What the EB-5 Program Extension Means to New EB-5 Investors

  

SAIGON- As we gathered at the beautiful Park Hyatt Saigon for the first ILW/HLG EB-5 Immigration Summit this past Friday, the U.S. Senate was squabbling over the so-called “Continuing Resolution” required to keep the U.S. government funded after midnight of the same day.  At 10:45pm EST Friday night, the Senate passed the resolution, with barely an hour and fifteen minutes to go before the official government shutdown. At that very same time here in Vietnam – Saturday morning as I am 12 hours ahead of the U.S. east coast — I was meeting with an investor when I was interrupted by a late night text from a friend in Washington:

“José, they just extended through April 28th!”

While hardly a surprise since it is what I expected, the news was, of course, a relief.   It seems that the annual drama of the “continuing resolution” – basically, a temporary extension of approval for hundreds of U.S. government programs and activities — is the norm these days, with weeks partisan bickering, Twitter wars, and silly CNN sound bytes…all ending in a last-minute approval of the extension.  Otto von Bismarck (1815-1898), the famous Prussian statesman behind the unification of Germany once joked: “Laws are like sausages, it is better not to see them being made.”  Imagine if old Otto had to sit through 24/7 CNN coverage of the U.S. legislative process…

In any event, the real question is “What does this mean for someone actively considering an EB-5 Regional Center Investment?”.  Here’s my takeaway for those of you on the fence about whether or not to invest now in EB-5:

  • The extension means that the current EB-5 Regional Center program remains in effect unchanged until April 28, 2017.  “Unchanged” means both good things and bad:  while the price of admission is still at the $500K/TEA and $1M/non-TEA thresholds, the many EB-5 projects abusing the TEA process by “gerrymandering” census tracts to create false Targetted Employment Areas will continue to do so.
  • While investors take comfort in the as-is extension of the program, they need to be very careful when selecting EB-5 projects located in major urban centers such as New York City, Los Angeles, and Miami to insure that the projects are located in TRUE “TEAs” reflecting 150% national unemployment level conditions.  As I detailed in my recent blog about the GAO report confirming the extent of TEA abuse, the U.S. government has crunched the numbers and totally refuted Big EB-5’s assertion that investor funds are going to needy areas: more than 1/3 of all EB-5 investment funds reviewed were going to areas with below-average unemployment rates.  That confirmation of what we all suspected infuriated EB-5 reform leaders on Capitol Hill and officials at USCIS responded with a hasty release of new policy guidance as regulations are being drafted to end the practice of TEA gerrymandering.
  • Bottom line: to avoid reform-related consequences, investors should ONLY choose EB-5 projects located in rural areas or in TRUE high-unemployment census tract TEAS.  TEA abusers have been delaying reforms for years by spending millions on Washington lobbyists, but that ship has sailed; no longer will reform be delayed as regulators use executive authority to fix the flagrant abuse.

So there you have it: apart from the importance of investing in EB-5 NOW to avoid what everyone agrees will be a substantial increase in the cost of investor visas, don’t fall prey to the high-pressure sales tactics being pressed here in Vietnam and much of Asia.  And, most of all, don’t believe the industry-wide smooth reassurances of Big EB-5 that TEA reform will not affect existing projects; while that was probably true when we were expecting a Congressional solution to EB-5 reform, that is no longer the case.  The GAO report revealed the smoking gun of TEA abuse and the fact that without such abuse, virtually all of these megaprojects would have to find $1M investors, and the outrage in Washington is triggering regulatory changes that not even million-dollar lobbyist budgets can extinguish.

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