It’s okay if you didn’t have time to sit down to read through the long-anticipated (and years-delayed) updates to the EB-5 Program rules — the changes and clarifications recently published by the Federal Register are 239 pages long. However, before the changes take effect on or after November 21, 2019, it would be wise to familiarize yourself with what’s to come.
To help, here’s a recap from Rohit Kapuria, an associate attorney at Saul Ewing Arnstein & Lehr, LLP and one of the expert panelists who participated in NES Financial’s August 2 webinar entitled “How the 2019 EB-5 Regulatory Update Will Impact You.”
Even though Kapuria admitted that, given the document’s length, he discovers new things every time he reads it, here are his three main takeaways from the forthcoming changes:
- The Minimum-Qualifying Investment Amount Is Going Up
A tiered system is already in place; however, $500,000 for a TEA-related project will become $900,000 effective on November 21, 2019. Non-TEA investments will increase from $1 million to $1.8 million. “This is tied to inflation,” Kapuria said. “The key here is the Department of Homeland Security is looking to make adjustments every five years.” That means that following the first increase later this year, the next jump will be in 2024.
- Updated TEA Designation Criteria And High Unemployment Areas Restricted To Qualifying Single Census Tracts
Starting in November, it will be more difficult for census tracts in urban areas to qualify for the lower investment threshold, something that some EB-5 Issuers find concerning. Presently, there’s a level of flexibility with TEAs; however, according to Kapuria, the Department of Homeland Security will now be in charge of designating TEA locations. “There is a level of uncertainty as to how that will be applied,” he said.
Additionally, whereas the definition of high unemployment areas won’t change for rural areas, the definition will significantly change in urban settings. Formerly, it was possible to combine a number of contiguous census tracts to form a high unemployment area map; however, that will no longer be possible with the new updates to the EB-5 Program. “The Department of Homeland Security has essentially said we should be looking at directly adjacent census tracts or at single census tracts that encompass projects,” Kapuria said.
That means that many projects already in existence today may no longer qualify. Kapuria says that for EB-5 Issuers, they should contact their EB-5 economist to run a check to determine whether or not they’re going to qualify past November 21, 2019.
According to IIUSA, a trade association for EB-5 Regional Centers, approximately 33% of the EB-5 project samples that they analyzed in 2018 would qualify under the new TEA rules (contiguous & adjacent census tracts).
- How Filing Date Retentions Will Be Handled
Beginning on November 21st, “certain EB-5 investors” who are sitting somewhere between I-526 approval and prior to the start of conditional permanent residency may be able to take advantage of the rule’s new priority date retention provision. New rules allow investors who face the prospect of losing a chance at adjusting their status (if presently in the US on a temporary, non-immigrant visa) or going through the consular process for an EB-5 visa as a result of unexpected changes over the course of their long wait to salvage the priority date. This process will essentially allow them to save their place in the visa queue as long as they choose to file a new I-526 and invest at the higher investment amounts that take effect following the new rule changes. This will be particularly useful for investors who had invested in projects where the regional center was terminated and/or where some other material change took place that left their future I-829 petitions, to remove conditions on their residency, at risk of denials.
Updates to priority date retention are one minor fix toward a larger problem in EB-5, which is the mismatch between inflexible policies and the reality that projects and investors change over time, not to mention that the visa process takes quite a bit of time.
According to Kapuria, investors who are conditional residents or investors whose petitions were based on fraudulent misrepresentations will not be eligible to qualify for the priority date retention provisions of under the new rules. Despite the rule changes and clarifications, Kapuria says one key part that is missing from the Federal Register’s published document is how those with pending I-526 petitions will be handled. Whether affected parties will be able to keep their priority dates intact “is [an issue that is] not provided for in the changes,” Kapuria said.
Didn’t have a chance to catch the “How the 2019 EB-5 Regulatory Update Will Impact You” webinar? No problem: click here to listen to the recorded webinar. And don’t forget to save the date to register for our next webinar on October 2, 2019 about EB5 3.0, the dawn of a new era for the EB-5 program.