Sam Silverman:
Hi everyone. This is Sam Silverman, managing partner of EB5AN. Thank you for taking time for today’s webinar. Today, we’re going to be covering some very exciting new EB-5 policy updates. As many of you know, the EB-5 Reform Bill has been approved by Congress and the Senate and is expected to be signed by President Biden today or tomorrow. During today’s webinar, if you have any questions, please use the chat box and we’ll try and cover as many questions as we can. If you are interested in getting a copy of the slides after the webinar, please send us an email at info@EB5AN.com. I’m going to put a link in a message for that in the chat box as well. And I’m also going to put a link for any questions about investments and projects, etc. Please use that link to schedule a call. We’ll be happy to do a one-on-one with you.

Okay, let’s get started. So the first thing—this is not legal advice and it’s for informational purposes only. You should engage your own legal counsel for legal advice prior to making any immigration-related decisions. Some other general disclaimers and a little about EB5AN. We’re a national EB-5 investment fund manager, regional center, and direct investment project manager. And today we’re going to be talking about the EB-5 Immigrant Investor Visa Program, and some exciting new changes that have just been put into effect. We’re grateful to Ron Klasko, our guest panelist today. Ron’s a legend in the EB-5 and general immigration space and his bio and record speak for themselves. We’re extremely grateful to have him available on short notice to join us on today’s webinar. And Ron of course has had a chance to review the detailed regulations that have been approved by Congress and we’ll be generally covering a lot of the major topics and questions on changes that impact investors, project developers, and regional center operators as well. So Ron, I’ll let you jump in and share a little bit about your background and tell us kind of what’s going on. And then we’ll jump into the context about these changes.

Ron Klasko:
Sure. Thanks Sam. We do have lots to talk about for sure, and I’m very interested in discussing with everybody. So, briefly, my background that’s relevant here is I have served five years as the chair of the EB-5 Committee of the American Immigration Lawyers Association. I’ve chaired the Best Practices Committee of Invest In The USA (IIUSA), I head up the EB-5 team at our firm Klasko Immigration Law. We do every aspect of EB-5, from representing large numbers of investors to putting projects together for developers, to creating new regional centers to the compliance side and lots of EB-5 litigation when that’s necessary. So that’s my background.

Sam:
Perfect. Thank you, Ron. As I mentioned earlier, I’m Sam Silverman, one of the managing partners at EB5AN and I’m joined today by Mike Shoenfeld as well, here in the middle. I’ll let Mike jump in and share a little bit about his experience.

Mike Schoenfeld:
Thanks Sam. And thanks everyone for tuning in today. A lot of changes coming in the EB-5 industry. As Sam mentioned, I’m Mike Shoenfeld. My background is in the middle of the screen. Prior to founding the company almost a decade ago with Sam, I was working at a large private equity firm in leveraged buyouts and at the Boston Consulting Group before that. One thing that we saw in the EB-5 industry back in 2012 and 2013 was a lack of sophistication and a lack of institutional knowledge. So that’s what brought us into the industry. And very similar to that theme is the reason why we’re having this webinar today to try and provide good, transparent, clear information on what’s going on and additional visibility into the EB-5 industry. Since we started the company, we now own and operate 15 regional centers, worked with nearly 2,000 investors across all of our regional centers and are one of the leading EB-5 consulting firms.

Sam:
This is a quick overview about some of our statistics as a company. We’ve worked, as Mike said, with almost 2,000 investors from more than 60 countries. This is a map showing where many of those investors have come from over the years. And now we’re going to jump into the main topic of today’s webinar, which is the EB-5 Reform and Integrity Act. As I mentioned earlier as of this second, the president has not yet signed the bill into law, but that’s expected to happen later today or tomorrow.

Ron:
Sam, the information I have is he has now signed.

Sam:
Oh, he has now signed. Okay, so this is effective immediately.

Ron:
I wasn’t there for the signing, so I can’t confirm it that way, but I’ve been told he signed.

Sam:
Okay, excellent. So, to kind of streamline today’s discussion, we’ve broken down the topics into individual categories. We’ll do a summary overview of these different topics, and then we’re going to dive into them one by one. I’ll quickly run through the 18 topics on these three slides, and then we’ll let you take over and just go one by one. Actually I think maybe we’ll just skip this part since we have a limited amount of time here. So, there are 18 topics starting with regional center reauthorization. I won’t read every single one here, but this is a roadmap of where we’re going to go. We’ll discuss these five first, then we’ll talk about indirect job creation, project compliance, accounting, reporting, other material changes, dealing with agents, government fees, protection for innocent investors, and we’ll wrap up with source of funds litigation changes and I-829 form-related policy changes. These are the 18 topics that we’re going to discuss. We’ll start first with regional center reauthorization.

Mike:
And Ron, I think it’d be helpful as we talk about regional center reauthorization if you just give us two minutes of how we got here—of what happened to the regional center program and the buildup to all of these changes. I think that would be great for some of the people that may not be as familiar with the program.

Ron:
Sure. So the regional center program was created as a pilot program. It’s a temporary program that requires extensions and, for a long time, extensions were routinely done anywhere from five years to three years—sometimes one year—at a time. And sometimes there was drama, but virtually never was there any gap in the reauthorization of the program. But for over five years now, the program has been in a difficult situation because the extensions have been three months or six months—nothing long term and nothing that is easy to plan around. For the first time, we had a long lapse, starting July 1, 2021 until now. That’s the first time we’ve had to deal with a long lapse, but it’s been a very long time since we’ve had a five year (in this case, five and a half year) extension. So that’s actually wonderful news and very, very good news for the EB-5 program. The new law is, as you might expect, a compromise. No one got everything they wanted and there were various sides to the negotiations. There were innumerable different drafts of different bills. But what we have is a compromise that has a number of very good things in the bill, and a number of things that are not so great, all of which we’ll talk about.

