Even though the RC program has not been renewed, issuers shouldn’t just rest on their laurels and wait. We asked industry experts what the smart moves are during this time of uncertainty.
The past month has brought major changes to EB-5. On June 22, a US District Court Ruling invalidated the EB-5 Modernization Rule put in place during 2019, meaning the minimum investment for projects located in Targeted Employment Areas was returned to $500,000, creating a window of opportunity for investors.
Then, on June 30, the Regional Center program was not renewed. While most hope for a quick long-term renewal, for the time being, Regional Center activity will pause.
This does not mean EB-5 has ended. The Regional Center program can still be reauthorized, and direct EB-5 investment is still possible. Investors who have already begun the process probably have a lot of questions as to how these changes will affect them.
We asked some industry experts what issuers should do with regards to the uncertain status of the Regional Center program, applications that are already in process, and how to help their investors during this uncertain time.
Jill Jones, General Counsel of JTC, says transparency is key for helping investors make sense of all this. “If there was ever a time to keep current investors informed about what is going on with the project and the RC program, this is it,” she says. “That’s why JTC’s platform is built to deliver frequent updates without increasing admin costs,” because unexpected changes like this do occur, and clients need to be as informed as possible.
Rohit Kapuria, Partner at Saul Ewing Arnstein & Lehr, agrees. “Issuers should prepare notices/update letters to their respective investors explaining the current state of the regional center program, the efforts they are putting into supporting/pushing for reauthorization of the program, and most importantly, provide the status of the underlying offering and the underlying projects. During this period of negativity and uncertainty, it is important to communicate and share the positive components of the underlying EB-5 process.”
This last part is vital, he says, not just to assuage fears among investors, but to support the long-term viability of the program as a whole.
“Issuers should apply whatever pressure and provide whatever support they are able to for the reauthorization,” he says.
How should investors proceed in the event the Regional Center program is not renewed right away?
Kapuria says investors may want to look toward direct EB-5 investment, which is still active, though he cautions against rushing into anything.
“These are the ‘only game in town’ right now,” he says. “Of course, if the Issuer has no background nor experience within the space or with the particular asset classes that are popular in direct EB-5s, they might want to opt out of going down the path of the direct EB-5. There are inherent complexities with such projects and the job creation issues that they might not want to take on.”
But what about those whose applications are already in progress?
Jones adds that staying on top of current applications is as important as ever.
“829’s still need to be filed timely and are being processed,” she says. “If any investors in RC projects did file 526’s prior to June 30, making sure the entire offering package is properly updated” needs to be the issuer’s top priority, especially considering the recent change in minimums, which also affects direct EB-5 investment, she notes.
“For direct projects, investors can still be coming in at the $500k level, and this could continue for some time.”
It’s highly likely both these changes will be temporary, but how long they’ll last is completely up in the air. Issuers need to adjust their offerings and communicate with investors to make sure proper decisions are being made to take advantage of what is available now.
We’ll speak to more experts in our next installment to cover what issuers can expect as the government takes action on both the Modernization Rule and Regional Center reauthorization, and how changes to one might affect the other.
If you liked the first part in our “Ask the Expert Series” and want more, read part two about “How Should EB-5 Issuers Prepare for Reauthorization and Other Potential Changes?”