The USCIS’s recent policy change regarding how to count indirect jobs created by tenants has thrown a monkey wrench into the world of EB-5s. The following is Part 3 of a three-part post on the recent “tenant issue” that has thrown many pending Regional Center applications into limbo.

Part 1: Chang v. United States – The USCIS has made sweeping changes before, and has even applied it retroactively.

Part 2: How did the tenant issue unfold? (A chronology of what happened in early 2012 – only for real EB-5 junkies.)

Part 3: What does this mean going forward? (Unless you are an EB-5 junkie, you don’t have to read the first two posts.)

So what exactly is the “tenant issue” that has given rise to much anxiety and debate in the EB-5 community and why should you as 1) a potential investor or more importantly 2) a potential Regional Center care? In a nutshell, the USCIS announced in February of this year that it would give credit to tenant created jobs only if one could provide proof, on a case-by-case basis, that these jobs would only be counted if one could show “excess demand” for the jobs (more on this below).

It all started with rumors on the Internet and LinkedIn groups that the USCIS had put a blanket hold on new Regional Center applications. In fact, when inquiries were made to the USCIS, many of us received the following email:

Dear Julia,
We apologize for the delay; however, this I-924 (RCW-**-***-****) is being held pending resolution of an issue at Headquarters.
Thank you for your continued patience.
USCIS Immigrant Investor Program

A few weeks later, the USCIS issued the following statement:

Dear Stakeholder,
In our last stakeholder call regarding the EB-5 immigrant investor program, a number of stakeholders raised questions with respect to our adjudication of petitions that for purposes of the job creation requirement have utilized what has been commonly termed a “tenant-occupancy” methodology. In light of the number of questions we received on this subject, we thought that providing clarification of our approach was warranted.
The “tenant-occupancy” methodology seeks credit for job creation by independent tenant businesses that lease space in buildings developed with EB-5 funding. USCIS continues to recognize that whether it is economically reasonable to attribute such “tenant-occupancy” jobs to the underlying EB-5 commercial real estate project is a fact-specific question. Each case filed will depend on the specific facts presented and the accompanying economic analysis.
USCIS is now moving forward with the adjudication of certain pending I-924 Applications For Regional Centers Under the Immigrant Investor Pilot Program that are supported by the “tenant-occupancy” economic methodology. Our newly-hired economists and business analysts will be bringing expertise to these new adjudications, and requests for evidence will be issued to certain applicants and petitioners to address any questions or issues we have about the economic methodologies employed in their specific cases. Our adjudications will continue to be made on a case-by-case basis and we do not intend to revisit factual findings. I-526 Immigrant Petitions by Alien Entrepreneurs and I-829 Petitions by Entrepreneurs to Remove Conditions will have predictability in connection with early regional center adjudications.
Our retention of experts with economic and business analysis expertise is part of our ongoing efforts to improve our administration of the EB-5 program. We are taking other steps to both improve the efficiency of the program as well as to ensure its integrity. We look forward to keeping you informed of these improvements.

Kind Regards,
Office of Public Engagement
U.S. Citizenship and Immigration Services

Then, soonafter, scores of pending Regional Centers recieved the following identical RFE (request for evidence):

Upon further review, it appears that __RC is using EB-5 capital to construct commercial buildings. The job creation estimates employed in this application are based, at least in part, on the assumptions that direct employees of the future tenants of the buildings can be utilized as inputs into the applicable input-output model. However, USCIS has concerns that the attribution of these direct jobs to the EB-5 investment may not be based on reasonable economic methodologies, and therefore do not demonstrate in “verifiable detail” that the requisite jobs will be created. Rather, contemporary economic methodologies appear to indicate that such jobs would be more appropriately be attributed to the tenants themselves and not to __RC because the de
mand for labor precedes the decision about where to house that labor as a general economic principle. For example, if a federal agency determined that additional federal employees needed to be hired to fulfill the agency’s mission at a particular location, the federal agency would see to hire the requisite number of employees and as part of that process, would also take steps to lease the appropriate physical premises to provide sufficient workspace for the new hires. In this instance, it is the federal agency that is creating the jobs through its decision to hire more employees, not the landlord who will ultimately lease the workspace to the federal agency.

USCIS observes that the tenant-occupancy methodology (that the direct jobs created by future tenants are intended to be attributable to the EB-5 investments) is not economically reasonable on the facts as presented. To allow for the existing methodology would require USCIS to credit the prospective EB-5 investors in the new commercial enterprise with the employment impacts created by the unrelated business ventures of future tenants (even though such tenants might engage in business activities within the requested industry categories and NAICS codes). After reviewing the tenant-occupancy methodology presented thus far, USCIS observes that the nexus between the investment and the job creation is either too attenuated or too incomplete to constitute a reasonable economic methodology. Consequently, the existing record presents USCIS with a justification to recognize only those employment impacts that could be attributed to __RC, such as those resulting indirectly from the construction activity and, if applicable, the ongoing building management activities that will be required to maintain the building.

However, USCIS does not foreclose the possibility that __RC might present additional evidence to demonstrate an economically acceptable nexus between the EB-5 investment and responsibility for the job creation asserted in the application. Accordingly, __RC may present additional evidence to demonstrate that the proposed methodology is economically reasonable.
To help illustrate the factors that USCIS finds central to adjudicating the fundamental reasonableness of this particular economic methodology, USCIS requests that any response address the following points:

    1. Evidence that there is excess demand for the specific types of tenants (various tenants as indicated in the business plan and economic analysis) to your construction project and business plan. Please provide a data-based assessment, and the source of data utilized by the assessment. To show such excess demand, the assessment should:
    a. Analyze: whether prospective tenants which would locate in the commercial space that will be constructed and/or renovated under the proposed project are currently suffering from a lack of a unique or specialized business space, that, in economic terms, such prospective tenants are “constrained” from commencing or expanding their businesses by a lack of unique or specialized business space.
    b. Provide a data-based analysis, including the source of data, which establishes whether there is “pent-up” demand for the specific professional and business services relevant to your project. Such data-based analysis should include:
    i.      Evidence of congestion externalities as demonstrated by a low vacancy-unemployment ratio pursuant to specific space and businesses seeking to expand, respectively; and
    ii.      Evidence of upward wage and rental pressures in specific regional sectors that are likely to be attracted to the proposed project space.
  1. The jobs that become located within the tenant space of the project should be shown to be a result of an expansion in specific services driven by your project as opposed to tenant shifting and/or relocation of already-existing jobs. Please explain how it will be verified that the jobs that will become located within the tenant space of the project can be considered “new” jobs.

Alternatively __RC is afforded the opportunity to provide business plans and an economic impact analysis for any industry categories and NAICS codes to demonstrate employment creation which is not based on tenant occupancy.

But what does this all mean??? To be continued…