Sam:
Great. So I think to start out here, the main thing here is just certainty, right? So we’ve got five years. These are the rules. And at the end of five years, there could be other changes—increases in investment amounts have been kind of contemplated here in the future and other things may be adjusted, but we know now that these are in effect for five years. And most importantly, here at the beginning, we know that new investors will need to wait at least 60 days before they can file I-526s in regional center projects, but single investor direct EB-5 projects can continue. And you can file in a single investor direct project immediately. There’s no delay for those.

Ron:
Yeah, it’s very important for investors that the law contains, for the first time, a grandfathering clause. So this means that, unlike the situation we’ve had now where since June 30 no EB-5 petitions have been adjudicated, there was a concern that they were going to be returned or they were going to be denied. The law does contain a provision that says if there’s ever a lapse in the program again, or if it’s just not reauthorized after 2027, existing investors already in the system who made their investments and filed their EB-5 petitions, will be covered and will be grandfathered. So that is a very important provision that prospective investors now have some certainty, not just that the regional program’s alive for five years, but that their petitions will remain even if the program’s not extended.

Sam:
Yes, exactly. That is very important. So second: minimum investment amounts.

Ron:
So the good news about this—I mean, the bad is the investment amount has increased from the $500,000 we’ve been enjoying in recent months, which everybody knew was going to happen. That is no surprise. The good news, I guess, is the increase doesn’t even get to as high as it was in 2019 from the USCIS regulation. So now the TEA investments are $800,000. We’ll talk about what targeted employment areas are and how it changes. But certainly fewer of the projects will be in TEAs than they were before, especially on the urban projects. But to the extent they are, the amount is $800,000. And to the extent they’re not, the amount is the unusual amount of $1,050,000. And that amount will stay the same for a significant period of time. For investors, it means that there will be more funds that need to be sourced and we will be talking about source of funds, but there are higher amounts to be sourced. It means that fewer investors will be needed to raise the same amount of capital than if the investment amount was higher, but more than if the investment amount was $500,000. So we will talk more about TEAs, but I think that’s what we need to know about the investment amounts.

Sam:
Perfect. Thank you, Ron. So shifting over to TEAs.

Ron:
All right. So gone are what I guess are often called the gerrymandering TEA—the concept of taking 10 to 90 different census tracts and putting them together and averaging them out and showing a high unemployment. That was perfectly legal for many years in the program and it’s not anymore. So the rural TEAs remain the same, and there are certain advantages to investments in rural areas that we’ll talk about, including potentially more prompt processing and visas reserved for rural areas. All the things we’ll discuss. The high unemployment TEAs are basically the location of the project and any adjacent census tract to that project. So there are not many projects where one is adjacent to another, but basically just a census tract where the project is and any census tracts that are adjacent to that.

Now, the procedure for TEAs changes completely. So it used to be that states would issue letters, certifying that it’s a targeted employment area based on high unemployment—that is gone. All TEA certifications are now done by USCIS as part of the filing that will have to be made by the project with the immigration service prior to the investor investing in the project. And as part of that, USCIS will certify the targeted employment area when they do that. It’s good for two years and that gives investors some assurance that they’ll be covered once the investment is made and the I-526 is filed. Even if the area is no longer a targeted employment area sometime in the future, the investor is still protected based on the filing.

Sam:
Got it. So, essentially, self-certification of TEAs, doing the analysis to show just the census tract where the project’s located, plus any immediate adjacent tracts that are obviously contiguous. So much more restrictive. The good is you don’t have to wait for states to get back to you with letters, which is a process that we’ve seen can be quite delayed. This is now direct certification; the math is the math. There’s a very limited number of tracts that could be included here. You can still use American Community Survey (ACS) and U.S. Bureau of Labor Statistics (BLS) data, census-share, or just straight ACS data. And our data map, which I’ve shared a link to in the chat, is actually already programmed for this set of rules, which is really just a reversion to what the rules were previously. That is the case.

Ron:
This is very important, and this is something totally new. Previously, under the old law, 30% of the EB-5s were reserved for targeted employment areas. But that’s because 95% of all the investments were in targeted employment areas so it didn’t matter. Now it does matter because 20% of the annual allocation of visas are reserved for investors in rural projects. So the way it works is if they don’t use up the 20% this year, then other investors and other projects can’t use those numbers this year either. Instead it drops down to next year and can be made available to projects outside of rural areas if they are still not used within the following year. So the practical effect of that, unless there’s all of a sudden a huge increase in investors in rural projects, is that some potentially significant number of the EB-5 quota will not be used which means that the quota backlogs for existing investors could become longer. Now, the good news is if you are investing in a rural project you should have a separate priority date and a separate quota, which may be current. And if you are a Chinese investor who obviously has a very, very long quota waiting list, if you choose to invest now in a rural project, it is possible your waiting list could go away. So this is a big deal. It has a huge impact on China. We expect that for some of the reasons I’ve mentioned that there will be quota backlogs or increased quota backlogs for Vietnam and India and rural projects may be more attractive, especially to investors from those countries.

Sam:
And how does the 10% reserve for investors in high unemployment areas fit in?

Ron:
It’s probably irrelevant because all that means is that at least 10% of the total visas must be issued to high unemployment area investments, but most likely it’s going to be 80%. So it’s not like they’re not going to reach the 10%. That’s likely irrelevant.

