Now that investors and Regional Centers have had time to process the changes of the RIA, what can we expect from EB-5 this year?
2022 was an eventful year for the EB-5 Immigrant Investor Program. After the Regional Center program had been allowed to expire, it was resurrected with the passage of the EB-5 Reform and Integrity Act of 2022. Then came a lot of confusion about the law’s new compliance rules, a lawsuit, and many in the industry struggling to figure out where they fit into the new world of EB-5.
Heading into 2023, some Regional Centers have been authorized under the RIA and investors are able to begin the visa application process again. But what can we expect from the coming year? Will there be fewer projects than before? Will the new integrity measures cut down on instances of fraud? Will the demand for EB-5 investment opportunities exceed the number of projects available?
To help us sort through where the industry stands today and where we could end up one year from now, JTC asked some EB-5 experts to give us their analysis of where we are and where we might be headed. As you can see from their responses, there is a lot of agreement on what the biggest issues are right now, both in terms of promising developments like rural set-asides and interest from China as well as the challenges we still face. Overall, the outlook is a positive one, with some reservations.
The last couple years have seen a lot of upheaval with the expiration of the Regional Center program and the passage of the Reform and Integrity Act. Where do things stand now? Has EB-5 bounced back?
Ronald Fieldstone, Saul Ewing LLP: There’s been a tremendous pent-up demand from investors looking to emigrate to the United States, especially given the adverse political and economic conditions being encountered. The rural set-aside has reinvigorated the demand in Mainland China since at this time, there would be no retrogression, and even if the visas become retrogressed, the wait time would be far less than the current one.
The new EB-5 legislation should create comfort for agents and investors given the integrity measures that have been adopted and the potential for faster adjudication of petitions. The settlement agreement in the Behring case will hopefully enable better access to USCIS, especially since the judge in that case has retained jurisdiction if there are illegal positions taken by USCIS.
The significant increase in interest rates in the United States, along with reductions in traditional financing, make EB-5 far more attractive than 12 months ago.
Looking ahead to 2023, where do you see the industry going?
Kurt Reuss, Founder, EB-5 Marketplace: Diversity of EB-5 offerings. We are already seeing offerings from a variety of industries with differing strengths that appeal to different petitioners. The benefits of investing in rural locations will cause major shifts in the industry in 2023 and beyond.
Rural offerings are in high demand in China, India, and Vietnam because of priority processing and visa set-asides. While USCIS has yet to define ‘”priority processing,” many immigration lawyers I’ve spoken with think I-526E processing will take less than one year – a big advantage compared to the standard processing time of about three to five years, and of course much longer for the big three.
Industries such as alternative energy, infrastructure, and manufacturing will be better represented in 2023. Most real estate projects, especially in hospitality and mixed use, aren’t attractive investments in rural areas, unless they’re situated in a resort setting.
Ron Klasko, Klasko Immigration Partners, LLP: I expect that 2023 will be a boom year for EB-5. There will likely be a significantly increased volume of investors from China, especially in rural projects. The long-term Regional Center program authorization for the first time in many years will likely result in increased demand among investors despite the $800,000 minimum investment amount.
I expect that there will be an unprecedented number of purchases and sales of Regional Centers. Regional Centers that do not want to deal with the expense, responsibilities, and liabilities under the RIA will be looking for purchasers; developers that do not want to wait an expected many years for approval of new Regional Center designation applications will be looking for Regional Centers to purchase.
Are there trends in the EB-5 marketplace or issues you predict will be major points of discussion over the next 12 months?
Klasko: There are a number of major issues that will be fleshed out in the coming year. What will happen to Regional Centers that choose not to file Form I-956 because they will not be doing business under the RIA? How will their grandfathered investors be affected? Will pre-RIA projects be subject to the compliance requirements of the RIA? Will Regional Centers that filed Form I-956G prior to December 29, 2022 be required to re-file when USCIS publishes the revised I-956G?
Fieldstone: The significant increase in costs to undertake an EB-5 offering from both a filing fee and maintenance standpoint are a concern. We expect these fees will be reversed or contested. The industry is not confident USCIS will adjudicate petitions on a more expedited basis since it has never done so in the past. There really is no enforcement mechanism.
Reuss: Concurrent filing is a significant investor benefit of the Reform and Integrity Act and allows investors living in the U.S. to file for adjustment of status at the same time as filing their EB-5 petitions. That’s huge for people like laid-off H-1B workers who can continue to live and work in the U.S. I expect we’ll see lot of people already in the U.S. take advantage of that.
And the new regulations have gone a long way to requiring transparency and accountability from Regional Centers, and indirectly from NCEs. To properly comply with securities laws, offerings will provide investors with far more transparency. Also, the “issuer exemption” will likely be heavily scrutinized and in many cases fail as a safe harbor for NCEs.
I think 2023 will begin to weed out many of the less responsible players in the industry. But since the SEC and USCIS take years to punish offenders, many players won’t know until it’s too late that they have failed to follow securities rules.
It’s always tough to predict, but if you had to guess, how will the EB-5 marketplace look one year from now?
Klasko: One year from now, I predict that there will be significantly fewer Regional Centers than exist today. I predict that many Regional Centers will have different ownership. I predict that the reserved visas for high unemployment TEAs and rural areas will be exhausted. I predict that there will be disputes, and possibly litigation, regarding the proposed huge increases in filing fees for every type of EB-5 filing.
Fieldstone: While the current outlook is good, there are reasons to be cautious. Developers are still concerned that based upon the increased rules and regulations, there will be an even greater time delay in raising funds. This uncertainty could make EB-5 funding less advantageous when compared to non-EB-5 mezzanine funding that is more expensive but predictable.
For investors, there is a potential for retrogression in the future, not only in China, but also in India and Vietnam. As is apparent, there are many opportunities going forward, but strategic planning is essential.
Reuss: The market hasn’t yet woken up to the complications involved in a securities offering, much less one that involves foreign agents. Securities rules designed to protect investors will perversely cause many of them great stress when their Regional Center or NCE is found to have failed to properly monitor the solicitation of the offering. A “right of rescission,” which gives investors a chance to withdraw from an investment if the proper risk disclosures have not been made, or exaggerated or misleading claims were made, will be destructive to the project and any investor wishing to remain in the project, potentially effecting its job creation.
And responsibility will also fall on Regional Centers. Some will be terminated, and this will cause havoc for investors and keep lawyers very busy. The role of the Regional Center will become a lot closer to that of a traditional broker-dealer, and that means compliance and protocols they’re not used to.
I think the smarter Regional Centers will either partner with a broker-dealer or hire a securities compliance expert to help ensure they’re on track with the myriad requirements of the Reform and Integrity Act and securities laws in general.
So just as investors must adapt to the new landscape, Regional Centers must do the same. USCIS will punish non-compliance and most Regional Centers will either get forced out or decide the headache’s not worth it for them.
In the end, the Reform and Integrity Act is designed to ensure transparency and protect investors. The industry is currently experiencing a great deal of frustration as USCIS figures out how to manage its new role. But 2023 will involve even more hardships as Regional Centers learn that the securities world is complicated and unforgiving to those that don’t follow its myriad rules.
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