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How Much Risk is Too Much in EB-5?

24th May 2024
At a recent JTC event, a lively discussion centered around what EB-5 investors are looking for, what they should be looking for, and whether two-year investment projects are worth considering.

The EB-5 Immigrant Investor Program has a lot of disparate stakeholders – investors, agents, Regional Centers, developers, fund administrators and other service providers, immigration attorneys, and U.S. Citizenship and Immigration Services (USCIS) – and they don’t always see eye to eye. Hearing perspectives from around the industry can help us better understand the concerns of various stakeholders.

That’s why JTC gathered a diverse group of EB-5 professionals for a discussion of current issues facing EB-5. Featuring a great deal of back and forth and strong opinions on the viability of certain strategies, the webinar offered a glimpse into the complex and ever-changing considerations of those looking to create a strong EB-5 program and provide the best opportunities for investors.

The webinar

Held on April 17th, 2024, “The New Era of EB-5: New Frontiers for Regional Centers” focused on how recent developments in the interpretation of provisions in the EB-5 Reform and Integrity Act of 2022 (RIA) are affecting the EB-5 fundraising landscape. With plenty of visas available and reserved categories providing opportunities for those from retrogressed countries, demand has increased.

“We are seeing new life to the program with visa availability, and with new life comes more opportunities for business,” said Joseph McCarthy, Principal & Co-Founder, American Dream Fund.

But with the increased demand for EB-5 investments, there are also new concerns. Investors want their capital returned to them as quickly as possible, but they also need to create jobs for successful visa applications. There has been much debate as to whether USCIS guidance from 2023 will help investors or if it will push them toward riskier projects that put their investments (and petitions) in danger.

How is the two-year sustainment period changing EB-5?

One of the most talked-about changes in EB-5 over the past 12 months has been the October USCIS guidance that confirmed a two-year minimum investment sustainment period. Moderator Jill Jones pointed out that while this could hopefully end the cycle of endless redeployment faced by some investors from retrogressed countries, it comes with its own set of risks.

“We heard of many issuers trying to change their offerings to be able to wrap up within two years,” said Jones, “and we heard others who were pushing back on that, saying if we go to market and our goal is to have a two-year sustainment period, we’re either going to find ourselves with a lot of bridge loan payoff projects rather than current development and job creation, or we’re going to have some really scary high-risk projects. The industry found itself divided on what is the right answer to that.”

The panelists agreed that it would be a mistake to accept undue risk in an attempt to get capital returned at the two-year minimum. “My general advice is don’t chase a shorter period,” said Irina Rostova, FINRA-Registered Broker and Founder of EB-5 “Look for a safer project that can actually deliver in the time they say they deliver.”

“First and foremost, we look at the caliber of the project,” said McCarthy, “because while all investment involves some risk, at the end of the day, you’re looking to avoid unnecessary risk and you want a successful result for your clients.”

Osvaldo F. Torres of Torres Law, P.A. pointed out that some of the greatest risk surrounding two-year projects comes from the fact that it’s unclear how the sustainment period will actually be calculated. “We hardly know when it really starts, and we certainly do not know when it really ends,” he said.

McCarthy shared the frustration of many in the industry surrounding how the sustainment period was announced and implemented. “There are procedures by which USCIS is to go about implementing these kinds of rules, and they don’t seem to be following those procedures.”

This lack of proper procedure has led to a lawsuit from industry trade association Invest In the USA (IIUSA), which was widely criticized for being the wrong way to go about spurring change.

“This would seem to be avoidable if there was a healthy dialogue between the agency and its stakeholders,” said McCarthy. Unfortunately, USCIS is not known for its great relationship with EB-5 stakeholders, as evidenced by the reaction to recent increases in filing fees.

“I don’t think that there’s much optimism at all that it will improve or accelerate the quality and caliber of service that we get from USCIS,” said McCarthy of the fee increases.

As far as the sustainment period goes, Rostova said the issue “comes up a lot in conversations with investors,” and that while “periods have shortened a little bit,” she doesn’t expect two years to become the norm.

“So far, just by the nature of things, most good projects that create the ten jobs and are safer in their structure, they need more than two years,” said Rostova. “Investors seem to be understanding that if it’s a shorter period and they have to take on more risk, they would rather go in a more reasonable longer period.”

Do investors care about the capital stack?

When the RIA was passed, it was thought that the increased minimum investment amounts would lead to more sophisticated investors pursuing EB-5. Those investors might have a better understanding of how their investments fit in a project’s capital stack. But EB-5 is first and foremost an immigration program – so how concerned are investors with the particulars of the project beyond the jobs it is set to create?

“Generally, I do think that investors care about the capital stack,” said Rostova, while stressing that for EB-5 investors, “number one, they care about the security of their investment,” making the experience level of the developer one of the biggest considerations for investors.

“When I’m out there talking to issuers, I feel like the capital stack is something that they’re focusing on very heavily when it comes to speaking to the investors and how they’re going to have their capital stack set up,” added Jose Rincon, Vice President, Business Development at JTC Group.

“Another thing that they’re looking at is, ‘okay, do they have the processes in place to make sure the project, the operations, is running smoothly as well,’” he added.

The importance of compliance

As Rincon stressed, “most EB-5 investors are becoming more educated in the industry. They understand how EB-5 works, how the Regional Center program works.” That means they want to make sure the project is in compliance with the RIA and won’t endanger their visa petitions.

Torres added the RIA “really codified things that Regional Centers should have been doing before in any event, and good Regional Centers always did.

“They obviously have to be way more on top of stuff and they have to have a system for compliance for their affiliates to make sure they are on board and that in fact the offerings are as compliant as is reasonably possible,” he said.

Asked what advice they would give to investors or issuers new to EB-5, there was a common refrain:

“Have a good team, you’ll be okay,” said Torres.

“Make sure that you have the right professionals,” said Rincon.

“Just make sure you use great, experienced professionals,” said Rostova, “and the program can really benefit you.”

The webinar contained spirited discussion of a lot of other issues facing EB-5, including the Rent-A-Center model and whether accepting partial payments is a good idea. To hear more opinions from the panel, you can watch the webinar recording for free on JTC’s website.

Watch the webinar recording


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