Since the EB-5 Regional Center Program expired in June 2021, members of the EB-5 industry have been discussing how, and if, the program will be reauthorized. This popular investment model previously attracted most EB-5 investors. As of January 2022, foreign nationals interested in pursuing an EB-5 investment visa have had to look at direct EB-5 investment projects instead.
There is still no indication from Congress about the renewal of the regional center program. Some analysts have suggested that reform of the EB-5 program might be included in an appropriations bill in March 2022, but this is not yet confirmed.
As attention has turned to direct investments, the benefits of this original EB-5 investment model have become apparent to business owners, prospective investors, and attorneys specializing in the EB-5 industry. In fact, some experts are now questioning whether reauthorization of regional centers is necessary due to the flaws that exist in the program.
Direct EB-5 Investment Has a Greater Economic Impact
Direct EB-5 investment projects are often small enterprises that may have limited options for alternative funding through bank loans. These projects are also frequently located in rural regions or areas of high unemployment, where capital injected into the local economy has a greater impact.
EB-5 projects offered through regional centers, on the other hand, are often large projects seeking capital from many investors, such as real estate developments. These projects are typically located in more urban sites that are experiencing growth, and as such each EB5 investment has a more modest impact on the local economy. It is also worth noting that projects such as these are often better candidates for bank loans and other funding sources, and are not dependent on receiving EB-5 capital.
Another important difference is that within the regional center investment model, foreign nationals do not invest funds in the new commercial enterprise (NCE) directly. For the NCE, the result is a longer wait before receiving their funds, which can lead to debt, slower growth, or missed opportunities. Direct EB-5 projects receive EB-5 capital directly, and so avoid these delays.
Direct EB-5 Projects May Create More Jobs
United States Citizenship and Immigration Services (USCIS) requires each EB5 investment to generate a minimum of 10 full-time jobs for U.S. workers. For direct EB-5 projects, these jobs must be positions on the payroll of the NCE, lasting for at least two years. Regional center projects, however, were allowed to include induced and indirect jobs in these calculations. These relate to employment created as a result of the project’s activities, or as a result of project employees supporting the local economy by spending their wages.
As a result of these differing rules, it was easier for regional center projects to achieve this 10-job minimum. This was the main reason the regional center program was so popular with EB-5 investors: it offered low immigration risk. Arguably, the direct EB-5 investment model is not only more transparent in the jobs it creates but also generates more jobs per investment than the regional center model. Indirect and induced jobs are still created through direct investment, even though they do not count for USCIS purposes.
The nature of the project also affects the permanence of the jobs created through the investment. For construction projects sponsored by regional centers, the jobs will end when construction has finished. Direct EB-5 projects are more likely to develop into long-term positions as the enterprise grows.
Regional Centers Are Occasionally Targeted by Fraud
The EB-5 industry has occasionally been the target of fraud. While these instances are isolated and rare, they have mostly occurred in regional center EB-5 projects. It appears that some migration agents have targeted regional center investors at exhibitions, and may have provided unclear or inaccurate information about the projects they were promoting. However, investors can rest assured that USCIS examines each EB-5 project in detail.
While certain aspects of the regional center program appeal to prospective investors, an objective view highlights the potential pitfalls of the regional center model compared to direct investment. Still, the industry will benefit the most if foreign nationals can choose between both investment types.
If the regional center program is not reauthorized, USCIS must provide for those foreign nationals who made regional center investments and filed their I-526 petitions. As of February 2022, USCIS is not processing these pending petitions, leaving thousands of investors with no means of moving through the EB-5 process. If it is found that they complied with all the EB-5 regulations, there should be provisions for “grandfathering” in these investors.