Saul Ewing Arnstein and Lehr LLP has been extremely active in navigating the current status of the EB5 industry and determining what courses of action need to be taken given the existence of the new regulations ("New Regulations" or "REGS"), the possibility of the pending legislation being adapted, and the recently-filed temporary restraining complaint against USCIS and related parties in order to invalidate the REGS.
The current EB-5 Regional Center Program has been extended by a continuing resolution until December 20, 2019. However, on July 24, 2019, USCIS published new regulations that became effective on November 21, 2019, and until otherwise modified by legislation or blocked by litigation, represent the current status of the EB-5 Program.
In summary, the new regulations contain the following key provisions:
(1) A redefinition of the TEA classification to only include the applicable project census tract and adjacent census tracts, but not contiguous census tracts.
(2) Revised definition of rural qualification, but not a material change to existing law.
(3) Increase of TEA-qualified investment amount to $900,000 and a non-TEA investment in the amount of $1,800,000.
With respect to the above, it is clear that there are many projects that qualify as a TEA under the new REGS and are positioned to immediately go to market place and raise money at the $900,000 level. It is noteworthy that $900,000 approximates the $500,000 original statutory amount for a TEA increased by the cost of living for the last 27 years. The logic behind the $1,800,000 non-TEA amount was the same basis as before; namely, that the non-TEA amount should be double the TEA amount.
We believe that the REGS will substantially limit non-TEA projects and their ability to raise capital in a traditional manner and will result in more emphasis on equity-type investments and a higher rate of return to investors since the opportunity cost of investing $900,000 for an extended period of time is quite different than a $500,000 investment. It is too early to tell whether the administration fees will increase over the current industry standard amounts of $50-$55,000 based upon the increased investment amount. However, given the increased investment amount, it is noteworthy that with respect to back-end payments to regional centers, sponsors and agents, the rate of return will be based upon a $900,000 amount instead of a $500,000 amount.
In certain metropolitan areas of the country, including locations in Los Angeles, Brooklyn, New York, and South Florida, the TEA classifications under the REGS would still apply.
As anticipated, the EB5 industry has joined together in concerted effort to promote lobbying efforts to pass new legislation. Furthermore, certain groups have supported a lawsuit filed on November 26, 2019 in the United States District Court in Washington, DC (the "TRO Complaint") that attempts to negate the effectiveness of the REGS based upon multiple grounds, including the concept that USCIS was in effect legislating and, in addition, not using proper standards in order to create the new regulations since there was economic information available that indicated that the REGS would have a significant negative effect on the EB5 industry. It is expected that the Court will rule on the TRO Complaint or provide the U.S. government agencies with a limited period of time to respond.
To make matters more complicated, a Senate bill was introduced on November 5, 2019 by Senators Grounds, Graham and Cornyn [the Immigration Investor Program Relief Act – S2778] (the "Relief Act"). In summary, the "Relief Act" attempts to provide the following changes to the existing EB-5 Program and, if adopted, would otherwise negate and supersede the REGS.
(1) A reauthorization of the Program date until September 30, 2025.
(2) Redefine TEA to include rural areas and distressed areas that are otherwise designated as qualified opportunity zone designated areas as per the Tax Cuts and Jobs Act.
(3) Create a minimum investment level of $1,000,000 for a TEA petition and $1,100,000 for a non-TEA petition.
(4) Establishment of 15% set-aside for rural projects and a 15% set-aside for urban distress (OZ designed areas).
(5) A 90-day effective grace period from the enactment date with respect to new I‑526 petitions filed during the 90-day transition period
(6) Premium processing and improvement fees. Each investor would pay to the Treasury of the United States a program improvement fee of $50,000 in conjunction with an I‑526 petition, with the exception of petitions that otherwise qualify as TEA petitions.
(7) Provision for expedited processing.
(8) Provision for backlog relief whereby the Secretary of Homeland Security, in its discretion, may temporarily parole into the United States under conditions that the Secretary may prescribe aliens who are the beneficiary of a petition for immigration status wherein the I-526 petition has been pending for at least three (3) years or an I-526 petition has been approved.
(9) Adoption of Numerous Integrity Measures.
What does all this mean in connection with the proceeding with active projects and filing immigration petitions on a go-forward basis? Given the fact that the current TRO Complaint is pending, it would be appropriate to wait for a decision of the Court to determine if the REGS will be enjoined or whether they will continue to apply. If the REGS are enjoined, then we are back to the existing legislation and the $500,000/$1,000,000 program with the same TEA definition that currently exists.
Whether the TRO is granted or not, one would still need to be aware of pending legislation which is seriously being considered, although it is difficult to determine when same could become effective and what final terms the legislation will contain.
It is difficult to predict exactly what will transpire going forward but it is quite apparent that there are many moving targets that need to be considered and if the REGS are blocked or the pending legislation is passed, there will be another opportunity for the industry to entertain a $500,000 TEA investment.