Since the expiration of the regional center investment model in June 2021, stakeholders in the EB-5 investment industry have had to make major adjustments. With the exception of a brief expiration in 2018, the regional center program had been in place without disruption since 1992. Given the many benefits it offers to foreign investors, business owners and immigration attorneys alike, the vast majority of EB-5 investments used this model. Now, the direct EB5 investment option has become the focus of the industry. The reauthorization of the regional center program is urgent, but the industry has continued to thrive without it thanks to direct projects.
Since June 2021, millions of dollars in direct EB-5 investment capital have been raised, leaving some industry stakeholders questioning whether the reauthorization of the regional center program is actually a necessity. It is clear that the industry has been able to adapt successfully and shift to the direct investment model. However, the regional center model offers advantages that are both convenient and unique.
1. Investors Should Be Able to Choose the Investment Model They Prefer
Investors should be able to choose the EB5 investment model that suits them best. For investors who are looking to make a significant profit while also obtaining permanent resident status, direct EB-5 investment could be a better option. This model has a potential for higher returns. These projects also offer EB-5 investors greater managerial responsibilities, which are perfect for anyone who wants to have more control over the course of their project.
For investors who want less to do with the business side of EB-5 investments and are more focused on a pathway to US citizenship, the regional center investment model would be a better fit.
U.S. businesses also stand to benefit from EB-5 projects, and the type of investment model has an effect on them as well. Small businesses generally take on fewer investors and need quick access to capital. For them, the direct EB-5 investment model would be preferrable, as its approach is more streamlined. Large businesses may prefer the regional center EB-5 investment model, as it typically offers a greater amount of capital. Giving foreign investors the ability to choose between the two investment models may encourage greater participation in the program, thus benefiting the investors themselves and the U.S. businesses owners they partner with.
2. The Regional Center Model Simplifies the Job Creation Criteria
One of the key criteria for the EB-5 investment program is that the new commercial enterprise (NCE) must create at least ten jobs. The direct EB-5 investment program can only count jobs in which employees are hired directly by the NCE. On the other hand, regional center-sponsored projects can count the jobs that are created as a result of the project’s overall positive economic impact on the community. These jobs—referred to as induced and indirect employment – are the ones that the NCE creates indirectly. For example, if the EB5 investment project uses local companies to obtain goods and services and those local companies experience growth, investors can count those jobs.
3. Regional Center Investment Incentivizes Greater Participation in the EB-5 Program
The financial crisis of 2008 actually led to growth in the EB-5 investment program, with the regional center investment model being the most commonly used. The billions of investment dollars that flooded into the country were due in large part to this model. With the expiration of the regional center program, billions of investment dollars are at risk—about $15 billion, in fact.
The regional center EB-5 investment model can be more attractive to foreign investors, given its flexibility in terms of job creation and minimal managerial responsibilities. As mentioned previously, the industry is able to continue to see success through the direct EB5 investment model. However, as of February 18, 2022, industry stakeholders still have hope that the regional center program will be reauthorized. There is an opportunity for reauthorization in an upcoming spending bill due on March 11, 2022. If reauthorization is granted, the benefits to the EB-5 investment program will be tremendous.
