This one is for the developers who are thinking about utilizing EB-5s to finance their projects. Assuming that you’ve done the analysis and legwork to determine whether it is better to try to find an existing Regional Center to adopt your project vs. establishing your own Regional Center and decided on the latter, I would like to discuss if it is a good idea to in terms of timing considering the looming sunset of the EB-5 Regional Center Pilot Program on September 30, 2012.<!–more–>

First, to take a step back, there is a lot of confusion regarding whether the EB-5 program itself will be dismantled if the Regional Center Pilot Program is not extended by September 30, 2012. That is not the case. The EB-5 investor visa is permanently baked into the immigration laws. The temporary part of the program relates only to Regional Centers. In other words, even if the Regional Center Pilot Program is not extended by the sunset date, individual investors can continue to invest $1 million (or $500K if the investment project is located in a Targeted Employment Area or rural area), create 10 jobs and then obtain an EB-5 visa. However, the Regional Center portion of the program is a temporary pilot program that needs to be extended every three years. Since the Regional Center program was introduced in 1993, it has always been extended every three years and the next extension comes up in September of this year.

If the program is not extended, all EB-5 activity through Regional Centers will be suspended. Because the most important benefit of the Regional Center program is that it allows you to count indirect job creation, if the program is not extended, this means that it will become virtually impossible for large-scale EB-5 projects to take place. $100M EB-5 raises are pretty common place nowadays: this translates into 200 investors, which means 2000 jobs at minimum. These job numbers are made possible because indirect jobs can be counted.

Then, at this juncture does it make sense to put in an application for Regional Center designation? If you can afford it, I think it does and here’s why: Despite the recent holdup of a number of Regional Center designation applications (I-924s) that is causing a lot of grief to a lot of people (including myself), generally, it seems as if the USCIS California Service Center has gone through most of the backlogged I-924 applications as we are seeing quicker processing for shovel-ready projects covering a limited geographic boundary. The fact that fewer applications that are going in is probably contributing to the relatively faster processing. But once/if the Regional Center Pilot Program is extended this year, you can expect to see many more applications being made. This will translate into another backlog early next year so applying now is a way to beat the crowd.

But more importantly, once the applications that go in after the extension are processed and approved, many new projects will be competing to grab the attention of a limited pool of foreign investors.

As for whether the Pilot Program will be extended by Congress, no one can say for sure.* All people can say for certain is that it has never not been extended. But this is an election year and surprising things have happened in Congress (think debt ceiling or estate tax) this past year. So putting in an application is not without financial risk. But if you can afford to take the risk, the payoff in the form of lower capital costs and higher return on equity for your projects will be more than worth the risk in my opinion.

*As for what will happen if the Pilot Program is not extended? On a recent stakeholder’s quarterly call, that question was posed to the USCIS and they declined to answer. It is worth noting that the program was not extended until the eleventh hour back in 2009 (it was actually set to sunset in March 2009 and they did a mini-extension until September 30, 2009 before they finally extended for the full three years) and the USCIS issued a memo on what procedures it would adopt if the project was shut down. (Basically they said they would honor I-526 applications that were filed by September 30, 2009 but anything that came in after that date would be required to show “direct” job creation. Click <a href=”http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=efc20876342f3210VgnVCM100000082ca60aRCRD&amp;vgnextchannel=c94e6d26d17df110VgnVCM1000004718190aRCRD” target=”_blank”>here</a> for the old memo.)