EB-5 in 2024: A White Paper

2022 was a landmark year for the EB-5 program with the EB-5 Reform and Integrity Act (RIA) bringing much-needed clarity to the program's future. In 2023, USCIS guidance regarding the two-year investment sustainment period made redeployment virtually irrelevant in the post-RIA era. This white paper compiles industry leader predictions for 2024. Key EB-5 program developments include set asides, particularly 20% for rural projects, and concurrent filing. Set asides have prompted developers to explore new options, while concurrent filing offers investors work and travel benefits soon after filing 1-526. With program stability, improved processing times, and record EB-5 visa availability, 2024 is expected to be a standout year for the EB-5 program.

Evolution of the EB-5 Program

The EB-5 program and the popular Regional Center (RC) program were created in 1990 and 1992, respectively. Initially, the program was a novelty restricted to the super wealthy with less than 50 RCs in the country until 2008. Demand surged among Chinese investors in 2008, leading to a 2,500% increase in RCs over the next decade. Total EB-5 investments crossed $33 billion by 2020, despite challenges like visa shortages, slow processing rates, and lack of long-term clarity. The 2019 Modernization Rule marked a tumultuous period, hiking minimum investments only for the Behring ruling to suspend it. The RC program expired in June 2021, causing further uncertainty. The RIA settled the minimum investment requirement and extended the RC program for five years, ending the uncertainty around the program's future.

Current State of the EB-5 Industry

Demand among investors remained high in 2023 due to various factors, including the end of the pandemic, 50-year wait times for Indian H-1B workers, reserved category visas offering faster routes for Chinese investors, and faster processing of unreserved visa petitions. RCs are navigating RIA changes like increased compliance requirements, higher fees, and the challenges of rural projects. While the RIA has been positive, RCs are in a state of transition, likely to continue into 2024.

Regulatory Environment

The RIA confirms the continuation of the RC program, adjusting minimum investments with inflation every five years and extending the RC program for five years. It settles redeployment of funds, reserves visas for specific projects, and allows concurrent filing. Concerns remain, such as non-binding USCIS guidance on the investment sustainment period and fund recovery after two years. Changes like mandatory third-party oversight and the Integrity Fund aim to enhance transparency and counter the perception of poor oversight.

Investor Trends

Investors are taking more time for due diligence, slowing EB-5 decisions. Peter Calabrese, CEO of CanAm Investor Services, LLC, stresses the importance of immigration status and fund repayment. RIA changes have increased demand for rural projects due to no backlogs and faster processing. High loan interest rates have attracted developers to EB-5 funding, introducing inexperienced players. Despite this, investors are considering non-traditional projects. Post-RIA, Chinese and Indian investors can avoid backlogs and gain conditional residency after 1-526 approval. HUE TEA processing times have halved, allowing more options within risk tolerance.

Regional Analysis

Chinese demand for EB-5 visas is resurging, driven by renewed interest among Chinese students in the US. However, stricter capital controls in China and Vietnam challenge compliance with Source of Funds requirements. Indian demand remains high, with H-1B visa holders and students showing sustained interest in the program. The spate of tech layoffs and political rhetoric around the H-1B visa may prompt Indian professionals to switch to the EB-5 route.

Economic Factors

The US economy is expected to slow in 2024 due to high inflation and rate hikes, with GDP growth projected to fall from 2.8% in 2023 to 0.7% in 2024. Geopolitical risks from conflicts in Ukraine, Gaza, and potential China-Taiwan flare-ups may push the US into recession. Inflation may moderate, but economic performance remains uncertain, leading to conservative policies. Investors from China, Vietnam, and India face challenges like capital export limits and additional tax burdens.

Technology and Innovation

The EB-5 industry is ambivalent about technology and innovations like Artificial Intelligence (AI). Less than a quarter of industry leaders view tech as significantly impactful, making the EB-5 industry an outlier in the financial and real estate sectors. Despite this, innovations in prop-tech and fintech could improve transparency, due diligence, and project monitoring. Adoption of IT tools and AI could enhance compliance, lower costs, and boost investor confidence.

Predictions for 2024

The EB-5 industry expects strong demand in 2024, but concerns remain about visa adjudication, issuance speed, and USCIS handling of visa carryover. Geopolitical uncertainty is the only non-USCIS factor likely to impact the industry. Armed conflicts may prompt investment migration, but their economic impact is difficult to forecast.

Opportunities and Challenges

The RIA offers opportunities for stakeholders to improve the EB-5 industry. Rohit Turkhud, Counsel at Chiesa Shahinian & Giantomasi PC, highlights the challenge of conflicts of interest in EB-5 deals and the need for clear, informed advice to investors. The high-risk, low-return paradox in the industry needs addressing, with set asides and non-traditional projects offering better financial returns. The USCIS administration remains a concern, but the post-RIA era provides opportunities for enhanced credibility and reputation.

Conclusion

There is strong optimism for the EB-5 industry in 2024. Positives like record visa availability, exciting projects, improved processing times, technological adoption, and better returns on investment fuel hopes for a good year. It remains to be seen whether these changes will lead to strategic and fundamental improvements, placing the industry on stable footing for the future.