Mike:
And Ron, one question I’ve been getting from several investors is, will this set aside count for prior investors in rural projects?

Ron:
Yeah. I think the answer should be yes. Now understand that we’re dealing with a virgin new law that the immigration service has not issued any policy memo on. There’s no regulations, the state department hasn’t figured out yet what the quota backlogs are going to look like and so, to some extent, we’re guessing and interpreting. But the way I see it, it should be that if you are a previous rural area investor, you are subject to a separate quota now and your case should move faster.

Sam:
Got it. And so the countries that are now facing retrogression—China, Vietnam, and potentially India—in the near future, that is attractive in the sense that, generally speaking, you can avoid the backlog if you select a rural project because there is a set aside. As long as that set aside isn’t fully exhausted, essentially.

Ron:
Yeah. And as we’re going to see later, in addition to what you just said, the immigration service has instructed now to give priority processing to rural area investments. Now, no one can say at this point, what that means. It’s not expedite and it’s not premium processing, but it just says to the immigration service, we expect you to work quicker on adjudicating I-526s for rural area investments than you do on others.

Sam:
Got it. Others meaning TEA or rural investment projects.

Ron:
Yeah. Others meaning anything other than rural projects. Now, unfortunately we did not get premium processing, which we hope to get. And we did not get anything that puts restrictions on how quickly the immigration service must act on anything. And that’s a problem, but the only thing we got regarding processing times is rural is supposed to be quicker than everything else.

Sam:
Got it. Okay. In your opinion, how does the “rural being quicker,” compare with something that’s been given “expedited status”? Are those two interchangeable or is expedited superior?

Ron:
Yeah. The procedure for expedites is an internal immigration service that is not affected by this new law. So that still exists. Now, presumably, the way I see it is there’s regular processing of I-526s, there’s priority processing of I-526s—which should be quicker for rural areas—and then there’s expedites, which could be for rural areas or urban areas or anything else, based on the individual facts and circumstances, which presumably will be quicker or a lot quicker than priority processing.

Sam:

Got it. So expedited is still the best, but if you can be rural, you’re going to be at medium speed. And if you’re not rural and you’re not expedited, you’re just in the same boat with everyone else.

Ron:
Yeah. I think that’s the correct way to say it.

Sam:
Okay. Now shifting over to adjustment of status. So this is a big one. We’ve gotten a lot of questions about concurrent filing and adjustment. So why don’t you paint the whole picture, Ron, for those of us who aren’t immigration experts.

Ron:
Sure. So let’s start with what adjustment of status is. Basically if you have an I-526, there’s two ways to get a Green Card. One is if you’re in the United States. You may apply to adjust your status in the United States by filing what’s called an I-485 adjustment of status application without having to leave the country. The second way is if you’re out of the United States or you’re planning on going out of the United States, then the approval notice gets sent to what’s called the National Visa Center, where you process what’s called a DS-260, an immigrant visa application. They both result in you getting the same Green Card. What we’re talking about here, where the changes are by this law, is who is eligible to file for adjustment of status and when are they eligible?

Now, the biggest thing is what’s called concurrent processing. Concurrent processing is not new in immigration law. It’s just new to EB-5. So we’ve been doing concurrent processing for EB-1s, EB-2s, EB-3s for a long time. What it means is that you don’t have to wait for the approval of the I-526 in order to file the adjustment of status. They can both be pending at the same time. So therefore, if we have investor clients who are in the United States, and we already filed their I-526 or we’re going to be filing it, now we can file at the same time as the I-485. We can do it with new I-526s, and we can also do it with people who filed I-526s a month ago or three years ago. We can now file the I-485. The I-485 has a number of benefits. Number one is you can legally stay in the United States once you file the I-485, and you don’t need to maintain any underlying status such as E-2 or H-1B. Secondly, you can apply for an employment authorization document, and thirdly, you can apply for a travel document. Now that’s all good, but there are a lot of catches and I can tell you how we advise. We have many clients in this situation and on all three things I mentioned, I want to tell you how we’re advising our clients.

Sam:
That would be very helpful.

Ron:
Number one, if you do this, should you maintain your underlying non-immigrant status? Almost always, we think the answer to that is yes. You do not want to be in a position where if there’s any problem at all with the I-526, that you are illegally in the United States because you have no other status. So we strongly urge our clients to keep their H-1B or their E-2 or whatever alive. Secondly, even though you can apply for an employment authorization document when you file the I-485, you could be waiting six months, a year, or longer for the employment authorization document to be approved. And if you have given up your underlying H-1B or E-2 status, you have no basis to work in the United States. Number three, even though you can apply for a travel document once you file the I-485, you could be waiting again, six months, a year, or longer for the travel document.

If you have given up your H-1B status or your L-1 status, you cannot travel no matter what the emergency is because you don’t have either a visa or a travel document. So it’s very good that there is concurrent processing, but you really need to deal with your immigration lawyer, every case by case, as to whether it’s a good idea to give up your underlying status. Now, the other change that has happened with adjustment of status by the new law has not been discussed as much but is very important in a lot of cases. There’s something that is called 245-K. And as with concurrent processing, this has existed for the EB-1s, EB-2s, and EB-3s before, but it hasn’t existed for EB-5. And that is something that’s saying, even if you violated your status intentionally or unintentionally for up to 180 days, you may still be able to apply for adjustment of status. Before the new law, if you violated your status for one day, you were ineligible for adjustment of status. Now, many people who were ineligible for adjustment of status are eligible for it and can go forward with the concurrent adjustment application. So that’s a summary of the very important provisions relating to adjustment of status.

