As we continue to learn what the provisions of the new EB-5 law mean for new Regional Centers, those who operated under the old program still have questions.
Since the passage of the EB-5 Reform and Integrity Act of 2022, there has been plenty of discussion about the deluge of new rules and the lack of clarity for many of them. Updates have slowly trickled in, including the release of the new I-956 application for Regional Center designation, but there’s no timeline for when we’ll have full clarification of all the new rules.
The fact that there is still so much we don’t know was a major topic of discussion at a recent webinar hosted by JTC Americas and Greenberg Traurig, LLP. Titled, “The Right Time is Now: Succeeding with EB-5 in 2022,” experts from both companies answered questions about the current state of EB-5 and what to do with all this uncertainty.
“We’re still waiting for guidance,” said Kate Kalmykov, Shareholder at Greenberg Traurig, LLP. While the rules regarding things like registration of agents haven’t been clearly defined, Kalmykov says one thing is for certain: “Overall, running a Regional Center right now is going to be a lot more work than it previously was.”
One change that has caused a lot of concern has been the news that Regional Centers designated under the old program will have to submit entirely new applications under the new program, which is likely to lead to significant delays.
As the panelists answered questions from attendees, one topic kept coming up: what do Regional Centers designated under the old program need to do? Do the new Fund Administration requirements apply to projects that predate the new law?
The answers to these questions may depend on what the Regional Center plans to do going forward. The panel provided guidance based on the information currently available, covering two distinct scenarios:
If a Regional Center does not plan to reapply for designation
There are a lot of reasons why a Regional Center may not wish to apply for designation under the new law. The operators may feel the new rules are too restrictive, or may simply wish to avoid the increased costs, which include a $17,795 filing fee.
Another important factor, according to Greenberg Traurig’s Jennifer Hermansky, is the possible wait times. Since so many Regional Centers are expected to be applying for redesignation all at once, how long will they have to wait for approval?
“One of the issues surrounding all this is: how long will it take USCIS to redesignate people?” she said. The RC must be approved before I-526’s can be filed, so a long wait time for approval could draw out the process to the point where Regional Centers could lose investors or miss out on opportunities. This uncertainty presents additional risk that may cause operators to rethink proceeding with an application.
No matter the reason, choosing not to apply for redesignation would mean their currently active projects will be the Regional Center’s last EB-5 activity. So do they have to implement the recordkeeping and Fund Administration practices outlined in the new law?
“The answer would be no, according to the USCIS current policy,” said Hermansky.
That’s good for Regional Centers that don’t wish to deal with the complications of the new law. However, the answer is different if they plan to continue raising funds for projects in flight or pursue new projects. For those who wish to apply for redesignation, what are their obligations?
If a Regional Center plans to apply for designation under the new law
Under the EB-5 Reform and Integrity Act of 2022, all Regional Centers active under the old program are no longer designated, and must reapply. According to Kalmykov, this means there’s no real difference in the application process between reauthorizing and applying as a new entity.
“There’s no process under this FAQ for reauthorizing, so you need to apply completely from the beginning whether you use the same entity or not.”
If an operator winds down all projects from their previous entity and applies for designation as a completely new Regional Center, the two entities would remain separate: the original entity will not be subject to the new requirements, but the new one, if designated under the new law, will have to comply with all new rules.
But what if the Regional Center wishes to operate as the same entity? That is, if a Regional Center wishes to continue operating and applies for designation using form I-956, what happens to their existing projects? Do they now fall under the new Fund Administrator rules? Would this mean operators are better off letting existing RC’s close down and starting anew?
“The answer is maybe,” said Hermansky. “You might trigger requirements by using the same entity.”
As this is one of those areas where final guidance has yet to be issued, it’s unclear what USCIS will say on these matters, but Regional Centers need to be prepared for either outcome: it may be that the recordkeeping requirements will never apply to capital raises made under the old RC program, but it may be that if a Regional Center wants to apply as the same entity under the new program, the rules of the new program apply to all existing projects. Whatever happens, said Hermansky, it’s best to be prepared.
“That’s something you should talk about with counsel and figure out how you’re going to deal with that.”
The representatives from JTC at the webinar, Chief Revenue Officer and Managing Director Reid Thomas and General Counsel Jill Jones, brought with them particular expertise on the subject of fund administration. JTC Americas was involved with hundreds of EB-5 projects under the old program, and offers a full slate of solutions for Regional Centers under the new program.
A question asked of the panel was whether the fund administration services required under the new law can be applied retroactively. If it turns out that Regional Centers are required to institute the new recordkeeping and integrity measures to their existing projects, can a fund administrator like JTC handle this?
“Absolutely,” said Jones. “It’s not as easy as had the fund administrator been there from day one, but absolutely it can be added to a project in flight. It’s a matter of collecting the documentation and the records and getting them input, and then on an ongoing basis keeping up with them.”
The webinar discussion covered many other topics related to the new era of EB-5, including project exemplars, how audits will work, and registration of agents. We’ll continue to provide updates as more clarification comes in, but Regional Centers planning to continue operating under the new program can rest assured that JTC has the capability to meet their fund administration needs.
Together We Grow
Watch the full EB-5 Webinar with JTC Americas and Greenberg Traurig, LLP for free online here!