As we reported a few weeks back, USCIS has changed their policy with respect to the tenant occupancy method of calculating job creation.  In recent weeks, they have issued a number of Requests for Evidence (RFE) associated with I-924 petitions for either initial regional center designation or project amendment that rely on “tenant occupancy” to demonstrate indirect employment creation.

The RFEs that have been issued across the country have virtually identical language  which we have pasted below for our readers.

“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 demand 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.

2. 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. The business plan(s) and economic analysis must show:

· The feasibility of the project under current market conditions within the Regional Center;

· Employment creation projections are not based on tenant occupancy as described above;

· The transparent basis for the data that will be used as the inputs to the model (to included how the estimation of the creation of the direct jobs were derived); and

· The [economic methodology] calculations used to determine the jobs that will be created, supported by the relevant [economic methodology] data.

In addition, the submission must clearly identify the timeframe for the commencement, implementation, and realization of each project, how the investor’s fund will flow to the job creating entity, and as a result, how the jobs will be created.

The issuance of the RFE is a reversal of previous USCIS recognition of tenant occupancy as an acceptable means of calculating job creation.  For example, in a 6/12/2009 memo written by Michael Aytes, Acting Deputy Director, USCIS, in response to a recommendation by the USCIS Ombudsman to issue Standard Operating Procedures for Form I-526 petition, the Service noted that:

“EB-5 adjudicators should not re-adjudicate the indirect job creation methodology for Regional Center cases absent clear error or evidence of fraud.  USCIS will, however, continue to review the I-829 petitions to ensure that all measurable variables and assumptions that underlie the indirect job creation methodology have, in fact, been met. For example, an investor may make a proposal to create a shopping center that could be leased to various businesses. At the I-526 stage, the investor may claim that this proposal would result in the hiring of a certain number of employees by the tenant-businesses and that a certain number of indirect jobs would be created as well. USCIS must ensure that the tenant jobs have substantially been filled to support the indirect job count. This is not re-adjudicating the job creation methodology, merely, verification of an assertion previously made during the I-526 stage. In the alternative, if the job creation was based on total expenditure of capital to create the shopping center, USCIS must make sure that the full amount has, in fact, been invested in the job creating enterprise to support the job count.”  

With the reversal in USCIS policy with respect to tenant occupancy, it will be interesting to see if the Service will adhere to its 2009 memo.  Although, the tenant occupancy RFEs have thus far been limited to I-924 cases, it remains to be seen if they will trickle down to individual investor petition review at both the I-526 and I-829 stages.  

In the interim, clients and counsel must work closely with their EB-5 economist to determine the appopriate economic model for their project.   Feasiblity studies and market analyses will now be important documents to include in regional center filings.

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Photo of Kate Kalmykov Kate Kalmykov

Kate Kalmykov Co-Chairs the Immigration & Compliance Practice. She focuses her practice on business immigration and compliance. She represents clients in a wide-range of employment based immigrant and non-immigrant visa matters including students, trainees, professionals, managers and executives, artists and entertainers, treaty investors

Kate Kalmykov Co-Chairs the Immigration & Compliance Practice. She focuses her practice on business immigration and compliance. She represents clients in a wide-range of employment based immigrant and non-immigrant visa matters including students, trainees, professionals, managers and executives, artists and entertainers, treaty investors and traders, persons of extraordinary ability and immigrant investors.

Kate has deep experience working on EB-5 immigrant investor matters. She regularly works with developers across a variety of industries, as well as private equity funds on developing new projects that qualify for EB-5 investments. This includes creation of new Regional Centers, having projects adopted by existing Regional Centers or through pooled individual EB-5 petitions. For existing Regional Centers, Kate regularly helps to prepare amendment filings, file exemplar petitions, address removal of conditions issues and ensure that they develop an internal program for ongoing compliance with applicable immigration regulations and guidance. She also counsels foreign nationals on obtaining greencards through either individual or Regional Center EB-5 investments, as well as issues related to I-829 Removal of Conditions.

Kate also works with various human resources departments on I-9 employment verification matters as well as H-1B and LCA compliance. She regularly counsels employers on due diligence issues including internal audits and reviews, as well as minimization of exposure and liabilities in government investigations.