November 9, 2023 | By Michael A. Harris

In the dynamic world of the EB-5 Program, understanding legal nuances is pivotal. Last year in 2022, I unearthed substantial groundbreaking amendments to the Immigration and Nationality Act (INA) enacted by the EB-5 Reform and Integrity Act of 2022 (RIA). The new law reauthorized the Regional Center Program and under INA 203(b)(5)(A)(i) stated that, to be eligible for classification, the investment must be “expected to remain invested for not less than 2 years”. Then, the RIA changed INA 216A to no longer require that an investor have their conditional lawful permanent residence terminated if they did not sustain their investment throughout their 2-year period of conditional residence. Taken together, I wrote that these two changes would result in groundbreaking changes to the EB-5 Program. After more than a year since the RIA’s passage, USCIS finally issued guidance that reaffirms my interpretation, significantly impacting both investors and New Commercial Enterprises (NCEs), Job Creating Enterprises (JCEs), and Regional Centers.

USCIS’s Updated Guidance: A Closer Look

The USCIS updated its guidance on October 11 by underscoring a pivotal RIA statutory amendment: the requirement for the capital to “remain invested for not less than two years” and removing the termination of residence requirement for not sustaining  an investment during the 2-year conditional residence period. This aligns with the insights shared in my previous blog post. This amendment underscores the essence of sustained investment, potentially altering how investors and NCEs approach redeployment and an exit strategy. In response to the binding legal requirements, USCIS needed to change its policy.

As a result, the USCIS clarified the start date of the two-year investment period, which is when the full amount of qualifying, at risk investment is made. This clarification can help investors and NCEs plan their investment, exit and redeployment strategies more efficiently. Additionally, the newly outlined buyback provisions add a layer of flexibility, allowing for a buyback option at the NCE’s discretion post the sustainment period, ensuring that the capital remains within the U.S economy while providing an exit strategy under certain conditions​​.

The legal basis for this two-year requirement is rooted in the RIA, signed into law by President Biden on March 15, 2022, which reauthorized the Regional Center Program and enacted significant integrity reforms to the EB-5 Program. Specifically, INA 203(b)(5)(A)(i) states that to be eligible for classification, the investment must be “expected to remain invested for not less than 2 years” while INA 216A, as amended by the RIA, no longer requires that the investor sustain their investment throughout their period of conditional residence. In fact, the guidance says that if an investor invested more than 2 years prior to filing their Form I-526, the investment “should generally still be maintained at the time” their petition is properly filed. The USCIS further added that “if the required 2-year investment period ends after their Form I-526 or I-526E is filed but before it is approved… their investment capital [can] be returned without affecting their immigrant petition…assuming job creation and all other eligibility requirements have been met…” (see Required Investment Timeframe Question 5). Otherwise, it is important to note that the amendments do not apply to investors who filed Form I-526 petitions prior to the enactment of the RIA, necessitating pre-RIA investors to sustain their investment throughout the two-year period of their conditional residence.

In addition, the USCIS guidance sheds light on the required investment timeframe for Form I-829 approval, explaining that the required investment timeframes for removal of conditions will differ depending on whether the investor filed their underlying petition for classification before or after the enactment of the RIA. For post-RIA investors, the investment capital can be returned without affecting their immigrant petition, assuming job creation and all other eligibility requirements have been met, once the required 2-year investment period ends after their Form I-526 or I-526E is filed but before it is approved. This nuance heralds a recalibration of EB-5 loan strategies, and likely the five to seven-year loan terms offered by projects.

Implications & Opportunities for EB-5 Projects

Delving into the real estate realm, traditional loan periods for such projects often span 5 to 10 years, which traditionally aligned with the 5 to 7-year loan terms offered by most EB-5 projects. The shift to a 2-year sustainment period could challenge real estate projects that rely on longer-term financing to reach completion before repaying investors. Larger scale or high-cost area projects may find the shortened sustainment period insufficient to reach a stage where investors can be repaid without affecting the project’s financial stability. This raises concerns about the feasibility of real estate projects to adapt to this new paradigm and still appeal to EB-5 investors seeking a quicker exit.

On the flip side, projects with shorter development and revenue realization timelines may stand to benefit. Industries or projects with quicker turnarounds might become more attractive under the new EB-5 regulations. For instance:

• Residential and housing development projects in high-demand areas could potentially expedite the construction and sales process to align with the 2-year sustainment period.
• Urban renewal projects, with public and private funding synergies, might have the wherewithal to meet the shorter sustainment timeframe.
• Factory or manufacturing projects with substantial pre-orders and quicker production cycles might also align with the 2-year investment sustainment period, offering a viable exit strategy for investors.

However, the risk associated with these types of projects could be higher due to the pressure to deliver within a shorter timeframe. The ability of these projects to provide a timely exit for investors while ensuring project success and job creation, as mandated by the EB-5 program, necessitates a robust financial strategy and a meticulous execution plan.

The Path Forward in EB-5 Investment Landscape

Based on the recent amendments by the RIA and the subsequent USCIS guidance, the altered investment sustainment period down to a minimum of 2 years has created a new landscape for prospective EB-5 investors and projects, potentially realigning their investment strategies. The transition to a 2-year sustainment period, while beneficial in reducing the complexity surrounding redeployment, presents a conundrum for existing regional centers. Adapting current loan-based projects to a 2-year exit may not align with the traditional financial models employed by these centers, with many expressing a propensity to retain a 5-year loan term. This inflexibility could stem from the intricacies and timelines associated with real estate projects which form a substantial portion of EB-5 investments.

Moreover, the change brought about by the RIA and confirmed by this policy update significantly diminishes the necessity and associated risks of redeployment, a factor that could be enticing for prospective investors. The relief from redeployment risks, coupled with the modified sustainment period, not only simplifies the investment process but also potentially accelerates the path to fulfilling the program’s requirements, making the EB-5 visa program a more attractive route for investors seeking U.S. residency.

The removal of the sustainment of investment as a basis to terminate residence, a significant change, means that an investor’s status can no longer be terminated based on not sustaining their investment during their entire period of conditional residency. This change reduces the complexities associated with investment sustainment, thereby potentially making the EB-5 pathway less daunting for prospective investors​​.

As the EB-5 program continues to evolve, staying abreast of regulatory amendments and their implications is crucial. At HARRISLAW, we are committed to providing you with up-to-date insights and guidance on navigating these changes. For a deeper understanding of how these updates may impact your EB-5 investment, project or regional center, please contact us.