Sam:
Okay. So a few follow-ups starting with the last situation you mentioned about the 180-day grace period. For someone, let’s say, that was on a visitor visa who overstayed that by 70 days and now decided they loved the United States and they want to stay. Just to clarify, that person could do EB-5 invest and even though they were out of status for 70 days, they could still do a concurrent filing and make that work. Is that accurate?

Ron:
That is accurate, but that person should definitely consult with an experienced immigration lawyer before doing that, because there are various issues. When you enter as a B-2 visitor, you are making a representation that you’re just coming to visit the United States, and you never want to act too quickly to file adjustment of status if you’re a visitor. But if it’s now, if you were admitted for six months and it’s now nine months later and you say, “Oh my God, there’s a new law. I know I’ve been here illegally, but I still want to do this.” It may be possible to do that.

Sam:
Understood. Then the other two kind of common situations here relate to first someone on H-1B. Let’s say they’re working at Amazon, and they adjust status. They used your firm, Ron, to prepare their source of funds so they think it’s going to go great. It’s going to work. And they want to quit Amazon and go do a startup, but first they want to take a few months and not work. They want to take a vacation and then once their travel document gets approved, they want to join with a few friends and do a startup. Is that going to be possible?

Ron:
Yes, it’s possible. But whether it’s a good idea or not is a whole different question because if you’re an H-1B sponsored by Amazon and you now are working for a startup either instead of or in addition to Amazon, you no longer have legal H-1B status. So you have to decide if you want to take the risk of any problems with the I-526 or the I-485 before you give up status. The advantage to not violating H-1B status is if there’s any problem that has nothing to do with you, but there’s a problem with the project (there’s a problem with your source of funds, there’s a problem with your eligibility for I-485). If you continue to work only for Amazon, then the worst that happens is you’re still legal on H-1B status. If you don’t continue to work for Amazon in that example, the worst that happens is you’re illegally in the United States. So again, it’s very important to discuss your individual case with your immigration lawyer.

Sam:
That makes total sense. The other issue there is the travel document, right? If you remain on H-1B, that means you still have the ability to travel. Whereas if you didn’t, then you’ve got to wait for that travel document. Is that right? Is that the other primary negative?

Ron:
Yeah. The only two non-immigrant statuses that let you travel while the adjustment is pending are the H-1 and the L-1. If you have either of those, you don’t need a travel document to travel. If you don’t have legal status in H-1 or L-1, you do need a travel document to travel and the way things are today with the immigration service, that is not likely to happen quickly.

Sam:
Got it. Then the other real common situation we see is someone who’s here in the United States as a graduate student on F-1. In this example, the main reason they’re a graduate student is because they want to remain legally in the United States. And now with this, they can stop being a student. Let’s say they’re really not planning to work, but just have the desire to be here legally. They could do EB-5 or they’ve already done EB-5. They’re a student. Now they could stop being a student and then just wait and have limited ability to travel. But again, they’re taking the risk that things go smoothly with the adjustment and I-485. Right?

Ron:
Yeah, that’s correct. And again, I hate to keep saying it, but it’s not a blanket—what’s best for everybody. We represent lots of universities and lots of students. Now, a student who is at the point in his or her academic career where he’s likely to get Optional Practical Training (OPT) is likely to get the employment document for the practical training way quicker than he will get an employment document through the filing of the adjustment of status. So that may be an issue. If being able to work quickly is an issue, we have to evaluate—are you likely to be able to work quicker if you keep your F-1 alive, or are you likely to be able to work quicker if you file a I-485 and leave school?

Sam:
Right. But all things equal for someone who’s not looking to work at all, it’s going to be a little bit easier to do the adjustment if they’re a student versus if they’re on H-1B. There’s just fewer moving parts there with the job.

Ron:
Yeah. There are definitely fewer issues if the ability to work is not factored into the equation. If the ability to work is not factored in the equation and the ability to travel is not factored into the equation, then it’s a lot more straightforward.

Sam:
Got it. That makes a lot of sense. All right.

Mike:
I think that that’s something that’s one of the more interesting things for a lot of our current investors and many that went into regional center indirect projects. So it’s definitely worth reaching out to your immigration attorneys to speak with them about your individual situation. Because as Ron said, it looks great on the surface, but you really need to see it for exactly what you’re trying to accomplish. Is that the right option and what’s the best thing to do?

Sam:
Exactly. There are pros and cons to each of those different paths so just want to make sure you make an informed decision. You get the right advice for your situation. All right. Switching gears. Indirect job creation. Go ahead, Ron.

Ron:
All right. So this is something that really is a bigger impact on regional centers and developers than investors. But if you’re an investor, your immigration lawyer is certainly going to want to evaluate the project you’re investing in to make certain it meets these new requirements. And these are brand new requirements. Up until now, 100% of the indirect and induced jobs in a regional center project could come from an economic methodology report. There did not have to be any direct W-2, full-time employees of the new commercial enterprise or the job creating enterprise. That has now changed for the first time. Any regional center project must have at least 10% of the total EB-5 jobs coming from direct employment.

Sam:
This is getting a little bit detailed into the economic methodologies and things that are used. When an economic report is done, for example, on a large construction project which tends to be the most popular type of regional center project, what the report details is that any construction project where the construction period is less than two years is only going to have indirect job creation as part of the jobs that are going to be able to be potentially counted from that project. However, when you have a large real estate project where construction has been going for three years continuously, and you run the economic model, and let’s say, it tells you there’s 130 jobs. Well, some of those 130 jobs are categorized per the model as indirect and some of them are categorized as direct because the construction period is more than the two years. So can you talk a little bit about how that fits in and what that means for the direct creation? I know it can be a little bit confusing from W-2s versus a construction job that will last two or more years in a model.

