have a clear picture on what effects, if any, the Pandemic will have on their EB-5 applications;
- In certain cases, a project may even be in the redeployment stage. EB-5 Issuers need to be careful to re-evaluate any prior projections on redeployment in light of the effects of the Pandemic; and
- As a separate matter, and as discussed in our prior blog, effective as of March 31, 2020, USCIS changed its adjudication system, with respect to I-526 petitions, to prioritize non-retrogressed country petitions over retrogressed petitions. It is important for EB-5 Issuers to convey this change to its EB-5 investors.
During these hard times, it is very important that each communication to EB-5 investors provides guidance and comfort as to what is being done by the EB-5 Issuers to mitigate the financial and immigration effects of the Pandemic, on the underlying projects, and to relay the fact that the EB-5 Issuers are taking reasonable and active measures to ensure same. Simply staying silent, without appropriate communication, will lead to more EB-5 investor anxiety.