Why rural energy projects gain popularity as EB-5 investment options - EB5Investors.com

Why rural energy projects gain popularity as EB-5 investment options

EB5Investors.com Staff

By Marta Lillo

Investing in energy projects in rural areas is gaining traction as an EB-5 investment alternative, as these projects align with many of the EB-5 program’s goals.

However, the energy industry must bridge the knowledge and trust gap it still faces to establish a stronger presence in the EB-5 ecosystem and compete with traditional commercial and housing real estate projects, which have historically dominated the EB-5 investment market.

According to Rupy Cheema from EB5 Energy, a key factor that is helping energy projects gain ground is the fact that they are typically located in rural areas established by the Reform and Integrity Act of 2022 (RIA) — locations that comply with the EB-5 program’s goals and requirements for Targeted Employment Areas (TEA).

“The EB-5 program intends to encourage economic activities and create jobs in the U.S., particularly in those high unemployment areas. Energy projects, under the new rule, fit the government intent perfectly as they are the true rural projects,” Cheema says.

Besides their competitive location, Philip A. Vachon, a co-founder and personal investor in Western Energy Regional Center, which specializes in oil and gas EB-5 projects, believes that EB-5 investments in energy developments significantly benefit the U.S. economy.

“Energy projects are better suited for EB-5 capital (…) Two of our applications were expedited because they affected national interest. We applied to the USCIS early on, right after RIA, and explained how our projects would help increase gas supply and lower prices at a moment when the big problem in the U.S. is inflation driven by energy prices, and both were approved. Second, energy projects do not add to the U.S. government deficit because they don’t ask the government for money. And third, these investments don’t take anything away from social or military spending,” Vachon says.

Meanwhile, John Reid, director of project development at CanAm Enterprises, an operator of multiple regional centers (RC) nationwide, said these contributions to the U.S. economy and employment also facilitate government support for energy developments.

“EB-5 projects that strengthen and diversify America’s energy capacity can be win-win for investors. The U.S. government is even inducing them through tax credits for green energy and an EB-5 policy that incentivizes infrastructure development and projects in rural areas,” Reid adds.

EB-5 investors’ reception of rural energy projects and their benefits

Energy projects range from oil and gas drilling and refining to renewables like solar panel facilities, wind farms, and hydropower plants.

Because they are primarily built in TEAs, they tend to be a more economical option than urban EB-5 projects, as the minimum investment threshold requires $800,000 for EB-5 investors (compared with the $1.05 million needed for urban projects).

According to Cheema and Vachon, RIA’s improvements to the EB-5 visa program such as applications for rural investments receiving priority processing by the USCIS and the newly introduced set-aside categories, which reserve 20% of EB-5 visas each year for investors in rural projects, are providing the necessary push for energy projects to become a more viable alternative to conventional commercial real estate ventures.

“Most projects, under the old rule, are commercial real estate projects in urban TEA areas. It had arguably contradicted the government’s original intent to encourage commercial activities and create jobs in areas that needed help the most. Under the new rule, more visas were set aside for rural projects that allowed them to benefit from encouraged investments they weren’t able to enjoy previously,” Cheema adds.

Vachon confirms that RIA’s benefits have gained momentum for rural energy projects. “Right now, our projects are hiring people in rural areas. They wouldn’t be working without our capital. So, the rural provisions of RIA worked by driving investors toward energy,” he insists.

These advantages are allowing the EB-5 ecosystem to take further notice of energy projects in general. Given conventional energy sources are still widely used in the U.S. and worldwide and their potential for immediate cash flow makes them an attractive choice to knowledgeable investors, Vouchon says. “In energy, you have a steady revenue stream, it’s a cash-flow business, not an equity business.”

Challenges and opportunities of EB-5 energy projects

Despite the growth and popularity, energy projects are still looking to solidify their position in the EB-5 industry.

“It is not a new concept but is not often encountered in the EB-5 space,” Cheema clarifies.

According to Vachon, “There’s still a big bias in the market that will take a while to solve in favor of energy. There needs to be a better connection between energy and EB-5.”

Informing the EB-5 market about the nature of these projects, compared to conventional real estate endeavors, is crucial for connecting both industries.

And the best way to get the message out there would be to align with USCIS procedure first and increase investor understanding about how valuable energy, specifically domestically produced oil and gas, is to the U.S. economy, according to Vachon.

“The processes the USCIS has, and the projects EB-5 investors are used to seeing, are predominantly geared toward real estate,” he says. “The energy industry has its own rules and processes, and EB-5 has its own set of rules. Right now, we are aligning those two different processes for the USCIS to understand so to create a frictionless capital flow.”

Among the issues EB-5 investors must understand is that, like any other project, energy investments must undergo strict exhaustive due diligence, Reid cautions.

Also, not all energy projects qualify for EB-5. “The U.S. energy economy is worth over $1 trillion and employs millions of workers, but not all energy projects are suitable for EB-5 investors,” Reid asserts.

He recommends that EB-5 investors partner with Regional Centers that conduct thorough due diligence to safeguard applicants’ financial and immigration security. “Investors should work with Regional Centers that approach project selection from the perspective of ‘how does this project protect my investors’ capital and secure their green cards?'”

Despite these challenges, Cheema trusts EB-5 investors in today’s market are well informed and “will soon recognize that oil and gas take very little time to produce compared to ground-up development projects, and its cash flow is almost immediate and consistent. Thus, we perceive energy projects are unique in character and will be widely regarded among agents and investors.”

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