Ron:
All right. So yeah, this is really getting into the weeds and I apologize in advance. But basically there are two different types of direct jobs. There are direct jobs which means a W-2 full-time employee. And there are what’s called model direct jobs which are direct jobs forecasted by economic methodology. I think the new law is not completely clear, but the way I read it, you can use model direct jobs through economic forecasts to meet the direct job requirement. The direct job requirement is 10% if the project will last more than two years and the direct job requirement is 25% if the project will last less than two years. And it even gets more complicated than that because you then have to do a fraction of how much less than two years the project lasted.

That would result in even more than 25% of the total jobs having to be direct as a practical matter. I expect we will certainly see fewer projects that last less than two years, because I think this is a requirement that’s going to be difficult to meet and will be easier to meet for projects that last two years or longer. I should also mention, and the slide mentions, something that may be significant in some projects, which is if you have an EB-5 project with commercial tenants, you can count the jobs created through the tenants as indirect jobs, unless all that’s happened is the tenant was at X location and had 25 employees at X location. Now they’re moving into this new project and they’re still going to have 25 employees. Then the net effect is zero. But if we’re not dealing with relocated employees, then the project may be able to show significant, increased, indirect job creation through the economic methodologies of what’s called tenant occupancy jobs. That’s probably as much in the weeds as we’re going to get on this call. And I apologize if it’s confusing, but that’s the best I can do to clarify it.

Sam:
Yeah. That’s very helpful. The takeaway there is that as a result of this, we expect to see very few, much shorter construction period projects. It is going to be very difficult to direct jobs in two years. So yeah, we expect the market to be much larger, longer-term construction real estate projects as a result of this change. All right. Next topic. No pooled investment for direct EB-5.

Ron:
Yes. This is brand new and it’s a big deal. There are many projects, especially now, when the only thing you could do was a direct project since June 30th. There are many of what we call pooled direct projects, where it’s not a regional center, it’s all direct jobs, but there may be 10 investors in one project and a hundred jobs are going to be created and that’s perfectly fine as a direct EB-5 project. The new law says you can no longer do that. If you have an investment with more than one EB-5 investor, it has to be done as a regional center project. You have to affiliate with the regional center, the regional center estimate, the filing that we’re going to be talking about, and you pay whatever the fees are going to be to the regional center. So there are no more direct EB-5s other than a one investor investment in a project.

Mike:
And one impact here, Ron, that I think is pretty clear and wanted to get your take on this is that based on the last slide in this, it’s really pushing for a bifurcation in the market. We are going to have very large-scale projects if it’s construction that lasts over two years, institutional, and only one investor direct deals. So almost all of those smaller mom-and-pop deals that were being done before are going to go away other than one investor deal. So it is going to cause a barbell effect, at least that’s my read. Wanted to get your take on that.

Ron:
Yeah, I agree with that.

Sam:
Perfect. Moving along. Project requests. Let’s talk about the pre-filing of a project for certification by USCIS.

Ron:
All right. So I think most of us on the call have probably heard of what was always called an exemplar filing on the I-924 and that used to be optional. Under the law before this, any regional center or any project that wanted to could submit an exemplar petition with the immigration service to get, what’s called pre-approved, before it goes out to market looking for investors or even during it, it’s going out to market to look for investors. That was optional. Two important things have happened. Number one is it’s no longer optional; it’s now required. And number two the amount of documentation and information that has to be supplied by the regional center as part of this filing is now far more substantial than it was before. I don’t think we’re going to get involved in this call on exactly what regional centers will have to do to file.

But a large portion of the bill covers that. And a lot of it relates to investor protections and a lot of it relates to information about who’s going to do the marketing and who fees are being paid to and what compliance measures the regional center has. It’s a very substantial filing. If you’re an investor, all you need to know is you can’t file an I-526 petition until the project has made that filing. In no event can you file until 60 days after the effective date of the new law. So right now, no regional center petition can be filed for 60 days. It doesn’t stop direct EB-5, just regional centers. 60 days from now, you can file your I-526 as long as you file any project that has made this project request filing with the immigration service.

Sam:
Got it. And just to clarify that Ron, of course it’s likely there will be many good quality projects coming to market in the next 60 days that investors can sign up for but they just can’t actually file the I-526 petition with USCIS.

Ron:
So I think that, as I mentioned earlier, we represent investors, we represent project developers, we represent regional centers. To the extent we’re representing regional centers and developers, we’re definitely suggesting that they confer with securities counsel on what can and cannot be done in advance of the filing. So certainly whatever marketing is going to be done would have to be done with the offering documents. That will be part of the project request filing. But again, securities counsel will be involved in that.

Sam:
Got it. That makes sense. Because you need everything to match. So, a little bit on regional center compliance.

Ron:
The main thing here is that there is a lot that has been done in an attempt to protect investors against fraudulent projects. Not to protect investors against bad investments or projects that won’t necessarily create the necessary number of jobs or whatever, but in order to prevent fraudulent projects and the new law requires projects either to get a certified audit or to have a fund administrator. There’s lots of rules regarding full transparency that the regional center and the new commercial enterprise will have to have on what’s going on and reporting to the investors. Each investment by each investor has to be put into a separate account and the project has to provide information about when the money has been used and what the status of the account is.

