Ron Klasko, Managing Partner of the eponymous internationally recognized immigration law firm, believes we have still only seen the contours of the fallout from recent rule changes to the EB-5 program.
In a blog-post on his firm’s website, he lists 16 specific ramifications – some favorable, others decidedly unwelcome – that we can expect following what he calls “the most significant changes in over 10 years – maybe ever”.
- Fewer investors/fewer applications
- Increased difficulties with Source of Funds
- Currency export problems
- Higher percentage of direct EB-5s
- Greater returns on regional center investments
- Fewer regional centers
- Litigation arising out of regional center terminations
- Restructuring EB-5 projects
- Increased use of E-2 visas
- More rural investments
- More projects will have problems
- More Mandamus complaints
- More redeployment (and concomitant litigation)
- Growing need for revisions of Private Placement Memoranda
- The rise of new investor markets
- Legislative changes to the program
Below, we’ve distilled some of Klasko’s key points. To see the detailed description of all 16 predictions, please see the original post.
Implications for investors and investments
Because of a persistent struggle with retrogression and a redefining of Targeted Employment Areas (TEAS), Klasko writes “it is hard to foresee anything other than a precipitous decline in the number of EB-5 investors.” Higher investment amounts, in turn, he indicates, will make proving the origin of the money – not to mention moving it out of countries like China – a much greater challenge than previously.
Klasko anticipates that nationality distributions among investors will diversify as Chinese, Indians, and Vietnamese increasingly come to see decades-long wait-times as unacceptable. As to which nationalities will increasingly step up to the plate, Klasko points to Colombians, Nigerians, Argentinians, and South Africans.
Because of the extended divergence on both price and processing time between the EB-5 and E-2, Klasko forecasts an escalation in the use of E-2 visas.
Implications for regional centers
Rule changes, Klasko prognosticates, will become less numerous, for several reasons; first, because the number of investors will itself decline. Second, because prospective legislation could soon “substantially increase the cost” of operating them. Third, because a greater share of investors will opt for direct EB-5s, giving them a greater degree of control over their investments. One repercussion of the reduced number of regional centers, Klasko predicts, will be a sharp rise in related litigation.
Another is that many EB-5 projects will need to restructure to become less labor-intensive (each individual investment must create 10 jobs and, as investment amounts rise, the number of workers per dollar invested will necessarily fall). Crucially, Klasko expects a growing number of regional centers getting into financial trouble as long backlogs require projects to remain in existence for many more years. “This leaves a very large number of years for problems to happen, whether it be innocent or otherwise,” he writes.
Redeployment, Klasko emphasizes “will be a huge issue going forward” as billions in EB-5 money must be put to use in new projects as old ones repay investors. This state of affairs, as with so many others arising from retrogression and rule changes, will result in increased litigation.
This article was first published on January 11, 2020 in Investment Migration Insider (IMI), by Christian Nesheim
Editor under the following title:
Former AILA President Klasko Lists 16 Factors Making EB-5’s Future “Cloudy”