The EB-5 investor program technically ended September 30, 2015. There was a rush on the investor side to file before end of Sept. 30, hoping to be grandfathered at the $500,000 minimum and not be affected by a possible increase to $800,000. But Congress did not make any permanent changes, and implemented only short-term extensions by a continuing resolution, and now another extension has been given until the end of April 2017.
Again, we are seeing a substantial rush by investors to be covered under the minimum amount of $500,000 by filing their investor petitions before the current extension ends; are they safe-guarded? Most of my colleagues in the EB-5 industry think it is more likely than not, that if the amount is increased to $800,000 or $1.3 million, it won’t be retroactive before the extension deadlines.
We can’t guarantee it won’t occur, but we don’t think it will. A Bill submitted to Congress earlier this year called for retroactivity and an extra increase requirement on investments going back from June 2015 to now. I think that is absurd as this Bill would be trying to change existing law that has sunsetted the end of September 2015. Currently there are clean extensions that should not allow retroactivity.
Investors are asking me, should we file before the end of April 2017? We would recommend it as we believe it is more likely than not that they won’t be affected by new laws. Even if there is disagreement with the minimum investment amount, still the EB-5 Regional Center Program should continue to exist. Congress and the U.S.C.I.S. are struggling right now over classifying geographic areas for minimum investment requirements. Known as TEA’s or Target Employment Areas.
The program won’t lose investors if the minimum investment amount increases. Investment requirements for some countries are quite substantial, more than $1 million, $3 million, or $5 million sometimes. Our country’s laws, economic stability, and the new proposed EB-5 laws and regulations regarding predictability and transparency gives a comfort level to investors who seek permanent residency in the U.S.
The EB-5 legal and financial structures are unique because they are governed by both immigration rules and the SEC. The SEC considers the EB-5 Regional Center requests for investors as a public offering and states they want to make sure the documents comply with security laws to avoid misrepresentation so that the investment money is used the right way.
Immigration regulations and policies do not authorize redemption agreements for investors to get back their full investments, or any portion of their investment. A true exit strategy should be real, which would allow the possibility of investors to obtain money back. One thing we learned from bad EB-5 projects is that principals fraudulently used the investors’ money.
How do we avoid this? It is best to have mandatory third-party fund administration as a necessity. Now the SEC does not require third-party fund administration, but it should.
As an example, the third-party fund administration will track how the investor money is being applied as stated in the business plan and economic report. This means investors’ money can only be used in certain categories in order to lead to the required job creation. As a result, the third-party fund administration will make sure the investors are regularly informed that the EB-5 Regional Center developer is using the EB-5 funds correctly and as planned.