There’s all sorts of rules regarding who regional centers can use to market the project. People involved in marketing have to register with the immigration service, even if they’re foreign entities and have to be apparently approved by the immigration service. So again, I don’t know that we want to go into too much detail here but, for investors, I guess the good news is that there are far more protections for investors baked into this that regional centers and project developers have to comply with. The bad news, I guess, for the investor is that because there are so many new requirements, there’s so many things that a regional center could fail to do that could result in the regional center being terminated. If the regional center is terminated, all projects under the regional center could be in jeopardy for EB-5 purposes. Later on, we’re going to talk about what happens if there’s a regional center termination but investors have to be more cognizant than ever regarding every aspect of the investment. Who is the regional center is very, very important in addition, of course, to who is the project developer.

Sam:
Perfect. Thank you, Ron. I think we’ll skip over this accounting and reporting because we just covered that. Let’s move to redeployment.

Ron:
All right. So let’s talk about, what is redeployment? Redeployment is not something new. It’s existed in the law for a while and what it says is if you make your investment, let’s say you invest in a commercial enterprise that loans you money to build an office building and the loan is repaid after five or six years or whatever, now the money is back with the company you invested in, which is the lending company. It’s long been the case that the lending company or the new commercial enterprise, can’t just put your money in a bank account until you’re eligible to get it back. They have to keep the investment money at risk. At risk doesn’t mean in the stock market. At risk means in some project that’s actually doing business and the law, for the first time, includes that in the statute. It’s always been just an immigration service policy. One of the most important things is that the language on redeployment is more expansive than the present immigration service interpretations. The immigration service interpretations presently have said that the redeployment must be in a project in the same geographical area of the regional center and oftentimes there’s no good project that is in that limited area. The new law says that there is no geographical limit on redeployment. So redeployment can be in any project no matter what part of the country it is in.

Sam:
Thank you, Ron. That’s really helpful. Ron, we want to be cognizant of your time. You said you have about 35 minutes left. We’re going to run a quick poll. Everyone take one minute and answer this poll so we can determine where we want to use the next 35 minutes or so. Thank you. Okay, so material changes, Ron, go ahead.

Ron:
Material change has been something that the immigration service came up with as a way of denying projects, where from the time of filing of the I-526 until the time the investor becomes a conditional resident, if there’s any significant change in the project. The immigration service has never defined what a material change is. The bad news is the new statute, the EB-5 Reform and Integrity Act, also does not define what a material change is. I find the provisions involving this to be among the more ambiguous within this new law. It appears to me that there are some protections against material change. If you have a project that is approvable when it’s filed, there’s some language that seems to indicate that you should still be able to get the project approved, even if there are material changes. Not a hundred percent clear and not clear if the immigration service will interpret it that way. But this is one area that is certainly mentioned in the law that we’re going to have to see how it’s interpreted.

This is better than what we had and not as good as what we hoped. The bottom line here is that if a regional center is terminated or if an NCE or JCE, a new commercial enterprise or job creating enterprise, are what they call debarred (and we’re not quite sure how that will work yet) but if they’re disqualified from the program, then in most cases, an investor will have 180 days to take action to protect their petition and not lose either their priority date or not lose the child status protection act age of their child. Basically if a regional center is terminated, you’ll have 180 days for your NCE to affiliate with a different regional center even if it’s in a different geographical area. If the NCE is debarred, then there’ll be 180 days to get a different NCE to oversee the project. If the new investment that you’re making or the change is done at a time when the jobs have not yet been created, then the new project may require additional investment in order to create the necessary number of jobs.

Again, that’s going to be very case by case. So this covers, in most cases, problems involving fraudulent projects because it’s usually a fraudulent project that’s going to result in a regional center being terminated or result in an NCE or JCE being debarred. It does not seem to cover failed projects. No fraud, the project just went bankrupt through no fault of the investors. It didn’t create enough jobs through no fault of the investors. The new law does not provide relief there.

Sam:
Got it. Let’s shift over to brokers.

Ron:
If you’re an immigration agent or you are involved in the marketing of an EB-5 project, there are major impacts on you. The main thing to know is that every fee paid by investors and by anybody involved in this process must be disclosed. It must be disclosed to the immigration service, and it must be disclosed to EB-5 investors. In addition to that, agents involved in the marketing of EB-5 projects have to register with USCIS. There are no regulations on this yet. We don’t know how rigorous it’s going to be. We don’t know how much oversight immigration is going to have. We don’t know what requirements are going to be placed on EB-5 marketing groups. So a lot of this we’ll have to see how it plays out, but this is going to become an important part of EB-5 going forward.

Sam:
Ron, when you say, “see how it plays out,” can you click on that and walk us through what that timeline looks like?

Ron:
Probably I can’t, because other than disclosing information about fees paid, this is not a self-executing part of the statute. Many of the parts of the statute are ready to go, but we’re not ready to go until we know how a migration agent is going to register. They can’t register until the immigration service says here’s a form to register. Here’s the information we want. Here’s the regulations. We can’t know what kind of oversight immigration service is going to have until they say, we’re going to audit you, or we’re going to do a site visit of you, or we’re going to make you do annual filings. We don’t know anything about that because all of that will be subject to immigration service regulations.

Sam:
When do you expect those regulations to be formed? What do you expect that process and timing to potentially look like?

