Short term EB-5 extensions: What investors should know
by Stephen Strnisha, chief executive officer, Cleveland International Fund
(Monday, 14 May 2018)
With its actions just prior to 23 March the US Congress once again indicated its preference for providing only a short-term extension for the EB-5 programme. Much effort had been exerted by the EB-5 industry to come to a consensus around a series of programme reforms and changes addressing those issues that had been raised concerning programme integrity and directing more investment to underserved areas of the United States. As an officer in the EB-5 trade association, Invest in the USA (IIUSA) it was disappointing to see that we were unable to bridge the divide between users located in our largest cities with the legitimate concerns raised by the rest of the country and their political leaders, but unfortunately that is the state of play within the American political culture today. The resulting stalemate has further delayed codifying important reforms into law and, most importantly, prevented a long-term reauthorisation. As a result, the programme was extended unchanged until 30 September of this year. With mid-term elections, this November Congress’s attention will be on political campaigns as opposed to revisiting significant legislative matters so the clear consensus is that the program will likely have to operate with short-term extensions into 2019.
What does this mean for EB-5 offerings and for investors who wish to consider EB-5 over the course of the next year? First, the good news: For now, the minimum investment remains $500,000 as opposed to being increased to $925,000 under the failed legislation. It should be noted that there are pending regulations from USCIS that could increase this to an even higher amount and although the agency has indicated that they now intend to move forward with these, new rules they have not done so as of this writing. Some doubt that they will or that if they do so they will come much later this year and at least at no higher amount than Congress proposed, given the large volume of comments to this effect submitted by the industry last year. In any event, the bottom line is that prospective investors have been given a reprieve from a price increase so that if they are truly interested now is the time to act. Similarly, the failure to pass more comprehensive legislation means that the definition of Targeted Employment Area remains unchanged. The effect of this is that nearly all offerings can remain at the minimum $500,000 investment level (as opposed to the non-TEA investment level of $1,000,000) and perhaps, more importantly, there will not be the potential disruption that may have resulted from offerings already in the market being affected by a change, negatively impacting both investors and projects.
On the other hand, the proposed legislation included positive reform provisions that would have added greater transparency for investors and safeguards to ensure the programme’s integrity. These measures were aimed at the small number of bad actors in the industry and would have had the positive effect of eliminating them from the market. Fortunately, the discussion of these measures alone has moved the majority of the market to adopt such practices on a voluntary basis. In the meantime, however, it will remain important for investors considering EB-5 to consider the track record of the regional centre they are working with as the best objective measure for making their EB-5 investment decision.
Finally, the overall message to the market as we operate under short-term extensions is that EB-5 remains a viable means to achieve permanent residency status, especially for those coming from countries not affected by retrogression. At this point, that group includes only China and Vietnam. For the balance of the world the path to conditional residency using EB-5 remains 2-3 years and for permanent residency 5-6 years. Note, however, that the latest prediction from the US State Department is that based on current demand longer waits could come as soon as June 2019 for investors from India, South Korea, Taiwan and Brazil. The message to take from all this is that while the programme’s extensions are likely to remain short-term Congress continues to keep EB-5 alive (threats that the programme’s demise is imminent are simply not true) and that if an individual sees EB-5 as the means to achieve their dream of US permanent residency now is in fact the best time to take advantage of this opportunity, especially if you are from the four countries just mentioned. For those from India, South Korea, Taiwan and Brazil the window to utilise EB-5 with the fastest path to residency possible is closing and they are best advised to move forward with their investment decision as soon as possible.