The EB-5 industry today finds itself in a peculiar historical moment — after years of starts and stalls, comprehensive legislative reform now seems right around the corner; eager issuers are pushing into new markets; and, at the same time, competition for investors is stronger than ever.
Some actors are understandably nervous about the pace of change — especially with new rules looming — but many others see an opportunity for EB-5 to come into maturity, to embrace best practices, and to provide enhanced security and transparency for all involved.
Our General Manager of EB-5, Reid Thomas, counts himself among the optimists. He thinks 2018 will turn out to be a great year for EB-5 — and we recently had the chance to talk to him about why.
Q: Reid, I’ll cut straight to it: What do you foresee happening in 2018?
A: The stage is set for 2018 to be the most transformative year in EB-5 industry history. We believe that despite some complaints about the current state of the industry, largely due to China retrogression, that 2018 will turn out to have been a great year.
This comes down to likely developments in three areas: 1) new legislation, 2) a more diverse investor pool, and 3) industry consolidation.
Q: Let’s start at the top. Why do you think the pending legislative reforms will be beneficial for the EB-5 industry?
A: By the end of the year, it’s likely that we will see the longest-term extension of the program in its history. Over the last 3+ years, the industry has been through multiple short-term extensions, and this has caused significant uncertainty and tremendous turmoil, which has affected all stakeholders. A long-term extension will provide an increased level of certainty, and that is good for business.
Under the new rules, the investment amounts will almost certainly be increased. Once the market adjusts, even with China retrogression, the overall flow of capital into the EB-5 program will likely be restored to pre-2018 levels. This will translate into better job cushions for investors, and improved efficiency for issuers and regulators.
And finally, new integrity measures will be introduced and adopted. These measures will certainly provide benefit towards protecting investors, but they will also increase compliance and deter fraud and abuse. As a result, the industry will be left with an overall improved reputation.
Q: What about investor demographics? How will the industry’s focus on developing distribution channels play out over the next year?
A: The current backlog, caused by China retrogression, is forcing Issuers to develop channels into other international markets. While this investment started several years ago, it is full-on in 2018. There have been dramatic increases is the flow of investors from countries outside of China, and this diversification makes the industry stronger — and frankly, it’s something that had to happen.
Not only does a diversity of investors channels strengthen the position of the issuers, it also serves to manage and control investor marketing and acquisition costs. Additionally, it helps meet the political objectives of having immigration opportunities open to a wide array of candidates globally, as opposed to one country dominating the pool.
By the way — for the most up-to-date industry data of this sort, I highly recommend that everyone reading this go and register for our upcoming Data Insights Webinar, which will be held March 28th. I’ll be discussing the changes over the past year in investor demographics, funding, project size and geography, and the adjudication backlog, all in the context of current macroeconomic and immigration trends.
Q: You mentioned “industry consolidation” as your final projection for the year. What do you mean by that, and how will it benefit the EB-5 space?
A: The current slowdown in inflows from China has tightened the competitive market, making it more difficult to source investors. The amount of EB-5 capital that can be expected to be raised in a reasonable period of time is decreasing. This forces projects to leverage alternative sources of capital, like traditional equity or debt, to round out their capital stacks. Weaker projects will struggle to source this capital, which may force them out of the EB-5 industry altogether. Additionally, some entities that established broad footprints of Regional Centers nationwide will be forced to consolidate and focus their efforts.
All of this will have the net effect of turning over industry control to the strongest players — those able to provide the best-quality investment opportunities for prospective immigrants, and ultimately those best equipped to stimulate economic activity. And that’s good for all of us.
To learn more about NES Financial’s EB-5 Solutions and their many benefits, please visit our EB-5 homepage.
Allow us to address your EB-5 needs by contacting us. We look forward to hearing from you!