Ron:
That is by far the hardest question you’ve asked. Anything to do with when a regulation will happen is almost always defined by years and not months and sometimes many, many, many years. Unless this is viewed within the Department of Homeland Security as a high priority regulation, we’re probably years away from something happening. I have seen many take more than three or four years. It has to go through many layers of the U.S. government. It then has to go through what’s called Notice and Comment rulemaking where the public can provide comments. The government then has to revise the regulations pursuant to the comments and issue a final regulation. We’re usually talking years. Whether the immigration service will do something in the interim to enforce this, we’ll have to see what happens.

Sam:
That’s really helpful. Okay. Let’s talk about fees. Everybody loves to know what’s going on with fees.

Ron:
I think the first thing to talk about is probably everybody involved in this process is going to be increasing fees. There’s just more to do. There’s more funds to source if you’re a regional center, there’s tons more things you need to do. There’s higher filing fees, as it says in the slides. There’s higher filing fees on the regional centers. There’s higher filing fees for investors. There’s far more requirements for immigration lawyers involved in every stage of this process. In most types of businesses and probably the same for this type of business, fees of everybody involved will go up so it could affect the fees at every level. It could affect lawyers’ fees, it could affect regional center administrative fees, it could affect returns that investors get. If there’s less profit margin, and if the fees are going to stay the same for the regional center, then they have to make up for it somewhere and they may make up for it in lower returns.

Without going into the specifics of it which you can read on the slide, that is some of the impact of the increases in EB-5 fees. Also, I can mention that the new law does talk about the immigration service submitting fee increase requests, even above the huge fees they now charge in order to get processing times under some control. In the statute, it talks about 180-day processing time for some types of applications, 240-day processing times for other types of applications. So that is obviously a laudatory goal, but it’s not a requirement and it’ll probably mean significant fee increases before that happens.

Sam:
Got it. So just zooming back out again to general regional center compliance, how do you interpret the rules to apply if, let’s say, there was a regional center in Illinois that had three projects, and they’re not planning on ever raising any more money. They just have three projects, maybe they have 30 investors and the projects are still going on but they’re done. They’re not raising any more money. How significantly impacted are they going to be in terms of audits and fund administration? Obviously they’re going to pay the annual fee increase. But how much of those rules are going to be only applicable to new people raising money versus funds that are wrapping up?

Ron:
Yes, it’s applicable to everyone the way I read it. The fund administration and/or audit provision certified audits requirements apply irrespective of whether you only have three inactive projects. I believe the site visit requirements apply even if you don’t have any new projects. So the answer to your question is that there are still substantial, ongoing compliance requirements no matter how active or inactive you may be as a regional center.

Sam:
What about broker disclosure? So for a project that raised money two years ago and paid a lot out in fees, do they now have to disclose to all their investors what was paid years in the past?

Ron:
Yeah, I didn’t focus on that issue. That’s a good question. I’d have to check the effective date provisions of some of the compliance language to see if it applies retroactively to fees that were paid before the statute came into play. I have not focused on that.

Sam:
Got it. Shifting back to something more in your department: source of funds. What are the implications here and what do investors need to know?

Ron:
Number one is you must source not only the, let’s say it’s an $800,000 investment. You have to source not only the $800,000 investment, but definitely you have to source the administrative fee that’s paid to the regional center. There may be, depending on how this is interpreted, other fees that you have to source as well. Basically, the language of the law is you have to provide source of funds for all fees associated with your investment in the project. That’s number one. Number two is the present five year tax returns submissions in the regulations are now, by the statute, up to seven years of tax returns. Another provision is that anyone who transferred funds to the United States for the investor must be identified now. Often funds are transferred through intermediaries and you have to now identify who the intermediary is. In China, we know that a lot of times there are many people involved in a funds transfer. They all have to be identified.

Now the one thing that is, to me, most unclear in the changes regarding source of funds is the fact that you can still have gifts or loans to satisfy the EB-5 investment. But it says that the gifts or loans must be made in good faith. So we don’t know exactly how that will be interpreted and whether it will add a new requirement to the law. But it probably would cover, for example, if I don’t want to have to show my source of funds and somebody gives me a gift, and we use their source of funds, and then I give that money back to the person who gave it to me. Well, that might be considered a gift that is not made in good faith, just as an example. But this is the kind of thing that will depend on interpretation, but it is a new requirement in the law.

Sam:
And these requirements are only for new investors coming in starting today, right? This is not going to impact people who already filed. Is that your understanding?

Ron:
Yes. It certainly is my understanding that an I-526 that was filed that met the law at the time it was filed is subject to the law at the time it was filed.

Sam:
Okay. Shifting to litigation.

Ron:
There’s bad news on litigation and our firm does a lot of litigation in the EB-5 arena. We worked hard to prevent this from happening but, for the first time in immigration law in any area of immigration law, you can’t go to federal court on a denied or revoked petition until you first file an appeal with the USCIS administrative appeals office. The bad news there is that the chances of success there are low and chances of it taking more than a year are high. So it really delays being able to go to federal court. This has nothing to do with mandamus cases. We do lots of mandamus cases for delayed I-526s and I-829s. That doesn’t change. You can still move forward with that. If you had a mandamus case pending at federal court as of June 30th, they can move forward. New cases can be filed. It doesn’t affect mandamus cases, but it does affect what’s called declaratory judgment reviews of denied or revoked petitions.

Sam:
Thank you, Ron. That’s helpful. I-829s and then we’re going to change topics and talk about some implications on the project side as well.

Ron:
Sure. The biggest change in I-829s is that you now have a third year to create the jobs. So if by the time it’s time to file your I-829, a little bit less than two years before you’ve gotten your conditional residence, if the necessary jobs have not been created, you can extend the time period for filing the I-829 by one more year to have more time to create the necessary number of jobs. That is the most positive thing involving I-829s.

