“EB-5” is quickly becoming a very recognized part of the finance world’s vernacular. The program has been around since 1990, but it is really the last six to seven years that have brought it into the mainstream. This article highlights significant trends and occurrences in the EB-5 arena during the last few years and makes calculated predictions about EB-5 developments in the near future.
The United States Citizenship and Immigration Services (USCIS) Guidance Memo: USCIS has made great strides in engaging the EB-5 stakeholder community and soliciting input on many technical and substantive issues. The Guidance Memo released on May 30, 2013 was a welcome culmination of a two-year process of gathering input from impacted parties. The content of that memo, as previously described on our blog, provides important insight and hope for Regional Centers, Project Companies and Investors.
- Leadership and Geographic Changes: Under the Direction of USCIS Director Alejandro Mayorkas, the USCIS has decided to relocate EB-5 case processing from California to Washington, D.C. This move, in conjunction with a switch to Daniel Renaud, a career immigration administrator, as head of the EB-5 division, promises to bring about positive changes in the processing of petitions. Mr. Mayorkas' promotion to Deputy Secretary of Homeland Security will also leave his current position in need of a strong leader. Several talented individuals are currently being considered.
- Regions Outside of Asia Becoming EB-5 Savvy: The majority of EB-5 investors are still coming from China. Nationals from other countries and regions are now also taking a strong interest in the program. From South America, Central America and Mexico to the Near East and Middle East, new networks of finders and brokers are being established.
- High-Profile Companies and Governmental Entities Engaging EB-5 Capital: The past few years have seen household corporate names using EB-5 funds as part of projects’ capital stack. State and Local governments have also gotten into the Regional Center business. This has helped to raise the profile of the program and provide more credibility to the sponsors and comfort to the investors.
- Increased Direct EB-5 Investment: There is a resurgence of direct equity investment in EB-5 projects and businesses. Businesses will seek either $1 million or $500,000 direct equity per investor and not go through a Regional Center. This is driven by projects that, by their very nature, have large numbers of direct employees, and is also a product of many other, non-real-estate-based projects seeking EB-5 funding. The EB-5 investor market is also warming to direct projects.
- Legislation Extending the Regional Center Pilot Program and Proposal to Make the Program Permanent: The Regional Center Pilot program as officially extended through September 15, 2015 and other significant changes are contemplated in pending legislation. Specifically, the U.S. Senate passed S. 744, the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013, and the U.S. House of Representatives introduced H.R. 2131, Supplying Knowledge-Based Immigrants and Lifting Levels of STEM Visas Act, or the “SKILLS Visa Act.” Both laws include, among other things, provisions to make the pilot program permanent. Proposals that will surely gain traction include those that will:
- Alter the minimum investment;
- Change the job creation requirements;
- Revise the definition of Targeted Employment Areas; and
- Require additional steps to deter fraud.
Predictions for the Future
- Continued Expansion of the Program: Based on the number of inquiries and the types of projects we are seeing, it appears that the EB-5 program will continue to gain more recognition and credibility as a viable source of funding.
- More Focus on Securities Compliance and Added Governmental Scrutiny: Greater enforcement from the agencies involved in EB-5 compliance is inevitable. We have seen the U.S. Securities and Exchange Commission focus on issues involved in offerings, fund formation, investor solicitation and marketing. Greater scrutiny on the individuals involved in offerings and projects is on the rise.
- More Interest in the Tax Consequences of Permanent Residence: Individual investors are becoming more increasingly aware of the international and domestic tax consequences of EB-5 investments. Professional tax planning and advice is beginning to emerge as a significant preliminary legal issue prior to investment. It is also important to assist the investor with state and federal tax planning.
- More Investors Looking Beyond the EB-5 Investment: Sophisticated investors are looking for EB-5 plus counseling. Investments in the U.S. may include the initial EB-5 investment, but the savvy investor is looking beyond this investment and into other options for more sustained U.S. investments with potential higher future yields.
- Competition from Other Countries: Other countries that either have immigrant investor programs or are contemplating such programs are carefully watching the success of the EB-5 program in the U.S. and are poised to start competing for investors.
- Investor Broker and Finder Networks Expanding: More sophisticated networks of finders and brokers outside the U.S. are developing. Along the lines of the Chinese broker networks, these groups in South America, the Middle East, and the Far East are emerging as key players in the EB-5 world.
- Higher-Quality Legal and Professional Services: The emergence of top-notch professional and legal service providers in the EB-5 world is inevitable. Firms such as Greenberg Traurig have combined sophisticated legal professionals specializing in corporate, securities, fund formation, taxation, real estate, immigration and legislative/policy issues to better assist the EB-5 Regional Center, Project/Business and Investor with all aspects of the EB-5 process. These types of teams also aid in navigating the increased governmental scrutiny of the program and in protecting the program’s integrity.