An investor with whom I spoke recently accused the EB-5 industry of being the boy who cried wolf. Time and again we professed that the investment amount was going up only to have the day of reckoning never arrive. I reminded him that the parable ended with the wolf coming down the mountain to finally kill the sheep. The wolf is here.
Tomorrow the rule will be on the Federal Register at this link:
Today it can be seen here:
The rule will be effective in 120 days, on November 21, 2019. The key summary points:
1. Minimum investment will go up to $900K for TEAs and $1.8 million for Non-TEAs
2. USCIS is taking back the determination of TEAs (States are out of it). TEAs will include rural areas and high unemployment areas (150% of national area)
a. Primary tract plus contiguous census tracts
b. Towns and cities with populations of more than 20,000 outside of an MSA
The rule has other changes as well including retention of priority dates and the ability to separately adjudicate dependent I-829, plus other technical changes. I am sure in the next days, many will write about every change that is coming. I wanted to take the time now to write a bit about what all this means.
The first and most important question is whether this rule will actually become law. There are only three ways that cannot happen at this point. The first is a complete U-Turn out of the White House. While (recently) not unprecedented, it would truly be shocking at this point that the administration kills a rule they just published.
The second is a lawsuit challenging either/both of the legislative basis for the changes to the rules directly or the procedures by which DHS changed the rule. While anyone can file a lawsuit, it seems that a successful restraining order (TRO) or ultimate victory on the merits is unlikely. The changes made seem well within the bounds of the powers granted by Congress in the Immigration Act of 1990. The commentary specifically noted that many comments were rejected specifically because what was sought was outside of the agency’s authority. It is beyond my expertise to determine if procedurally DHS violated the Administrative Procedures Act or the various other acts and executive orders that govern the rulemaking process. It would be surprising though given how much time has gone into this rule and the amount of focus and attention that has been cast upon it.
The third is Congressional action. That begs the question of whether Congress will even want to act. The new rules, in many ways, are well reasoned (the Response to Public Comments on the Proposed Rule do cite my congressional testimony at P. 96 Footnote 73 after all) and help advance the EB-5 program closer to the originally intended policy goals. At $900,000 for TEA based investments, the market will likely shrink for a while as it implicates affordability for some who otherwise would not be able to consummate the investments. The reality is that it is the effect of retrogression in China, India and Vietnam that will cause a loss of demand in far greater scale than the cost at this level. If the retrogression issue were eliminated, there is little doubt that the entire 10,000 visas could be consumed by investors at the $900,000 level.
I have written, spoken and testified on how the current TEA policy made a mockery of the Congressional intent to create an incentive to direct EB-5 investments to high unemployment and rural areas. There will be pressure from the few large regional centers who consume most of the EB-5 capital as their typical projects will not qualify under the new rules. Hopefully, Congress can buck the normal practice and actually do what is in the best interest of our country overall as opposed to the few.
Even if Congress has the desire to act, it is unfathomable to believe that any immigration legislation will pass White House muster. As we head toward the 2020 election cycle full steam, the contention around the (unbuilt) border wall and the DREAMERS make progress on any immigration matter too great a mountain to climb. There will be no EB-5 reform legislation prior to the 2020 Presidential election.
Accordingly, it is my prediction and belief that the rule will become law. For investors, this means to save $400,000 or even $1.3 million, pick your project (or get moving on structuring it) and file. If you need time to get the capital together see my previous article on legal strategies that can afford you time to get all the money together will still getting the I-526 petition filed.
For sponsors/developers, what this means is that the EB-5 market will change. It will continue to shrink, as noted above, more due to retrogression in India and Vietnam (China is already pretty much dead). The larger change will be on the supply side. Many if not most developers will exit the market. The new TEA rules will foreclose the ability to develop the majority of prime real-estate locations. Hopefully, it will encourage those still interested in the EB-5 program to look to TEA areas for development opportunities.
As the chapter closes on the first 30 years of the EB-5 program, perhaps this new era will be a better program with more benefits to our country and with the benefits distributed in a manner that increases the overall public good even if that means a somewhat smaller program.
Matt Gordon is a noted policy expert in the visa-based investments field and is an authority on structuring visa-based investments. Mr. Gordon’s career spans business operations, finance and law. He is the editor of the EB-5 Book, the legal treatise on the EB-5 program and a frequent lecturer to immigration attorneys. Mr. Gordon has participated in policy events, including those hosted by the White House and Harvard University’s Kennedy School of Government. Prior to founding E3iG, Mr. Gordon was an investment banker for a decade and ran the US division of a Swiss multi-national corporation. Mr. Gordon is a licensed attorney, having practiced mergers and acquisitions law at the beginning of his career with the largest and most reputable Wall Street firms including Fried Frank and Sullivan & Cromwell. Mr. Gordon received his B.S. in Policy Analysis from Cornell University and his J.D., cum laude, from the University of Pennsylvania School of Law.