EB-5 is near DEATH - Finally

The new proposed regulations that will come into effect on November 21st of this year, will finally put the last nail in to the EB-5 coffin. most likely forever. This fantastic program that found millions of dollars invested into various projects across this great country and created hundreds of thousands of jobs will slowly but surely die, a slow painful death. But why will it die? Well, Senator Grassley is getting everything he wanted from the program that largely ignored his state. He has worked with the regulators to prepare a new set of regulations that make it virtually impossible for EB-5 to survive, or get better. What are the problems? Well here they are succinctly. 

First, the TEA amount goes up to $900,000. That in itself is not too bad. Most smart investors would pay or invest that amount to move to this great country and the amount is more than acceptable. However, more than 55% of the current projects will not fall within the new targeted employment area (TEA) rules that are changing with the new regulations, according to the IIUSA, the lobby group for the industry, therefore the investment amount will be $1.8 million for these projects that are not in a TEA. 

Second, when you look at the increase to the price for EB-5, or the investment amount, going from $500,000 to $900,000 in a TEA and $1.8 million not in a TEA and you work in the Consumer Price Index (CPI) adjustment that the Government will apply at the end of five years to that $900,000 or $1,800,000, it will make EB-5 unaffordable for most all but a few investors. And outside of a TEA, it will be well over $2 million.

Third, targeted employment areas (TEA's). New Regulations state that the USCIS will oversee the designation of targeted employment area projects, not the state the project is in. Currently if we look at the way they plan to establish the new TEA rules, more than 55% of the current projects that are selling under TEA rules will no longer be able to do so. This has to do with the word “contiguous”, as it relates to the TEA rules. With just one word change, the entire TEA system changes. Many will not qualify, some 55%, according to the IIUSA. That means a couple of things. To start with, your project may have to redo all its documents and provide an amended document to all of your current investors. Then, if you do not qualify under the new TEA rules, you now are selling your project at $1.8 million not $900,000, and certainly not $500,000. That may kill your capital raise. And how will, as another consideration, the change in your project’s status affect current investors if your funding dies.

Fourth, the number of investor visas. The new regulations did not deal with 10,000 investor visas as EB-5 was originally supposed to be structured, and how it was presented to the Senate back in 1990. What they did is leave it as it is today (a mess) which is wrong and limits the program. Therefore, if you look at total family members, there are actually only 3,600 or 3,700 potential investor visas available for the EB-5 program. That just does not work, as it is not working now, as many of us in the sector can attest too.

Fifth, the backlog. Nothing has been done to clear up the current EB-5 backlog. Now there is a possibility that the Congress will address this problem and kill the country max percentage, but when? They are away from DC for six weeks starting this Friday, the 2nd to return after Labor Day leaving a few days and then the Regional Center program dies on September 30th with little chance of any Congressional improvements plus, considering the word "immigration" is attached and this program deals with monied immigrants, the chances are slim for any improvements. I’m not sure anything can be done to clear up the 12 year waiting period for my Chinese friends. Not to mention Vietnam, South Korea and India backlogs. The USCIS is supposed to process I-829's in 90 days, and it is taking over two years!!! That's how to kill a great investment and job creation project.

Remember that if your project falls outside of the guidelines of any of the aforementioned, you have to provide new documents to current investors as it is a change and a major one and you have to create an amendment of your documents including a whole new section on risk factors, like the project may fall out of a TEA, and what that means to the project. Also, in your docs, if you are preparing them. you must include information that relates to the fact that your project may not fall within a targeted employment area at all, even under the new rules. 

How do you know if it does fall in a TEA? Well, you would have to have an approved 924A or you would need to have an approved I-526 AFTER November 21st of this year. So nobody, even the so called experts, really knows. 

Yes, it sounds like after all this time, the process has gone backwards. Now, this is not the fault of the President. In fact, every time he uses the words "merit immigration"; think EB-5 program.... without the new hiccups. The program is designed to welcome, or at least it was, monied investors to invest into the USA and create jobs. This is not the immigrants we see on the news each night or people like myself, that went through the immigration process to move and live in the US.

As the world has changed, in the EB-5 world, we have seen over 52% of applicants into the EB-5 program over the last 18 months or so from countries other than China. This is according to the information from the USCIS and verified by the team at Wolfsdorf Rosenthal (immigration lawyers).This in itself is a good thing as we are developing new EB-5 markets. And projects have rolled up their sleeves and packed bags to travel the world. But with the new regulations that are created by these new rules we have to ask ourselves, is it worth it to do EB-5? The answer is NO when you consider the cost of marketing, the cost to travel, the cost of dealing with attorneys and the cost of basically running an EB-5 program in places like India, the Middle East or London. You're far better off and it's far more cost-efficient to go out and raise mezzanine capital or private equity capital. That is where we come in. We are more than happy, and our firm is fully entrenched in the raising of private equity and mezzanine capital for your project. Just reach out and call us. 

Let's talk. 310-935-1518 ext. 101

Robert

Robert K. Whyte is the Managing Partner of Whyte & Co. and oversees the investment banking practice of the firm. The firm’s global engagements range from $7 million to $200 million in capital raises. He has been an investment banker for over 25 years. Robert is a General Securities Principal (FINRA Series 24, 79, 7, and 63) and is one of the only people in America that has completed a successful $1 million Direct EB-5, some eight years ago, with approvals granted for one of his companies. His successful book "Secret Government Approved Funding" is available at Amazon to download and enjoy.

 Securities cleared through LightPath Capital, Inc. The aforementioned should not be considered as legal or accounting advice; it is not intended to be legal or accounting or immigration advice of any matter or type. Only a licensed attorney or a CPA can provide advice on this subject matter. The comments hereto are those of the author who is not an attorney or a CPA, but an associated member of a FINRA broker dealer. Whyte & Co. that is a division of LightPath Capital, Inc., member FINRA/SIPC