EB-5 extension allows time to revisit issues
21 DECEMBER 2015 12:49 PM
Though only days ago it appeared the U.S. Congress would approve reforms for the EB-5 Immigrant Investor Program, legislators surprised investors and developers by granting the program a nine-month extension without any changes.
REPORT FROM THE U.S.—Both the U.S. House of Representatives and Senate agreed to extend the EB-5 program Friday as part of Congress’ $1.8-billion omnibus spending bill without any of the previously expected reforms, catching hotel investors and developers off-guard.
The U.S. Citizenship and Immigration Services’ EB-5 program allows foreign investors and their families eligibility to apply for green cards should they invest at least $1 million—or $500,000 in a targeted employment area (TEA)—in commercial enterprise in the United States that creates or maintains 10 permanent, full-time jobs for U.S. workers. There are only 10,000 of these visas available in the program annually. The extension will keep the EB-5 program as is until 30 September 2016. President Barack Obama signed the omnibus bill into law Friday.
“I think it’s fair to say this is a complete surprise to the EB-5 community,” said Jim Butler, partner at Jeffer Mangels Butler & Mitchell.
People put a lot of effort into addressing the concerns of the program’s various stakeholders and critics while fitting all the nuances of the program into the bill language, Butler said, and everything seemed finally to be in place when members of Congress decided to simply renew it.
Still, that’s not necessarily bad news, he said.
Reasoning for the extension
Calling it informed speculation, Butler said he believes the extension is a symptom of the omnibus spending bill process and all of the riders attached to it. The EB-5 program was a rider on the past two omnibus bills, he said. This time around, he said, there wasn’t enough time to go back and forth on all of the pros and cons of the changes to the program alongside all of the other riders, so it may have been easier simply to extend the program as it exists and address those changes before the new deadline.
This extension recognized there wasn’t enough time to vet a complex reform bill that had so much in it referring to TEAs and minimum investment amounts, said Jeff Carr, president and senior economist for Economic & Policy Resources.
“In retrospect, if we’re not able to work through the complexity of the bill in the time we had, we have the opportunity to work through all those issues and make sure we understand the ramifications,” he said. “My own view was we haven’t done that sufficiently.”
The reforms would affect and potentially harm both small and large projects in which people have invested thousands to millions of dollars, Carr said. “Now we can work through (issues) without being on the edge of the train station platform with a wild third rail if we step off.”
What this means short term
“I think this is great news for developers,” Butler said. “It means whatever you were doing, if you were midstroke in doing an offering or thinking of doing an offering with a lender, no one has to change anything.”
Butler, who is chairman of his law firm’s Global Hospitality Group and Chinese Investment Group, said the changes Congress was recently considering would have extended the program for five years, raised the minimum investment amount in TEAs to $800,000, standardized TEAs into the “modified California model” and allowed developers to raise 60% more capital on the same number of jobs, among others.
“Now you don’t have to change the amount of your investment, you don’t have to worry what a TEA is,” he said. “It’s on the shelf until next year. From a developer standpoint, it’s probably the best solution they could have hoped for.”
What may be a problem is trying to make sense of any projects that were rushed to meet the previous eligibility cutoff, said John Barrett, partner and cofounder of Performance Economics.
“There was a run up to Sept. 30, with everyone trying to get their projects in,” he said. “We have some good projects in there. We also have some half-baked ones going in.”
Now U.S. Citizenship and Immigration Services will have to spend time adjudicating those projects, Barrett said.
“This one year at a time doesn’t help anybody,” he said.
What to watch for in 2016
Legislators will probably use this year’s bill as a starting point for any reforms discussed next year, Barrett said. It had bipartisan support, he said, so it would make sense for them to include what has already been put together.
The hotel industry should see some advantages in the EB-5 program because it has two avenues of job creation, he said. While construction can count toward the jobs requirement, Barrett said, it doesn’t always do so because it requires those jobs to exist for at least 24 months. If a new hotel construction project doesn’t take that long, he said, it always has the operational aspect to count toward the requirement.
“If that’s the starting point for next year, I would think hotel projects would still be in high demand,” he said.
However, he was unsure if Congress would make any changes to a program involving immigration during a presidential election year.
“I don’t know if it will happen in 2016, because the political will may not be there.”
The extension is only good for another nine months, Carr said, and another bill may happen sooner or later than the new deadline.
The hotel industry makes up a significant part of the EB-5 program, he said, so anyone in the industry thinking of using the program should be aware that some of the proposed changes were retroactive measures and provisions that went back as far as four to six months, and 30 September 2014 for some filings. Carr added he was unsure if that would return in a new reform bill.
“Some (legislators) demonstrated a willingness to changes rules retroactively,” he said. “You need to be cognizant that’s a possibility and monitor versions of the draft bill.”
Get a good team together that understands the reform effort and can anticipate any upcoming changes in the design of the program, he said.