Many of our clients are citing the lawsuit filed against the US Department of Homeland Security as the reason they should be waiting before moving forward with their applications
Many of our clients are citing the lawsuit filed against the US Department of Homeland Security as the reason they should be waiting before moving forward with their applications. Could you please clarify, in summary, what the lawsuit is about, and what the litigating parties’ expectations are that should they win, could benefit clients who are waiting in the sidelines?
The lawsuit accuses the US Department of Homeland Security of ignoring the economic impact the new regulations will have on investors and affiliated businesses. We should add that they will hurt job creation as well. The job creation obligation of project owners have been reduced through these new regulations. For example, if a project was supposed to raise $ 5 million in EB5 funding, before these regulations took effect that imposed the obligation to create at least 100 jobs, provided that the project was situated in a targeted employment area (TEA). Today, the same project would be funded by 6 investors who would have a joint obligation to invest $ 5.4 million and create, or cause to create only 60 jobs. It appears like this is not in line with the original purpose of the EB5 program. To make things worse, the TEA classification has become much more onerous. If this same project is now deemed to be an urban project, and therefore, classified as a non-TEA project, then each investor would be obligated to invest $ 1.8 million. In this scenario, to raise $ 5 million, you would only need 3 investors who would have a joint obligation to invest $ 5.4 million and create or cause to create only 30 jobs. It appears like this is even less in line with the original purpose of the EB5 program. Therefore, the raising of the required minimum investment amounts, and the fact that now USCIS, and not the individual states have the jurisdiction to designate an area, TEA or non-TEA, have both been against the original spirit of the EB-5 law enacted back in 1990 to stimulate employment. The lawsuit also argues that as investors lose interest in the program, EB5 Investments will not have the revenue to continue operations. This again will hurt the completion rate of existing projects as developers will simply walk away from their pending EB-5 projects and if they can refund existing investors’ money and pull out of the program entirely. We happen to agree with the arguments presented in the lawsuit, but assign a very low probability to them ever winning against the government. Therefore, if an investor can identify a project that they feel comfortable with, we do not see much point in waiting, after doing their due diligence.
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