Sam:
But you still have to create jobs for two years. You just have three years, a longer period of time within which to accomplish that. Is that accurate?

Ron:
I believe that is how it will be interpreted. So what we’re talking about is called the sustainment period and so under the existing interpretation, the investment must be maintained at risk for at least the two years after you become a conditional resident. So actually, as I think about what the law said, for the new law, I believe if you are going to take advantage of the third year, you will have to prove that you’re continuing to sustain your investment for the period of your conditional residence until you file the I-829.

Sam:
So, in other words, if you want to take the extra year, you can’t get repaid during that extra year.

Ron:
Yes. I do want to doublecheck that, but I believe that was the language.

Sam:
Understood. Now we’re going to shift gears and talk about a couple of projects that fit into this new landscape with the $800,000 and the $1,050,000 amounts. I think before we jump into specific projects, the most important thing generally is that they’re going forward, given some of these rule changes and visa allocations and different processing, etc., there is no longer going to be one best project for every investor. There are going to be different types of projects that will be better fits for different investors depending on where the investor is from, what country they’re from, are they impacted by retrogression or not, and are they physically located in the United States at the time of filing or not? We’re going to cover a couple of these projects today. This is going to be an evolving situation, obviously over the next couple of months, as we enter the regional center I-526 application period after 60 days. Mike, do you want to jump in here before we go ahead?

Mike:
Yes. I think that this is probably one of the things that not everybody predicted when the initial drafts of the bill came out is that there really is a difference in project fit by investor type now. It’s not just a diverse equity, there’s a lot more to it.

Sam:
And with that, we’ve got two minutes left. I want to use these two minutes to ask Ron about the big picture. What do you think the next five years look like with EB-5, Ron, given these major regulatory changes. What do you see happening on the project side and how is it impacting investors as well? Are investors going to have more projects to pick from, less projects, returns going up or down and generally, what’s your processing times? What do you think they’re going to do? Are they going to go up, down, stay the same? We won’t hold you to it, but just generally, what are your thoughts on what’s going to happen here?

Ron:
It’s going to be a boom time for EB-5. I think a lot of latent demand. I think the fact that it’s $800,000, there’ll be fewer investors than would be available if it’s $500,000. But I think that there’ll still be substantial demand. I think there will be an increase in demand for rural projects. I think that there will probably be a decreased number of projects offered by one-time developers or one-time regional centers. The compliance requirements are so great that I think the number of active regional centers will be winnowed down and the number of developers that will be doing this will be reduced. But I think there may be higher quality projects as a result of this.

As I mentioned before, I think that the fees of everybody involved will go up. I think that probably the returns to the investor, I would guess, may be going down. I think that the processing times, unfortunately there was nothing done to improve processing times. But you know, while that’s a big issue, the rural projects will benefit. In terms of quota backlogs, the rural projects will benefit. I’m disappointed that there’s nothing that enforces more reasonable processing times. I think if anything’s going to kill this program, it’s the immigration service’s very long processing times, but we still have the ability to deal with that with mandamus filings. So I think all in all, it’s a big net plus. I think we’re happy that the regional center program will move forward. I think it’s very significant that there’s a grandfathering clause so that investors can invest with more confidence and not have to worry about a future lapse in the authorization of the regional center program. So mixed bag but mostly good, and I think we’re all going to be very busy.

Sam:
I think we generally agree with that as well. I think there’s going to be less new people coming into this space. Compliance is going way up; investor returns are going down. There’s just going to be fewer projects, fewer regional centers and just better protections for investors. Thankfully, we’ve already been doing a lot of these new things that are being mandated. Fund administration, we have pretty much on every project, along with independence and transparency. These are things that we’ve been focused on as a company since 2013. So yeah, it is going to be a little bit more paperwork, but generally we think that these changes are going to be helpful in terms of really protecting people from fraud. It’s not going to protect you from just picking a bad project. If you invest in a water park in the middle of Michigan and it doesn’t do well, shame on you for picking a bad investment, but it’s not going to be because the developer of the project walked away with your money because now things are going to be audited. They’re going to be much more buttoned up. Mike, do you have any comments?

Mike:
Yeah, I’d say generally I agree with all of that. I think that going with institutional parties is going to be even more important. Working with a regional center that understands what the role is and has a lot of experience is going to continue to be important, but even more so with the looming threat of terminations and the increased compliance burdens. It’s really just up to investors to evaluate different projects and find what’s the best fit for their personal situation and their goals and the timeline that they need. But overall, just really happy that something finally got done. We’ve been very anxious over the past many months waiting for reauthorization of the regional center program and we’re very frustrated on behalf of all of the investors that we’ve worked with, who in good faith made their investments. Now we’re glad to see that it is reauthorized and everyone can take a breath of relief and we’re going to move forward and figure out the best way to structure deals in this new environment.

Sam:
One final comment before we sign off here is that we must have gotten over a hundred questions during the webinar, and unfortunately, we’re not going to be able to cover any of these individual ones, but please book a call with us. We shared the link to schedule a call. We’re happy to chat with you at no cost. We’d love to hear from you, developers, investors, and attorneys. If you have any questions, please reach out to us. I’ve also put the contact information for Ron and his team on the screen for investors seeking immigration counsel to help with their I-526s. Ron’s team is unparalleled and we highly recommend them. We’ve been working with him and his team since 2013 on some of our early projects. He’s really the leader in this space and with that, we really appreciate you Ron, taking some time to walk us through and tell us what we need to know.

Ron:
Thank you, Mike and Sam. I enjoyed it and I hope it was helpful.