To kick off our “EB-5 Insights from the Experts” blog series, we asked two legal experts to share their 2020 forecast for the EB-5 program:
Robert Divine, leader of Baker Donelson’s Global Immigration Group and former Chief Counsel of USCIS, and H. Ronald Klasko, managing partner of Klasko Immigration Law Partners, LLP, have a lot to share about EB-5 3.0!
Closer eye on source funding
In 2020 I expect our firm to work harder with investors to document their source of funds, because USCIS appears to be applying increasingly greater scrutiny to this aspect of qualification. We always have tried to be fastidious, but now we will attempt to be pristine, and it might be more difficult with $900,000 than it was with $500,000.
The 2020 EB-5 market is smaller and more distributed than in the past, because (1) last year so many people who were interested in EB-5 “dove in” at the $500,000 level to “beat” the increase to $900,000, (2) some people who did not dive in then are still hoping that a court or Congress will return the minimum investment to a lower level, and (3) the waiting periods for visa numbers for the “big three” countries of China, Vietnam, and India are so long (though perhaps not so long for China as people might have been thinking).
It takes longer to get investors
Marketing to investors seems like an even more long term, broad spectrum effort than it was before. Only a relatively small number of projects and players will be able to sustain a systematic effort needed to raise meaningful amounts of EB-5 capital for the near future in the absence of something dramatic. With the significant waits involved—even just for I-526 adjudication regardless of visa waits—the immigration benefit available for investment is more distant thus speculative and thus may be less compelling, so that issuers may need to offer more opportunity for return on investment with immigration benefits as a “also nice to have.” I expect to see investors pressing for more clarity on the parameters for reinvestment for the same reasons of duration.
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Fewer investors/Fewer applications
I didn’t need my headlights for this one. Quota backlogs were already leading to a decrease in investors. The rash of investors who invested and filed before November 21 took many prospective investors out of the equation. Add to that the fact that most geographical areas will require an investment of $1.8 million, coupled with the high value of the U.S. dollar, and it is hard to foresee anything other than a precipitous decline in the number of EB-5 investors in 2020.
Currency export problems
Perhaps even more significant, investors will have more difficulty surmounting currency export controls when they are trying to move $900,000 or $1.8 million than they did in moving $500,000. For example, in a country like China, where investors often needed to involve 10 or more friends or family in effectuating currency exports, one would need a calculator to determine the number of friends and family members who would be involved in a transfer of $1.8 million.
Fewer regional centers
When I first started practicing in the EB-5 area, there were only a handful of regional centers. That number grew over the years to in excess of 800. I expect that number to decline, perhaps precipitously. There are several reasons for this. With fewer investors, there will be fewer projects for regional centers to sponsor. This will make the regional center business less attractive from the standpoint of profitability and economic development. At the same time, prospective legislation is looming that could very substantially increase the cost of operating a regional center. Even if a regional center wants to continue to operate, I anticipate an ever-increasing volume of unwanted regional center terminations initiated by USCIS. Even if a regional center is making major efforts to attract new projects, it may be unable to do so, which USCIS may consider to be a ground for regional center termination for failure to promote economic growth in the region.
Our last EB-5 webinar, “EB-5 3.0 — A New Era?” discussed the regulatory changes in November. Find out what you need to do to comply – Watch now.