EB-5 Modernization Regulations Published July 24, 2019: CMB's Thoughts

/ -- The Department of Homeland Security ('DHS') posted the EB-5 Modernization Regulations on the Federal Register's website. This will significantly affect the EB-5 program and potential investors in the near future.

The posting states that the final regulations were published on July 24th with an effective date of November 21, 2019. The regulations clarified that anyone that files their I-526 petition prior to November 21st will be adjudicated under the current rules of the program. However, it is important to keep in mind that even with the publishing of the new regulations, the EB-5 regional center program must continue to be re-authorized by Congress, and currently it is only authorized until September 30, 2019. Although there are many technical changes in the new regulations, there are a couple main changes to take note of.

First, the minimum investment amount will increase significantly from $500,000 to $900,000 in a qualified Targeted Employment Area ('TEA'), and from $1 million to $1.8 million in a non-TEA. The regulations also include provisions that the investment amounts will be adjusted every five years based on inflation.

The other major change in the new regulations is the method for how TEAs will be qualified. Currently, individual states have the ability to determine what constitutes a TEA, which has led to several regional centers 'gerrymandering' the unemployment data to make certain affluent areas 'qualify' as a TEA by using unemployment data from 'nearby' impoverished areas. The new regulations take that ability away from the states and provide that DHS will determine TEAs directly based on new stricter requirements. This is a true integrity measure to prevent future abuse of the EB-5 program and fulfill Congress' original intent that the lower investment amount be reserved for projects in areas of the country that are true TEAs instead of in prime locations, such as Manhattan, NY and Beverly Hills, CA.

Regional centers and developers that are presently fundraising around the globe will face new challenges as to whether their projects comport with the new regulations. It is quite possible and most probable that many of the existing EB-5 projects in the marketplace will no longer qualify for the lower threshold of investment once the regulations become effective. This begs the question; will these projects be able to raise EB-5 investment capital at the higher threshold of $1.8 million? How many projects will not be able to complete their EB-5 raise before the sunset on September 30th? What are the consequences for existing investors and projects that may not be able to go forward? How many projects in the marketplace today will fail because they will be unable to raise capital based on the new TEA requirements or investment amount increases?
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