08 Aug A Deep Dive into the New EB-5 Regs with Former USCIS Chief Counsel Robert Divine – Episode 82
What do the new EB-5 regulations mean for investors? How about developers? In this episode, Mona and Mark are joined by Robert Divine, former Chief Counsel of USCIS, to discuss the short- and long-term implications of the changing TEA designation and increase in minimum investment under the regs. Listen in to understand the potential impact of closing Regional Centers, the risks associated with skeletal filings, and the new definition of a high unemployment area.
Now that we’ve had time to let the new EB-5 regulations sink in, it’s time to do a deep dive into what the changes mean for investors in the short, medium and long term. How might Regional Center closings impact foreign investors? Can investors file with less than the $500K minimum? What qualifies as a target employment area (TEA) under the new rules? And what might the EB-5 landscape look like a year or two from now?
Robert Divine is the current leader of Baker Donelson’s Global Immigration Group and the former Chief Counsel and Acting Director of USCIS. He also served as Vice President of IIUSA for seven years and is the author of the seminal book on immigration law, Immigration Practice. On this episode of EB-5 Investment Voice, he joins Mona and Mark to discuss the likelihood of the new regulations taking effect and the scramble to file he predicts in the recent article, “The Rush is On.”
Robert walks us through the changing TEA designation, explaining how Regional Center closings might impact investors and sharing the new definition of rural or high unemployment areas. Listen in for insight around the risks associated with skeletal filings via promissory notes and get Robert’s take on the lull in EB-5 investment that is likely once the new regulations take effect.
The Likelihood of the New Regs Taking Effect
- While litigation to stop the new EB-5 regulations is possible, Robert doesn’t believe such a suit would be effective. He is confident that the new rules will take effect as scheduled unless legislation is enacted by Congress prior to November 21, 2019.
- Robert does not think that the four-month window was established to give Capital Hill time to finalize draft legislation. Rather, he expects that the 120-day period was established to give projects time to complete fundraising under the current rules around TEA designations and investment minimums.
The Changing TEA Designation
- As cited by USCIS, 54% of current TEA projects will no longer qualify under the new regulations. Robert argues that this means anyone planning to raise money through EB-5 in the next two years needs to do so in the next four months, as he predicts a desert period in the EB-5 landscape after November 21, 2019.
- Regional Centers will still be expected to operate and monitor their investments, even if they lose their TEA designation and have no plans to raise new money. Regional Centers are required to file annual reports and submit the associated $3,035 fee for all active investments.
- If a Regional Center closes its doors and discontinues its compliance work before an EB-5 investor has secured their immigrant visa or received approval of adjustment of status, the applicant is in a difficult position. Moving the project to a new Regional Center constitutes a material change and requires that the investor refile and start over with a new I-526, effectively losing their place in the queue.
Visa Numbers & Priority Dates
- The regulations do not change the number of visas available or the way waiting lists are maintained. Any such changes would have to be accomplished through legislation, which Robert finds unlikely given the current political climate.
- The new rules allow for EB-5 investors with an approved I-526 to maintain their place in the queue should their petition be denied through no fault of their own. EB-2 and EB-3 petitioners who file an I-140 or underlying labor certification cannot carry a priority date over to EB-5.
The Risks Associated with Skeletal Filings
- Many Regional Centers are assuring investors that they can file for EB-5 with less than the minimum $500K. For example, they might encourage an investor to file with $250K and a $250K promissory note.
- Mona and Robert both caution investors against skeletal filings because of the challenge associated with following USCIS regulations and precedent regarding promissory notes: The amount owed must be secured in legal documents giving the new commercial enterprise (NCE) the right to enforce the promissory note against real assets worth that much in the country where the assets are held, and they must be the personal assets of the investor.
How to Qualify as a TEA
- The new regulations prevent developers from recruiting economists to create snake-like areas, the weighted average of which have the requisite 150% of national unemployment average. Now, to qualify as a TEA, your project must take place in a rural or high unemployment area as defined by the new rules.
- To qualify as rural, an area must be outside of a metropolitan statistical area (MSA) and have a population of under 20,000. To qualify as a high unemployment area, you must either:
- Show that your entire county OR metro area/town has the mandatory 150% of the national unemployment average, according to the Bureau of Labor Statistics, or
- Show that the census tract where the project is located has the requisite 150% of the national unemployment average OR connect that census tract with one or any combination of census tracts that literally touch the one with the project to achieve the required 150% of the national unemployment average.
The Future of EB-5 Under the New Regs
- Robert sees no particular advantage in local and state governments setting up their own Regional Centers. However, he does point out that governments can be the recipients of EB-5 capital in the form of government bonds for public works projects.
- Robert anticipates that in the long term, EB-5 investors will look for projects that offer meaningful financial returns in addition to a green card. Mona predicts an increase in entrepreneurial projects and more instances of EB-5 money being mixed with private equity. If the changes do stifle investment in the US, that may inspire Congress to reengineer the program after all.