The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.
On June 3, Republican Senator Grassley, Chair of the Senate Judiciary Committee, and Democratic Senator Leahy, ranking member of the Senate Judiciary Committee, introduced a bipartisan bill, which, if passed, would result in far-reaching changes to the regional center EB-5 program in exchange for a five year extension of the program.
Although the chances are highly speculative that this Bill in its present form will pass the Senate and the House of Representatives and be signed into law by the President, and although there are likely to be significant changes in the language of the Bill before it could become law, the fact that it has bipartisan sponsorship and appears to be supported by the Administration means that it should be given very careful attention.
On Friday, we published a Client Alert summarizing some of the key provisions of the Senate Bill. We will be providing several more Client Alerts in the coming days to provide more details on the key provisions.
The purpose of this Client Alert is to suggest three Action Items for our regional center and developer clients.
- Project Grandfathering
First, we are recommending the filing of an exemplar petition for all projects presently being marketed or planned to be marketed in the near future in order to grandfather the project under the existing law. Given the severe restrictions on jobs that can be counted pursuant to the provisions of the Senate Bill, given the proposed elimination of most non-rural TEAs and given the increased investment amount, grandfathering the project by filing an exemplar petition is highly advisable.
The impact of such a filing is especially important because, not only would the project be grandfathered, but all investors who ever invest in the grandfathered project will be grandfathered. This means that investors who invest in the project even in future years would be able to invest at the $500,000 amount, whereas investors investing in projects that are not grandfathered would have to invest either $800,000 or $1,200,000. In addition, the job creation methodology under the current law apparently would apply to the project rather than the very restrictive job creation methodology proposed in the Senate Bill that would apply to future projects.
As a result, we are advising all of our clients who are presently marketing a project, preparing to market a project or even considering a project for EB-5 capital raise to file an exemplar petition prior to the effective date of any new law. Although we do not know what the effective date of the new law would be, we do not expect that it is likely to be before September 30, 2015.
- Importance of Compliance
Second, one of the prevailing themes of the Senate Bill is the importance of compliance on the part of the regional center and/or project developer. The proposed bill makes the annual compliance requirement for regional centers far more rigorous, including annual accounting of the progress of the project, use of the investor’s funds and actual job creation. The Bill provides for government site visits, which requires that regional centers and project developers have all of their documentation in order for an announced or unannounced government visit. The Bill provides for changes in job creation methodologies and calculations of what jobs can and cannot be counted, which requires development and monitoring of new recordkeeping systems.
Finally, the Bill provides for the possibility that Chinese investors will be able to forego conditional residence and apply directly for permanent residence following condition removal in the event that the investor’s investment has been sustained for two years and the investor has not yet immigrated to the U.S. because of a quota backlog. This means that regional centers and project developers cannot rely on a four or five year timeframe to be prepared for the I-829 process. Rather, they need to begin focusing on compliance as soon as investors start investing, because the I-829s may have to be filed within two years of the investment. Our Klasko Compliance Team will be discussing with each of our clients how we can help with all aspects of compliance.
- Importance of Advocacy
Third, as outlined in our previous Client Alert, there are aspects of the Senate Bill that could render the regional center program as we now know it unworkable. An extremely large percentage of urban projects would not qualify as TEAs, meaning that the minimum investment amount would increase by $700,000. Job creation counts for EB-5 purposes would be diminished substantially and in many cases would disappear completely. These are just two of many examples.
If you are concerned with the future of the EB-5 program, now is the time to assist with efforts to advocate the benefits of the EB-5 program and the importance of maintaining urban TEAs to your elected representatives. I am coordinating an advocacy effort, which includes many of our clients. If you are interested in joining this effort, please email me at your very earliest convenience.
I and other members of the Klasko EB-5 team look forward to discussing these issues with you and answering all of your questions.