Press Release (ePRNews.com) - ROCK ISLAND, Ill. - Feb 04, 2020 - Rumors have spread throughout the EB-5 world that the EB-5 program is dead! For years, many in the industry have predicted changes to the EB-5 program as apocalyptic. Whether changes came through legislative reform efforts, or through regulatory changes, the result was often viewed in the same light. The only solution according to those who offered the doomsday scenarios was to leave everything at the status quo, keep the badly manipulated program that was pushing investments into lower Manhattan, and spuriously claiming they qualified as high unemployment areas.
To be completely fair, many in the industry have worked tirelessly to usher in necessary changes to the EB-5 program during this same period. These changes sought to ensure the integrity of the program while creating a level playing field for all parties involved. These efforts are greatly appreciated, and have not gone unnoticed. Setting aside changes to the individual investor requirements (which saw notable changes and positive protections) this article seeks to answer the question of what changed at the EB-5 project level.
The first thing that saw absolute change is the investment level. Prior to Nov. 21, 2019, the minimum investment amount was $1 million, or $500,000 if the project was located in a high unemployment or rural area, also known as a Targeted Employment Area (“TEA”). However, many projects were gerrymandering geographic areas to effectively make them TEAs as defined under the old, loose rules. In other words, these affluent areas appeared to qualify for the reduced investment level, effectively making $500,000 the investment amount per investor for all projects on the market. That is not to say that all projects manipulated the data to qualify for the reduced investment threshold. Under the old rules, CMB Regional Centers (“CMB”), one of the most experienced regional centers, introduced and successfully subscribed two partnerships at the $1,000,000 level, all the while competing with projects at the $500,000 threshold, but the industry did not follow. The new rules have increased the investment level to $900,000 in a TEA and $1,800,000 anywhere else. The investment level nearly doubling will certainly have an effect on the market. This change certainly qualifies as real and impactful.
The other significant change was to the method and rules that qualified areas as high unemployment. This change is significant for all parties as USCIS has finally provided more clarity as to what areas qualify as TEAs. In the past, any configuration of census tracts (or literally any other subdivision) could be used to qualify an area. The new rules state that an area must only consist of the census tract or tracts in which the project is principally doing business and any immediately adjacent tracts. The original notice even included a map for an example that showed the inclusion of a tract that was only adjacent at a single point.
Although this change is significant, for those in the industry that weren’t stretching the old rules to absurd levels, this change is only a minor shift in project vetting. For projects that cobbled together dozens of census tracts (or in some cases over one hundred), this change stopped those gerrymandered areas from qualifying as a TEA. The reality is, those manipulated areas never should have qualified! Changes to the EB-5 program were needed to curb those exact abuses and were generally welcomed by the majority of EB-5 practitioners.
Additionally, the responsibility for who designates a TEA has also been appropriately shifted. In the past, there were in excess of 1,500 government or quasi-government bodies that could designate an area as high unemployment with no meaningful guidance on the process or impacts of their determination. Many of these individuals were elected officials with all the conflicts of interest associated with getting reelected and general politicking. Under the new rules, this responsibility has been shifted back to the appropriate federal authority (the USCIS) that will be adjudicating the entirety of the petition (including qualification for the reduced investment level). This is a federal program with a federally issued benefit and should never have been allowed to be regulated by the states.
Although the changes to TEA designation and qualifications are significant in principle, their impacts should be minimal. Regional centers can still promote investment in the most affluent areas, and EB-5 investors can still be certain to qualify for reduced investment levels. The new rules now say you just can’t do both at the same time. USCIS still needs to provide additional clarity to ensure a level playing field.
With the new rules in place, there is a level a certainty of the requirements that must be followed, and the future of EB-5 is not the risky post-apocalyptic wasteland predicted by some prior to the new regulations.
Through all of this, CMB Regional Centers remains open for business and committed to a long-term future of supporting its clients to and through permanent residency and a return of their partnership capital accounts.
If you would like to learn more about the opportunity to move to the United States through the EB-5 program, contact Pam Ellis at CMB Regional Centers. CMB engages Prevail Capital, LLC, a broker-dealer registered with the SEC and a member of FINRA and SIPC, to be the administrative placement agent for all CMB EB-5 partnerships.
We can be reached by email at firstname.lastname@example.org, by phone at +1-309-797-1550, or on our website at www.cmbeb5visa.com. View current CMB EB-5 Projects.
CMB Regional Centers, LLC