More than 30 years have passed since the EB-5 Immigrant Investor Program was introduced in 1990, and a lot can change over three decades. The program spent its first two decades with little attention, issuing only a small portion of its annual 10,000 EB-5 investment visas. But after the 2008 financial crisis, popularity skyrocketed as projects turned to the EB-5 program to secure financing otherwise impossible to attain. Then, the situation reversed, and the EB-5 program faced more demand than it could handle, with lengthy backlogs forming for EB5 investment participants from high-demand countries like China and Vietnam.
Even as the EB-5 program careened through the 2010s in drastically different circumstances than its first two decades, the program regulations remained the same. EB-5 reform is needed—it’s been necessary for several years, and it’s still necessary in July 2021. But when Congress failed to pass comprehensive EB-5 legislation reform, the Department of Home Security (DHS) took matters into their own hands by releasing the Modernization Rule in November 2019. The new regulations transformed the EB-5 program in three main ways, generally to the displeasure of EB-5 investment participants and other stakeholders.
Priority Date Retention
Priority date retention is the only Modernization Rule change received positively by EB5 investment stakeholders. This change allows EB-5 investors to retain the priority date of their original I-526 petition when filing subsequent I-526 petitions, which may be necessary if, for example, the investor’s affiliated EB-5 regional center is terminated through no fault of their investor. Against the backdrop of ever-increasing backlogs, low productivity at United States Citizenship and Immigration Services (USCIS), and rampant regional center terminations, priority date retention can be invaluable indeed. According to DHS, this change generally received positive feedback.
Minimum Investment Amount Hike
Praise for the priority date retention change paled in comparison to the outrage directed at DHS’s 80% hike to the minimum EB5 investment amount. When the Modernization Rule regulations went into effect on November 19, 2019, the minimum investment amount for regular EB-5 projects leaped from $1 million to $1.8 million overnight. For targeted employment area (TEA) projects, the rate increased by the same percentage, climbing from $500,000 to $900,000. Suddenly, countless prospective investors were priced out of the market, and EB5 investments were nowhere near as attractive as they once had been.
DHS argued the hike was necessary to stay in line with inflation. When factoring in inflation, the $900,000 and $1.8 million amounts are roughly equivalent to the value of $500,000 and $1 million in 1990. The Modernization Rule also implemented measures to continually increase the minimum investment amounts in line with inflation in increments of five years, with the next scheduled increase in 2024.
Naturally, EB-5 investment stakeholders were upset about this new development—some prospective investors had to give up their dreams of U.S. permanent residency, some projects lost access to high-quality EB-5 funding, and some regional centers faced difficulties attracting investors under the higher investment amounts. However, since the regulation had been announced a few months in advance, the industry saw a surge in EB5 investments as applicants rushed to beat the November 19, 2019, deadline.
Tightened TEA Designations
The third and final major change the Modernization Rule introduced to the EB-5 program was restrictions on TEA designations. Traditionally, TEAs have been designated by the respective state, which resulted in uneven designation and different criteria nation-wide. These state-by-state discrepancies, coupled with instances of gerrymandering to designate affluent urban areas as TEAS, were cited as a key reason behind DHS’s decision to tighten DHS regulations and centralize the designation determination at USCIS.
As many as 43% new commercial enterprises (NCEs) with TEA designation were affected by the changes, according to DHS statistics, and not only because USCIS is stricter with designations than some states had been. The new regulation also made it more difficult to group census tracts together to create a TEA, as had been common practice previously. Under the Modernization Rule, an investor can only include census tracts directly adjacent to the one where the NCE is physically located, dramatically cutting down on the ability to create new tracts.
Opposition and Repeal
A few disgruntled EB-5 regional centers challenged the Modernization Rule in court, arguing it had been illegitimately enacted and asking the courts to repeal the regulations. Many EB5 investment stakeholders could empathize with the regional centers grievances but saw the lawsuit as an unnecessary distraction when faced with the dire issue of looming expiry for the EB-5 Regional Center Program. But to the industry’s surprise, the courts indeed overturned the Modernization Rule, reverting the EB-5 program back to its pre-November 2019 state.
For around a week, EB-5 investors rushed to submit their I-526 petitions at the lower $500,000 or $1 million amounts. With the shock ruling having been delivered so shortly before the regional center program expired, there was little time to take advantage of the presumably temporary lower EB-5 investment amounts. On June 30, 2021, the regional center program did indeed expire, and as of July 13, 2021, USCIS is no longer accepting I-526 petitions affiliated with regional centers, although direct investors may still file with the lower minimum investment amounts. The Modernization Rule will likely be reinstated, but the future of the EB-5 program is uncertain in these chaotic times.