Free EB-5 Project Evaluation

July 2019 EB-5 Rule Changes

Mike (00:05):
Hi everyone. Hope you’re doing well. Appreciate you taking the time to call in and join the webinar today. We’ve had some interesting new regulations published in the last 24 hours. So, we wanted to take a chance to talk through what these regulations mean—we’ve read through all of them in detail—and our interpretation of what we see.

Sam (00:30):
Yes, this is Sam Silverman. As my partner, Mike, just said, we’re going to run through the different rule changes that have been announced and kind of walk through the impact and the potential timelines for individual investors considering joining a project, and what that looks like, and also for EB-5 project developers who are interested in bringing in EB-5 capital to their projects, and what the timeline looks like for that over the next four months. So, here’s a little bit of information about our company and our bios. I’m Sam Silverman, and my partner, Mike.

Mike (01:12):
So, all of us come from more of the institutional side of the world, and we’ve been working in the EB-5 space for seven years now. And if you don’t already know us, we’re known as some of the leading experts in the EB-5 industry.

Mike (01:27):
And please ask questions during this. There’s a question box. So, if you have any questions along the way, feel free to leave it. So, as the regulations came out, one of the key things that everybody’s been calling and asking is, “So, what’s actually happening?” So, in general, this is the last stage of the process to publish a new rule, where the department of Homeland Security, who oversees the program, has now officially published the rule that is permanent and will take effect on November 21 [2019]. They published this rule earlier today. They were at least the text of it yesterday, and it’s given 120-day grace period for projects and investors to operate under the current rules before the new rules come into effect. We’ve been anticipating this type of rule change for a long time now. Ever since mid-2015, many different pieces of legislation and potential rules have been published and sent out and discussed.

Mike (02:29):
And no one was sure exactly when this would happen, but now that it has been published and there is an official notice date where it’s going to take effect on November 21, 2019, these need to be taken seriously as the future of EB-5. So, what are the key things that you should know, either as a project developer and industry participant or an investor? The most impactful changes in this are the increases in investment amounts. TEAs (targeted employment areas) will increase from $500,000 to $900,000 for each investor, and non-TEAs will increase from $1 million up to $1.8 million. In the published rule, DHS addressed many of the concerns of the industry of the investment amount being too high, and they decided that $900,000 is the right amount for the TEA, which is exactly half of the non-TEA, which is the same ratio as before. I think many of the industry still believe that $900,000 is too high and may hurt demand in the short term, but these are the new rules that will go into effect on November 21.

Mike (03:39):
The other key change is how TEAs are defined and who designates TEAs. Historically, each state was allowed to designate what qualifies as a TEA, as long as the math worked. So, as long as the unemployment in the chosen area was 150% of the national average, it worked as a TEA if the state designated it. That’s not the future of the TEA. USCIS wanted to rein in some of the gerrymandering that was going on, and the way that they’ve decided to do this is to make it so that these TEAs are going to be very clear, where only a single census tract and the contiguous adjacent census tracts can work to qualify as a TEA. So, some people had called this “the doughnut method,” where you take wherever your project is located, and you can include any and all tracts that touch that specific census tract.

Mike (04:34):
The math still has to meet 150% of the national average of unemployment. Additionally, there’s many other small changes in there. One important one is priority date retention for any investors that have already started the process—maybe they were in a failed project and need to change. That’s a very nice thing for USCIS to do, and we’re glad that they did clarify this priority date retention. And then there’s a lot of other very minor clarifications in there that don’t have a direct impact on many projects or investors. So, the main takeaway from all this is that the rules of the game are changing. So, over the next four months, we see any investor that was considering EB-5 and very serious, they are going to move forward and choose their project and make their investment. Why would they wait and pay $400,000 more for the exact same thing after November 21? So, we’ve already seen [that], and we’re anticipating an extremely large increase in activity both on projects getting structured with investors coming in and investors choosing their projects over the next four months.

Sam (05:42):
And, as we just touched on, we’ll now kind of do a little bit of an illustration on the TEA regulatory changes that have been proposed. So, on the left side, the current TEA process—the way it works, each individual state has designated its own authority within the state to designate these TEA letters, and there’s flexibility across states. So, some states, like California, only allow a maximum of 12 contiguous tracts, whereas other states, you know, are a lot more flexible. So, currently, if you look at the image sample of a prior TEA, that’s an example of a TEA area that would currently be approvable. As you can see, it’s kind of an odd shape and combines maybe 15 different tracts altogether. Today, that type of a configuration would no longer work—going into effect on November 21, that would no longer work. So, the new proposed TEA calculation method—again, there’s no more state authority–designated TEAs. All of the new TEAs after November 21 are going to be issued directly by DHS.

Sam (06:59):
And so, at that time, the calculations will be done using the single census tract where the project is located plus any adjacent tracts that immediately touch the tract where the project is located. And so, what this does is it minimizes the number of projects that will qualify as a TEA in general. Based on the USCIS published report, it reduces the number of project sites that currently qualify today. Let’s say 100 projects qualified today as a TEA—it cuts it in about half. So, about half of the projects that today qualify as a TEA will still be able to qualify, but half of them will no longer be able to qualify. And the ones that don’t qualify—because the minimum investment amount is increasing, those that don’t would now be facing an increase of up to $1.8 million, for an investment in those projects that will no longer qualify as a TEA.

