Is USCIS’s two-year investment period too good to be true?
An article written by Henry Fan IMCM, CEO & Co-Founder of Globevisa Group
Earlier this month, the USCIS came out with new guidance saying that the minimum requirement for clients to maintain their investment for two years is sufficient, overriding the consistent investment cycle of a minimum of five years + one-to-two-year extensions.
Industry insiders were shocked by the guidance issued by USCIS. This is a huge challenge for the EB-5 industry. It seems that whoever can respond quickly to the launch of short-cycle projects, which also need to be safe and secure, will have a head start in the EB-5 market in the future. Therefore, from the day this new guidance was issued, Henry Fan instructed his Project Development Department quickly began development initiatives, and we worked with EB-5 industry program leaders.
From a business perspective, it is basically impossible to complete the construction of an EB-5 project in a two-year cycle and operate it until there is sufficient capital accumulation to guarantee the safe withdrawal of EB-5 investors’ funds, especially for the simpler and safer real estate projects that EB-5 investors are familiar with, and it is very difficult to simply shorten the investment period because it takes about two years just to construct the project.
First, it is important to understand that the USCIS guidance refers to a two-year investment period that begins when the EB-5 investor’s funds enter a New Commercial Entity, or NCE, but on a practical level, the funds must enter a job-creating entity, or JCE, to be counted as part of the start cycle.
Second, the primary purpose of a client choosing the EB-5 program is not to profit from a business investment, but to achieve the goal of immigrating to the United States. To successfully obtain a U.S. green card, the EB-5 program must ensure that the legally required employment is completed during the investment period. The calculation of employment generally comes from the construction cycle.
From greenfield to completion, it is reasonable to expect a real estate project to take at least two years to build. From acquiring the land, designing it, applying for various permits, and starting construction: grading, building the foundation, building vertically, and finalizing the building. After completion, a certain amount of operation is required to ensure that the project is profitable and that the EB-5 funds can be safely withdrawn, which also requires a minimum of three to four years.
One of our sold-out projects, which is planned to consist of 125 single-family estate lots, 303 townhouse-style village residences, an 18-hole championship golf course, world class golf training center, clubhouse, lake house, backcountry access for outdoor activities, stocked fishing pond, and many other four-hole golf courses, is now under construction. course, world class golf training center, clubhouse, lake house, backcountry access for outdoor activities, stocked fishing pond, and many other four- The overall construction period spans seven years, from land construction in 2020 to anticipated completion in 2027. Such a large-scale project takes seven years from land construction to anticipated completion. Not to mention projects with a good track record of getting US green cards for numerous investors, it only takes even longer.
Back to the project itself, if the developer borrows a sum of money from the EB-5 investors to complete the project development, with the cycle of this borrowing being only two years, it can be said that it is only a bridge loan. Then, there is no need for the developer to use the EB-5 funds, he can go directly to the financial institution for a short-term loan. As we all know, the actual availability of EB-5 funds will take at least four to five months from design and drafting of the legal documents, plus at least half a year to raise the funds, and go through the tedious process of explaining the source of funds, etc.
By the time the funds are available, it may be after one or two years. If the developer uses EB-5 funds in a way that does not result in convenience and profitability, such an EB-5 project raises suspicion that the purpose is not pure, and that he may be aiming at the EB-5 investor’s principal from the outset, rather than borrowing it for a short period of time. This is why in the past projects, as we see more often, EB-5 funds come in to replace short-term bridge loans. It is reasonable for long-term stable loans to replace short-term high-interest loans.
However, under the new guidance of the USCIS, what is the reasonableness to use one short-term loan to replace another short-term loan? That’s why there is absolutely no need for developers to use EB-5 funds. That’s also why it’s so hard to find a project that can respond immediately with a shortened investment cycle.
What we can see in the market now is that there are some oil and trucking businesses, which are light operations, and they have set a precedent by saying that they have shortened the investment cycle. We’re not going to comment on whether it makes sense for them to shorten the cycle. Let’s go back to the EB-5 investor’s point of view, they’re looking for more than just a shorter investment cycle, a shorter period for their capital to be tied up. What they are really looking for is the safe return of their $800K investment. In my opinion, is digging for oil that simple? Are four trucks enough to payback your whole $800K after two years? We cannot put my investors at risk, so we decided to go with the more traditional hotel industry. Although USCIS seems to have launched good news for investors, the fact is that it is not enough to judge the risk of the project only from the perspective of the investment period. We should keep our heads up and always adhere to the two main criteria of “Green Card Security + Capital Security” in selecting US EB-5 projects. This is also the guideline for our project development team. It is foreseeable that in the first quarter of next year, we may see some good projects with a shortened investment period of 3+1+1, or 4+1. However, at this point of time, among the projects that will quickly respond to USCIS’s guidance of a two-year investment period, it is still necessary for investors to choose with caution.
