It is common knowledge the EB-5 investor program received extensions through September 30, 2017. Accordingly, until further changes happen, the existing program will remain in place.
There are currently two (2) key bills that have been presented. One is the Grassley Bill, which is a modification of the old Senate 1501 Bill proposed back in June of 2015 by Senators Grassley and Leahy. The active call “American Job Creation and Investment Promotion Reformat to 2017.” The other bill was proposed by Senator Cornyn of Texas, which has also been submitted in the Senate. Basically, the two (2) factions which represent rural/urban interest are negotiating immigration points that in effect include the following:
- The actual definition of the TEA. This will relate to the applicable census tract to be used. Obviously the Grassley Bill has a very restrictive approach and only includes the existing census tract and possibly contiguous ones. The Cornyn Bill is more expansive.
- Minimum Investment Amount. The Grassley Bill has $800,000 minimum for TEA and $1,000,000 for non-TEA. The Cornyn Bill has a different amount and phase in.
- Set Asides. One of the big issues is that the Grassley Bill has set aside to rural and poverty, but also takes into account infrastructure and military, which would therefore leave a lesser number of visas for the non-TEA designation and greatly disrupt the program. The Cornyn Bill does not have the details of set aside. It is noteworthy that the Cornyn Bill excludes derivatives thus increasing the visa count by almost 3 times, which would be a major benefit to the program, but unlikely to get passed.
- Current Situation. Given the current situation, especially after the marketing fiasco in China last week involving the project involving Kushner, Grassley has kicked back and indicated that he fully intends to adopt the proposed regulations that were proposed by DHS under President Obama that would create a minimum threshold to $1,350,000 for TEA, $1,800,000 for non-TEAs. That would almost end the program itself. Grassley is using the regulations with a threat to negotiate with the Cornyn faction in order to get a compromised bill.
With respect to integrity measures, there is general agreement that the program does have degree of fraud and that integrity measures are necessary to police against this. Integrity measures include matters such as the following:
- Higher burden on regional centers to review projects from both an immigration and financial standpoint and issue annual certifications.
- Grassley Bill actually provides for an independent fund administrator to administer funds with joint check signing authority.
- There are various restrictions on who can participate in the regional center as well as who can participate in a JCE if they have certain backgrounds.
- Foreign enterprises are prohibited from participating in the regional center and the NCE and providing capital to the JCE, with certain exceptions for governance of fact organizations.
It is difficult to predict the timing of all of these working, although it is expected if by September 30, 2017 a new bill will be passed. Likely, the deal will not have retroactive effect so that those investors that file their I-526 petitions prior to the passage of the bill will be grandfathered. Challenging to determine is if there will be any grandfathering of projects with phase in as otherwise being proposed by Cornyn. Grassley has no concept of phase in, but does allow for grandfathering of I-526 petitions.
From a market standpoint, it is tough to predict the effect of all these recent undertakings except that there is another push to get I-526s filed in order to be grandfathered under the system. Grandfathering should also apply to TEA designations. In addition to the above, the following is worth noting:
- There seems to be a heightened emphasis on redeployment of funds since projects are reaching their term as far as the loan repayment is concerned and those funds are repaid, they need to be redeployed to maintain the “at risk” requirement of Izumi. I have commented on this several times. As noted, USCIS has yet to determine what it means to be “at risk”, but it is clear that a redeployment of funds back into a loan program or equity program involving a real estate project would for sure qualify since that is generally the original intent of the initial investment. Accordingly, we are seeing many redeployment programs with the same developer on different projects with a detailed due diligence process accompanied by a very extensive investor where they have most of the exhibits.
- It is also noteworthy that the SEC has been very active enforcing claims against bad actors. The promoter of the Chicago Convention Center, LLC just got sentenced to a three (3) year term. The SEC just settled on a multi-million dollar judgment against Sima Muroff involving the Idaho State Regional Center, LLC’s EB-5 projects in Idaho. The receiver just settled with Raymond James for a reported $150,000,000 as a result of alleged mishandling of funds by Raymond James on behalf of one of the promoters.
- USCIS has announced that it will undertake regular compliance audits of regional centers to ensure that they are complying with elements of the program. The SEC still intends to do spot audits in checks of projects. We are advising clients to make sure that all records are properly downloaded and available for review, including not only the immigration documents, but the corporate security documents and the loan documents.
It will be very interesting over the next several months to see how things unfold, but the industry is definitely going through a degree of stress that will hopefully get resolved with an extended bill which properly vets all the various interests.