Mike (08:00):
We believe this will fundamentally shift the style and types of projects that work within the EB-5 program. With an investment amount of $1.8 million not being realistic, mostly TEA projects in the future will be the ones that still find investors, and those are at $900,000. So, based on these regulations, we believe some of the projects will shift out of major metropolitan areas like New York, San Francisco, and LA that were using long strings of tracts to qualify and instead will move into smaller areas—rural areas or areas of true high unemployment.

Sam (08:39):
And again, it’s important to check our TEA map, where you can immediately see the unemployment rate for your specific projects, tracked where it’s located, and then you can use our combination feature in real time to quickly see if your project will qualify under the new regulations by selecting the tract where your project is located and any directly adjoining tracts surrounding the tracts where your project is located. And you can do the calculation live using the combination feature on the map, and it’ll immediately tell you if that project will still qualify as a targeted employment area. And the map can be accessed for free on our website,—just click on the TEA map button, and then you can run the numbers, and it takes maybe five minutes to do it for a one particular address.

Mike (09:36):
So, the other important change on top of the way the TEAs are defined are the investment amounts, and this has been a point of contention for a long time—what are the right investment amounts? It hasn’t increased since the 1990s. So, of course, there should be an increase, but how much? So, in the future, after November 21 of this year [2019], TEA projects are at $900,000, and non-TEA projects are $1.8 million. As I mentioned before, any investor that’s strongly considering EB-5 is going to move now because that increase of $400,000 is extremely substantial. And if someone was close to being ready to go, they are going to make that decision in the next few months, since they have this type of transparency that they have 120 days to complete the process. And some important things to know—so, historically, people have talked about grandfathering.

Mike (10:32):
So, what we are seeing now is that projects will not be grandfathered, either at the old investment amount or in the old TEA definitions. Individual investors that have filed by November 21 will, but any new investors on that same project are going to be playing by the new rules. So, we believe that this is going to make it so many current projects will not qualify as TEA projects anymore, and many of the fundraises will be stopped after November 21 forever on that project. So, it’s extremely critical for investors to look at projects and make sure that if they do go into a project, there’s enough other capital sources available so that if the program does dramatically change on November 21, the project can still get done even if only half of the EB-5 investors were found. So, that’s absolutely critical for investors to look at. One other thing to note is that going forward, the minimum investment amount will continue to reset with inflation every five years. It will be going up. It’s not going to be nearly as drastic of a jump as the $500,000 to $900,000—that was a 30-year increase—but it will be going up every five years in the future.

Mike (11:46):
The other things to note—the priority date retention is a major change that they’re making. And it’s really helpful to some investors that ended up being in a bad projects or fraudulent projects or in a regional center that was terminated. This gives hope to an investor that had an approved I-526 and wants to continue in the immigration process and not get put in the back of the waiting list. So, for China, for example, an investor that had applied in 2013 that had their I-526 approved but the project went sideways—now they are able to maintain their priority date. We had heard of others attempting to do this before, but without an official USCIS policy, it was never a sure thing. Of course, there’s some caveats in there—if there’s any willful misrepresentation or ineligibility on the investor side, you don’t get to keep your priority date, but this is a very nice clarification to help those investors that ended up making a poor decision in their first project or where the project ran into some trouble along the way. There’s many other clarifications as well on I-829 and some job creation items, but none of those are materially changing the program.

Mike (12:55):
So, to move on to, what does this mean for you? So, if you’re a developer—and many of our clients are—whether you have friends and family members or investors lined up who will want to jump in the project right now, or you have a project that is ready to go and you want to bring it to market under the current EB-5 rules, knowing that there’s going to be a large uptick in investor activity, there is still time to document your project, have it join a regional center, and then have investors come into the project. It is a compressed timeline of about four months, but that is still significant since there’s going to be so much investor activity. So, to give you an illustrative timeline, from the time we’re engaged to help structure the deal, it takes about six weeks—usually around eight, but in this type of environment, we’re going to work to help complete documents in six weeks to go from the start to having a project that is ready to take on investors. During that time that you were working on the project documents, you would want to start marketing and speaking with potential investors, whether those are already in your network or you’re working with overseas brokers. You want to be bringing it up and getting them activated before your project documents are done.

Mike (14:08):
Once the project documents are finished, which could be early September—at this point, the project would need to be sponsored by an approved regional center, whether that’s one of our 15 regional centers that cover 27 states or your own or someone else’s. Any of those options are fine, but the project would need to join the regional center. And then, once those documents are done and the project is officially sponsored, investors can immediately start subscribing and wiring. There is no need to submit an exemplar petition to the government to get your documents pre-approved on the project with the current timeframe. There’s no way USCIS will adjudicate it fast enough. So, we’d recommend documenting your project as an I-526 template and then having the investors join in and ideally filing all of these investors before November 21.

