As we move through the summer Congressional season, we cannot be certain of what, if any, changes will be made to the EB-5 Program. Lawmakers may very well choose not to take action, which could lead to the EB-5 program being added to a Continuing Resolution alongside other programs. Furthermore, it is hard to have any confidence in the Department of Homeland Security’s (DHS) rulemaking process, as it seems that the entire process of making changes to the rules (EB-5 or otherwise) is at a standstill. That said, we understand that members of Congress or their staff members have made representations to DHS to reduce the proposed investment amounts.
Nevertheless, project developers and regional centers cannot ignore that changes to certain foundational aspects of the EB-5 program will happen. In such an atmosphere, regional centers and others who utilize EB-5 funding need to prepare for changes that might come about relating to transparency and regulatory consistency which will be added to the maturing EB-5 program.
Now is the time for both regional centers and project developers to create strategies for accommodating potential changes that may have to be made to EB-5 investment opportunities. Some of these have already been offered to the public or may be offered this summer. Developing a solid strategy with experienced immigration counsel before these changes take place is highly recommended.
The proposed changes to the EB-5 program will necessitate time for each investment opportunity or project. There is much to be considered from both the project and investor’s sides. That being said, here is a quick summary of the changes that are anticipated, and five things that regional centers and EB-5 project developers should be considering.
Changes to TEAs and the Minimum Investment Amount
A significant shift will occur in the way Targeted Employment Areas (TEAs) are defined, altering the ability of an EB-5 project to offer TEA benefits. Some projects may be placed on the market with legitimate TEA status, only to have the rules regarding TEAs change in the interim.
We also know that the minimum investment required will increase. For investments made in TEAs the minimum investment amount might rise to $1 million or more. There is much speculation that it will only rise to $800,000.
Federal rulemaking procedures allow for the possibility that these changes could take place with a 30-day notice period contained in a final regulation which DHS publishes in the Federal Register, unless lawmakers take action beforehand.
It is possible that the pending DHS EB-5 regulation changes could take place at any time, probably with a minimum 30-day notice. This rulemaking could be preempted by new legislation.
Changes to how TEAs are defined and to the minimum investment amounts are likely to facilitate the need for significant changes to investment contracts for EB-5 financing. Additionally, there is discussion to have a certain percentage of EB-5 visas set aside each year for TEA vs. non-TEA projects. Current discussions have this percentage ranging from 7.5% to 20% of the yearly EB-5 visa quota set aside for TEA projects, with the remaining EB-5 visas allotted to non-TEA projects.
So, what can EB-5 project developers and regional centers do now?
- Speak with your immigration and securities attorneys regarding how you should go about informing both your potential and existing investors of any changes in the TEA designations that may impact the deal or the immigration benefits.
- Take steps to ensure that your investment contracts contain the necessary legal disclosures and mechanisms to deal with any change to the minimum investment amount. In new offerings, utilize flexible provisions that can capture whatever changes new TEA rules and investment amounts may take place in the future.
- Once you know when and what EB-5 program changes will be made, be sure to work with your immigration and securities attorneys to properly notify potential investors. Any potential investor that has already received a solicitation or offer to invest may have to be informed of the changes in writing.
- To steer clear of any conflicts of interest, advise your investors to secure independent legal advice in regards to any regulatory or legal changes to their ability to meet the requirement for the immigration benefits that their investment may provide.
- A significant change in the minimum investment amounts can have an impact on the entire structure of an investment opportunity. Get both securities and corporate counsel involved in the process as soon as possible, preferably in advance of the changes taking effect. You might require revising important documents including: private placement offering memorandum, the business plan, econometric report, etc.
Clear and effective communication between you and your investors is essential. This is critical when the proposed changes to the EB-5 program take place.
With changes to the EB-5 program in 2017 almost a certainty, and knowing that the SEC will continue to focus its enforcement efforts on the EB-5 industry, it is extremely important to effectively handle the expectations of your investors.
You must implement a strategy that ensures that all investment risks have been clearly disclosed to your investors, regional centers and EB-5 project developers They may also want to review existing investment offerings to ensure that investment contracts can be revised by securities counsel in order to maintain current financing, despite significant alterations to the EB-5 program.