EB-5 program remains pending after re-authorization law falls short


    The EB-5 industry was dealt a severe blow this summer when Congress did not re-approve the EB-5 regional center program before the June 30 deadline. Industry leaders are frustrated that Congress has missed the deadline. Still, many remain optimistic that the program could be revived before the end of 2021. In the meantime, EB-5 investors, developers, and program administrators are struggling to deal with the aftermath of the current uncertainty.

    EB-5 is an incentive program for foreign investments in the US, in which green cards are exchanged for capital. Its proponents praise it as an important tool of economic development for economic development and job creation. According to IIUSA, the EB-5 program helped generate $ 20.6 billion in FDI between 2008 and 2015.

    Despite bipartisan support for re-approval, an attempt to pass the law unanimously was blocked by Lindsay Graham (R.-SC). Although the EB-5 program has been exposed to a number of short-term renewals over the past few years, which often went on the wire, a key difference in this round was that the EB-5 re-authorization was pulled out as a separate bill of its own, probably a move to pressure Congress to undertake reforms instead of automatically renewing the program. This move seems to have backfired as the stakeholders are now working to find a plausible path for re-authorization.

    “We’re back on hold,” said Aaron Grau, executive director of Invest in the USA (IIUSA), a nonprofit trade association of the EB-5 Regional Center Program that represents the industry on government and public affairs. . The re-authorization legislation for the EB-5 Regional Center Program has been returned to Hill for review and approval for inclusion in a “must-pass” law that must be approved before the end of the calendar year. “We hope to be able to discuss this industry consensus measure with all relevant Hill stakeholders. make her happy; maintain the balance between industry stakeholders; and finally to achieve something – not only for the economic advantages that EB offers, but for all the immigrant investors who have sacrificed a lot in order to participate in this process, ”says Grau.

    Many industry participants are optimistic that the program will be re-approved for several reasons. Congress is likely to feel some pressure to help the thousands of overseas investors who have capital tied up and whose motions are pending. There is still considerable investor demand for the program from foreigners seeking US citizenship. In addition, the original intent of the program was to stimulate and mobilize foreign investment for economic development and job creation, and there is still a great demand for this low-cost capital to fund projects.

    “There’s just too much support and too much demand and too much positive from the Regional Center Program to expire,” says Rohit Kapuria, partner at Saul Ewing Arnstein & Lehr LLP, who regularly represents EB-5 lenders, EB -5 borrowers, banks, regional centers and real estate developers.

    Demand is shifting to direct EB-5 investments

    The EB-5 program has weathered short-term outages in the past, albeit nothing of this magnitude. During such outages, the main task of the regional centers is to reassure investors. However, the market has remained surprisingly active. In addition to sunset on June 30th, there was a June 22nd California District Court decision invalidating the EB-5 rules, which were introduced in November 2019 as part of the final rule to modernize the EB-5 program to modernize immigrants came into force. Among other things, the court ruling lowered the minimum investment required in a Targeted Employment Area (TEA) from $ 900,000 to $ 500,000.

    “Taken together, these two events created a” perfect storm of EB-5 chaos, “said Christine Chen, CanAm Enterprises’ chief operating officer. CanAm operates seven USCIS-designated regional centers and has funded more than 55 EB-5 project loans with over $ 2.8 billion in capital from EB-5 investors. “There are a lot of people who want to join the program themselves if they have the option of a short-term extension for $ 500,000,” says Chen. There are also long-term investors who would like to get in with the lower minimum but are willing to pay the $ 900,000 if they have to. “So it was a very active time for us and a lot of conversations trying to plan different what-ifs,” she says.

    While the EB-5 program has existed for about 30 years, there are actually two different avenues for immigrant investors – the original or “Direct Program” was launched by Congress in 1990, and the EB-5 Regional Center Program was launched in 1992 the re-authorization expiration only affected the Regional Center program, while the EB-5 Direct program remained undisturbed and successful.

