Roadblocks Could Derail EB5 Investment

March 5, 2019 by Tae Kim, Esq.

An extension to the EB-5 Immigrant Investor program has been passed by the Senate and awaits the president’s signature. However, due to the federal government shutdown, President Trump has yet to the sign the extension legislation, and until the impasse is over, no new EB-5 petitions will be accepted.

These short-term issues are not the only challenges facing the EB-5 program.  The EB-5 program has also been sidetracked with uncertainty over its long-term viability and plagued with incidents of fraud, with some investors losing their funds as well as being denied their promised visa.

The EB-5 Immigrant Investor program provides an incentive for foreign investment by essentially trading visas, and eventually permanent residency, in exchange for financing development projects.  Long before the budget shutdown, the program was bogged down with a backlog of investors waiting to be processed and a lack of reforms promised by legislators.

Over the past several years, Congress has opted for short-term extensions to keep the program open, rather than come together to make the critical changes needed to make the program permanent.

Since 1992, the EB-5 program has expanded from simple real estate investing to raising funds for essential projects such as hotels, senior centers, and infrastructure development.  From 2012 to 2016, the program has generated $14.4 billion in investment capital and created thousands of new jobs.

Even so, the long-term viability of the program has been in doubt as legislators fight over program reforms aimed to eliminate fraud, expanding opportunities, and improving processing times.  Currently, the Chinese are being hit with the most significant backlog, where they comprise about 80 percent of the investors participating in the program.

As of last October, the wait time for Chinese investors was approximately 14 years, compared to Korean investors, who face about a two year wait time to see their application approved.  These backlogs are beginning to take a toll on Chinese participation in the program, as well discouraging American project developers.

As Chinese nationals wait for their petition to be reviewed, the long wait times together with tighter currency restrictions in China, is slowing the amount of new applications from investors.  The third quarter of last year was the slowest period in ten years for EB-5 investment.  According to industry analysts, a big reason for the decline in participation is the lack of new Chinese investors.

The slowdown has some EB-5 attorneys planning to pull out of the market altogether.  They reason that until the program’s administration of applications is bolstered, the same obstacles will continue to slow progress and investment.

However, there is some upside. While more Chinese withdraw from the program, investors from other nations are stepping up to fill the gaps.  Since the wait times are much shorter for investors from Mexico, Latin America, the Middle East, and India, participation from these regions is reaching all-time highs.

While the reduction in Chinese investors is apparent, experts agree that participation from other nations indicates the program is healthy and is still in high demand by investors from around the world.

As the program continues with reduced Chinese participation, some believe the downturn may spawn the next generation of EB-5 investors.  Recently, the program seems to be changing organically, with most project owners having already lowered their expectations on funding times, and much more willing to accept smaller capital raises.

As EB-5 program priorities shift, some participants are waiting to see what Congress has planned for the program’s future.

With Democrats winning a majority in the House and now in control of federal budgets, some wonder what changes may be on the horizon.  Until then, investors and project owners wait patiently for their turn to fully take advantage of this successful investment program.