Following the December 9, 2016 extension of the EB-5 Regional Center Program until April 28, 2017, there have been additional developments from an administrative, legislative and practical standpoint. Needless to say, the Program remains in limbo as to where it will end up and at what point in time legislation will be passed, especially considering the advent of a new administration and Congress. There could be final legislation current as of the April 28, 2017 deadline. That being said, given the change in administration and the political lobbying, related to the Program, that is taking place in Congress, there is no clear time limit as to when legislation will be finalized. What is apparent is that the situation is extremely complicated, with many political interests being represented that have yet to come to the table and resolve outstanding issues.
At a recent conference sponsored by the EB5 Investors Magazine, Senator Jeff Flake of Arizona, a very proactive EB-5 proponent, hinted that given the current political climate, it would seem realistic to assume that legislation may not be passed by the end of April and that the EB-5 Regional Center Program would, therefore, be extended beyond the upcoming deadline, until Congress and the administration can agree on new legislation. Senator Flake further stated that he is in favor of increasing the visa count given the benefits of the Program and the significant backlog that has occurred as a result of the retrogression in China.
The industry is questioning the effect that the Trump administration will have on policy-making and the operations of USCIS in the future. Overall, there are many positive signs in connection, given the following:
- President Trump is obviously a real estate expert and presumably understands the benefits of the EB-5 Program to the U.S. economy.
- President Trump has announced his desire to reduce regulation across the board, and this may carry over into USCIS and matters related to its administration.
- There are many legislative competing interests in the process and it is presumed that President Trump and many members of the Congress, on a non-partisan basis, will be proactive in trying to salvage the positive components of the Program in a bid to reduce the burdensome nature of the current system. This would, nevertheless, still include a provision for increased integrity in the Program, which concept seems to be non-controversial.
In assessing the process, it is apparent that the Program is facing the following key issues:
- The finalization of legislation to provide certainty to the marketplace that is right now confused as to when and what will eventually happen.
- Revising the definition of a TEA in a manner that will not otherwise severely restrict EB-5 projects in the future.
- The issue of increasing the EB-5 investment amounts and to what extent that will affect the marketplace.
- Potential carve-outs of certain uses within the ten thousand visa cap and what affect that would have on the market. In connection therewith, potentially (a) establishing separate visa caps for rural, infrastructure and other types of programs that may spur the economy; and (b) increasing the visa cap so as not to prejudice the existing program that relies upon a large portion of the EB-5 investment capital being deployed into urban developments.
- Curtailing the ever growing backlog in the administration of pending petitions.
- The potential increase one way or another in the visa cap in order to accommodate the needs of the industry.
Clearly the Program has become more complicated, expensive, and time consuming. Such additional costs and time delays may serve as a serious detriment to the demand for EB-5 capital as compared with traditional financing sources that may become more affordable and available. I believe that the take away as to the existing marketplace reflects the following:
- The delay in finalizing legislation has created confusion and uncertainty. Some agents are waiting for new legislation to be passed before taking on new projects in an effort to avoid the hassle with potentially re-structuring deals that will not comply with new legislation.
- On a related note, some agents are taking the fire sale approach and pushing to empty their respective inventories of existing project units.
- The reality of retrogression has necessitated the need to undertake redeployment planning in all new projects given the predictable delay in Mainland Chinese investors receiving I-829 adjudication within what was once a five (5) to seven (7) year time frame.
- Increased marketing efforts outside of mainland China in order overcome the negative effects of the above referenced retrogression.
- The continued rise in projects going into the marketplace that creates more competition and potentially increases the cost of the financing as a result thereof.
- Increase in currency control restrictions in China and other jurisdictions.
- Developers and regional centers taking more of a boots on the ground approach to marketing to investors abroad and possibly in the United States through the use of registered broker-dealers and not just relying upon the traditional agent market.
- The focus of many regional centers and developers pursuing smaller agents to raise EB-5 capital at potentially more affordable rates, and the marketing of projects in multiple jurisdictions. It is noteworthy that specific markets, such as Vietnam, South Korea, India and various Latin American countries are being pursued more aggressively as potential EB-5 marketplaces in an effort to mitigate the retrogression effects in China.
This will clearly be a transition year that hopefully will end up with a resolution that results in an overall solution that is beneficial to the Program.
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