    By June 30, the majority of all EB-5 activity was in the Regional Centers program, in large part because it was more flexible and larger amounts of capital were easier to raise. However, when the Regional Center Program expired, demand shifted to the Direct EB-5 Program. “People who have been waiting for the Regional Center EB-5 are now jumping into the Direct EB-5, and that has created a lot of interesting maneuvers in the industry,” says Kapuria. For example, some regional centers are structuring business through subsidiaries to set up Direct EB-5 platforms, and Direct EB-5 projects are growing, he says. “Demand is not an issue. Investors want to do EB-5, be it through the regional program or the direct program, ”adds Kapuria.

    Both the Regional Center and Direct programs require investment in a new trading company that creates or maintains at least 10 jobs per investor. However, there are some key differences between the two programs. Under the direct program, job creation is limited to W-2 full-time positions. These jobs must also be maintained over a longer period of time. For investors in regional centers, job creation can be the sum of direct, indirect and induced employment as determined by regional economic models. (Induced jobs refer to the subsequent surge in spending that can affect a local economy.)

    Because of the need to create W-2 jobs, the direct program fits well with hotel and restaurant developments, and unlike the regional center program, the direct program is permanent and does not require re-approval.

    The uncertain future is a burden for the industry

    The biggest obstacle for participants in the EB-5 Regional Center program is uncertainty. “Nobody knows what’s going on. There is no certainty because everything is political, ”says Kapuria. This is particularly true of Congress, which is currently littered with pressing deadlines to extend the debt ceiling and pass President Biden’s two agenda bills, “Build Back Better”.

    At the moment, the entire EB-5 regional center program is on hold. After the Regional Center Program ended on June 30, the United States Citizenship and Immigration Service (CIS) issued a recommendation that it would hold any EB-5 application from immigrants for 90 days until the end of September. As of July 1, the CIS has not processed the petitions on Forms 1-526 and 1-924.

    “That is really negative. We are talking about people who have been in the program for at least five years or more when they come from China and now they are not processed. So it’s pretty serious from that point of view, ”says Kapuria. The industry also hopes that given ongoing efforts to re-approve the program, the CIS will extend this suspension beyond September.

    Like many regional center operators, CanAm has strengthened its investor contacts and is conducting ongoing discussions with investors. “It has had a lot to do with investors, and it has also thought about how we will position ourselves if the program is re-approved,” says Chen. A prevailing belief is that if there is longer-term, multi-year re-approval that includes some reforms, there will likely be a tradeoff on the minimum investment, which ranges from $ 500,000 to $ 900,000, Chen notes.

    What that means for the size of the capital increase is uncertain, adds Chen. “We’re trying to recalibrate our project pipeline to suit different investment price points,” she says. “We don’t know how this program is growing or shrinking, but we try as hard as possible to put together offers while actively staying in touch with existing and potential investors.”

    For CanAm, another line of business affected by the program’s phasing out is the company’s capital shift platform. EB-5 investors are required to hold the invested capital until their visa application is processed. For some EB-5 investors, the original investments have been used for project loans that are now due. However, they are still in the queue for their visas. So this capital has to be reallocated into new projects. “Normally we would talk to these investors about their switch options, but it is obviously very difficult to make a switch decision when there is no program to switch,” says Chen. CanAm had a major redeployment that was approved in Fall 2020 and has successfully redeployed around $ 225 million in EB-5 investor funds into new projects, primarily by funding mezzanine loans for several apartment and student housing projects.

    Another wildcard for the EB-5 industry is whether the bill proposed earlier this summer will be recycled “as is” and simply turned into new legislation, or whether reforms and changes will be added. “I am very optimistic. I don’t think anyone would want to see this program run. Everyone, even their critics, understands the value it brings to the US economy, ”says Grau. “Well, I think it’s just a matter of patience, perseverance and compromise.”


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