Sam (14:59):
And, given that all of these changes have just been released, there’s obviously going to be a large increase in the amount of investors coming in and projects that are working to get their documents ready for investors. So, it’s really important, if you’re deciding to go ahead with a project, to start documentation soon to make sure that the team that’s putting together the materials is going to be able to deliver all of the documents, you know, on time, in a timely matter, so that you won’t have any delay in actually bringing in individual investors.

Sam (15:39):
Now we’ll shift over to the individual investor timeline. So, again, the same 120-day period of time—so, initially assuming that the investor had not yet selected an immigration attorney, the two first steps are going to be to begin the project diligence phase by reaching out to different EB-5 issuers, reviewing the I-526 set of project documents for the project, potentially visiting the project, asking questions, et cetera. On the immigration side, you’ll want to connect with a few different immigration attorneys who have worked with investors who have invested in the EB-5 issuer’s past or current projects and had success. Once you decide on an EB-5 experienced immigration attorney to work with, that attorney will work with you on the source of funds, preparing the documents to illustrate exactly how the $500,000 that’s being invested into the project was sourced—whether it was from a gift or a loan or money that was inherited, whatever the source was, that needs to be clearly documented to show USCIS that the funds have been obtained legally for the investor. During that same period of time, the project that the investor selects will be finalized, and the investor will need to complete the project subscription agreement.

Sam (17:06):
This is typically about a 20- to 30-page document which explains how the investor is joining the project, typically as a limited partner in a partnership. And once that document is completed, it’s usually finished at about the same time that the source of funds is being completed by the immigration attorney. Once the subscription agreement is fully completed and correct, then the investor can go ahead and wire the $500,000 of investment capital into the project. And then, after that capital investment has been made, the issuer will typically have to provide a receipt letter from the bank confirming that the money has been invested into the project, and that receipt of funds gets included as part of the investor’s I-526 application with the immigration attorney. And once it’s included, then the I-526 petition gets submitted by the immigration attorney. And ideally, again, based on our timeline that we’ve shown here, that’s probably happening somewhere in early October, assuming the investor has just started the process and is going to spend roughly the amount of time that we’ve illustrated here. In either case, the point is that there’s sufficient time to file before the November 21 deadline for an investor who’s just now learning about this and has kind of been on the fence in the past to be able to meet that upcoming deadline.

Mike (18:43):
We were very fortunate that there’s 120 days of the grace period. There were some people saying that it was only going to be 30 days. If it was 30 days, I would say there’s not enough time for an investor to start the process and get all the way to the finish line in 30 days. But with this long of a time period, there’s absolutely plenty of time for the investors to do proper diligence on the projects as well as get through their source of funds. And hopefully, no one makes any rush decisions, because this has a long enough time window to make the decision that’s right for the investor and their family.

Mike (19:20):
So, we also wanted to mention that going into an existing project is a good option for investors. There’s many different flavors and styles of projects out there. So, there’s many projects out there, and I would recommend that any investor that’s thinking about it, really diligence your projects, understand who you’re working with, who the team is, what their track record is, and what the underlying assets of the project are.

Sam (20:50):
It’s also really important to consider who is the developer in the project. What’s their track record? How many projects have they built? Have they successfully completed all of their past projects? And then, the other major area to diligence is who is the EB-5 project sponsor. Who is the company that’s actually managing the EB-5 capital investment? And what you want to look for is independence from the developer. You want to make sure that whoever is in charge of the EB-5 fund where the investor’s capital is first going into is being managed by a company that’s completely independent from the developer. That aligns incentives and makes sure that someone is looking after your hard-earned capital that’s going into the project over the life of the investment.

Mike (21:40):
So, I know that the changes that have been proposed are a little extreme in terms of the investment amount increase. The TEA definitions are not favorable to a lot of projects. We are sure there’s going to be a lot of discussion over the next 120 days about these policies and how they’re going into effect. But what we would say is, as a developer or as an investor, these changes are to be taken seriously. Many of the other pieces of legislation that were introduced we didn’t take too seriously, but these changes are officially published and are going into effect. So, we wish everyone the best of luck in your EB-5 process and journey. For investors, make a good decision for you and your family. And for developers, we wish you the best of luck in accessing EB-5 capital to use for your projects. We are experts on structuring deals, and we have lots of great projects on hand. Please feel free to reach out to us. Our information is on the screen now, There’s our 800 number, and you can also find my information, Mike Schoenfeld, online, and Sam’s information. And we’re happy to directly speak with you with any questions.

Sam (22:53):
Yes. As Mike mentioned, if you want to reach out to us individually, if you go on our website,, and then click on the “About Our Team,” you’ll find our cell phone numbers and emails listed there. You can text us, email us anytime, and we’re happy to answer any EB-5 process and project-related questions for any developers or investors looking to do EB-5, especially given these new changes over the next couple of months. So, thank you again, and we look forward to speaking individually with you in the future.