Now that Congress has provided a clean extension until September 30, 2018, there are several issues that need to be addressed and factors that need to be taken into account in connection with the overall EB-5 industry and its viability.
1. Proposed Registrations. Attached to this Blog is a letter signed by Senators Charles E. Grassley and Patrick Leahy, together with Representative Bob Goodlatte, encouraging USCIS to adopt regulations in lieu of legislation that was not passed. The letter itself is self-explanatory and expresses the frustration of the Grassley group that has been attempting to pass legislation for the past three years. Many practitioners are speculating as to whether or not Regulations will really be adopted. Clearly, if the proposed Regulations which are adopted in their current form pass, they would have a significant chilling effect on the EB-5 industry given the dollar amount of the EB-5 investment that are currently proposed to increase to $1,300,000 for a TEA project and $1,850,000 for a non-TEA project.
2. Retrogression. Obviously retrogression in China has had a material impact on raising EB-5 funds in that country, although China is still the number one country in the world as to the number of investors that are still investing in the EB-5 program.
3. Vietnam has most recently been retrogressed given the fact that it has met the visa quota of 7% or 700 in number. It is difficult to determine exactly what effect this retrogression will have on Vietnam, but it is expected that those investors that are retrogressed will be in the queue line for fiscal year 2018-2019 come October 1, 2018. Accordingly, the retrogression in Vietnam at this stage may not be material, although, over time, as the number of applicants increases in Vietnam, the retrogression could become more significant. It is my understanding that the average petitioner in Vietnam includes more family members than are typically included in the petition for Chinese investors. This would otherwise provide further limitations on the Vietnam program since the number of visas issued is a function of how many derivatives are included that each petition filed by a national.
4. Other Markets Subject To Retrogression. It is anticipated that there is a possibility that both India and/or Brazil will likewise become retrogressed in the near future, since these two countries seem to be the next two markets that have become more active in the EB-5 program.
5. Petitioner Country of Origin Count. It is interesting that there is no specific data to my knowledge as to where the I-526 petitioners are located. In other words, data is clearly released on visas issued in order to track retrogression and the countries of origin. However, I am not aware of any data released that specifically confirms where the actual I-526 applicants are from, and therefore, it is difficult to predict exactly the future of retrogression in various countries.
6. General Marketing Issues. It is obvious that regional centers, marketing agents and issuers of the EB-5 securities are seeking capital from numerous markets other than China. The key three markets seem to be Vietnam, India and Brazil, but there is also active involvement in the Middle East, Turkey, France and potentially Korea and other Southeast Asian countries.
7. Private Equity Alternative. In addition to the various industry changes related to the EB-5 Program, it is apparent that many EB-5 funding sources, especially including migration agents in China, have established equity funds that are seeking to raise capital to invest in US real estate in a non-EB-5 manner.
Given the complexities of the EB-5 industry and the continued uncertainty as to legislation and ultimately what changes will take place in the EB-5 Program either through legislation or regulation, it is now more important to consider the deal structuring and the potential of offering investors a more traditional private equity investment where they would share in the profits of the applicable business, compared to the current model, which provides a minimal fixed rate of return. Some parties are attempting to take into account this possibility into account and it will be interesting to see exactly that effect the current status of the industry has related to this issue.