The Quest for Certainty and Stability

The IM Yearbook sat down with Ron Klasko to explore the impact of policy changes on investor sentiment in the EB-5 industry and beyond.

The EB-5 programme has undergone significant changes in 2022. How is the programme doing now?

It is currently benefiting from pent- up demand after a period of limited progress spanning several years, marked by lapses and numerous short-term extensions. When Congress passed the EB-5 Reform and Integrity Act (RIA) in March of 2022, it effectively revitalised the programme. This renewal also came at a time when interest rates were soaring, and EB-5 served as a vital source of financing for real estate developers, often providing low-cost financing.

There had been a long-standing demand from investors who, for years, lacked confidence in the programme. Therefore, at the same time as there has been a surging demand for EB-5 capital, there is also an increasing interest among investors. Consequently, it is booming times now, both for regional cent and for project developers working on assembling projects, as well as for the investors themselves.

One of the most significant advancements for the EB-5 industry has been the ability for investors who are in the US to file for both their EB-5 visa and green card within the US, a change brought about by the RIA. Prior to this, such an option was not available. This change has been particularly advantageous for students, individuals on H1B visas, and others residing in the US. They can invest and, even if it takes the Immigration Service several years to process their cases, they can still obtain work and travel documents, providing them with the freedom to travel in and out of the country. This has significantly benefited the EB-5 industry.

What are the current issues that are of concern?

A recent issue that has arisen in the past couple of weeks is that the Immigration Service released a guidance memo stating that, despite previous understanding that an EB-5 investment must be sustained during the two years of conditional residency, they are now interpreting the RIA to mean that the entire investment period may be only two years.

However, most projects in the market typically require funding for at least four or five years or more. This change has caused disruption in the industry, and we are currently dealing with this issue. It is possible that the courts may become involved in resolving it since the Immigration Service failed to follow the required formal regulatory process.

What impact did the overhaul have on processing timeframes for EB-5 applications?

Unfortunately, many of the EB-5 applications are still taking years to process. However, it appears that the Immigration Service is expediting the processing of projects in rural areas, as the RIA specifies giving priority processing to such projects. Consequently, we are witnessing quicker adjudication of project and investor applications in rural areas. However, it is not uncommon that the processing time of applications for projects that are not in these designated areas extends to three to five years or more.

How has the demographic composition of EB-5 applicants changed?

Initially, under the old programme, there was a massive demand from Chinese applicants, causing a 10 to 15-year waiting period. This resulted in diminished demand. However, when the RIA introduced reserved visas for investments in rural areas, high unemployment areas, or infrastructure projects, Chinese investors began flocking to this category to avoid the long wait times. As a result of this, demand from Chinese investors has skyrocketed again. Similarly, India has seen an increase in demand due to long waiting lists for

other green card categories like EB-2 and EB-3 with employer sponsorship, estimated to be 30 to 50 years.

Indian applicants, aware of this, have turned to the EB-5 programme, which allows them to stay in the US, receive work and travel documents, and currently offers no waiting list. This has attracted a significant number of Indian applicants.

Apart from China and India, there is also notable demand from other parts of the world, including Vietnam, the Middle East, and Latin America. However, the two major pockets of demand are clearly China and India.

What comments can you make about the recent changes in the Caribbean and their impact on US immigration?

We work a lot with Grenada because it operates a citizenship by investment pathway and has an investment treaty with the US. This treaty allows citizens of Grenada to apply for the valuable E-2 treaty investor visa, which offers several advantages, including a five-year issuance with unlimited extensions, work authorisation for spouses, and educational opportunities for children.

Many individuals from countries like China, India, South Africa, Russia, Vietnam, and Brazil, where demand for US immigration is high, first applied for citizenship in Grenada and then obtained an E-2 visa.

However, a sudden change came in December 2022 when the National Defense Authorisation Act (NDAA) altered the E-2 visa requirements. It now mandates a three-year domicile in the country granting citizenship through CBI. This change was unexpected, with no prior discussion or debate.

This alteration has left affected countries, especially Grenada, dissatisfied. Legal issues have arisen, including the lack of clarity on the definition of domicile and questions about the authority of the US Congress to modify treaty terms between sovereign nations.

The State Department, while aware of the situation, has not yet updated US consulates on this new rule. This uncertainty has led to mixed outcomes for E-2 visa applications, creating a sense of hesitancy among potential applicants, even though the programme continues to operate.

One important point you brought up earlier is the issue of investor confidence, which tends to wane during periods of policy changes. Could you share specific examples and insights in this regard?

Without a doubt, change is generally unfavourable for investors in any investment programme, even if it’s unrelated to migration. What investors seek is certainty, preferably with clear and timely guidelines. We’ve long advocated for this with the US government.

To illustrate, the new EB-5 law was passed in March 2022. Congress set a 240- day deadline for issuing regulations, but here we are, a year and a half later, with no regulations in sight and no foreseeable timeline. This lack of regulation creates uncertainty because a law might be just 50 pages, but regulations could span 400 pages, detailing how the law will be enforced. Without these detailed regulations, there’s ambiguity, leaving lawyers, investors, and developers unsure about what the agency expects.

The same issue arises in other countries when they make changes or reconsider their programmes. Ultimately, no one knows what’s happening or whether their decisions might face unexpected alterations down the road. This uncertainty poses a significant challenge.

What are your expectations for the future of the EB-5 programme?

I tend to be optimistic. However, Congress created a five-year regional centre programme, that is still not permanent. The closer we get to 2027 when the five years end, the less viable the EB-5 programme will be. So, the key is to secure another long-term extension or, ideally, a permanent extension before 2026. My crystal ball only goes up to about 2026, and I see positive developments between now and then. Beyond that, it’s uncertain due to the complexities of the US political system.

How does the US compare to other countries in attracting entrepreneurs and start-ups?

Traditionally, the US immigration system hasn’t been very supportive of entrepreneurs, despite the success of many immigrant-founded businesses. President Obama’s “Entrepreneurs in Residence” programme aimed to encourage foreign entrepreneurs, but these efforts were reversed during President Trump’s administration, leading to a significant decrease in legal immigration. While the Biden administration has made some progress, it hasn’t fully returned to the Obama-era policies.

There are positive signs, with recent Immigration Service proposals for new regulations to make start-up companies more eligible for certain visas, particularly the H-1B visa. Previously, the Immigration Services relied on factors like company revenue and CEO salary levels, which aren’t suitable for start-ups seeking capital.

There’s also been discussion about assisting STEM (Science, Technology, Engineering, and Math) graduates. STEM graduates can already receive three years of practical training after completing their studies, allowing them to work in the US without employer sponsorship.

However, the lack of a clear path to a green card can be a problem, especially for graduates from countries like India, where the green card wait can extend to 50 years. We’re aware that other countries actively recruit such talent.

Comprehensive immigration reform is a complex issue with no easy solutions, and politicians hesitate to tackle it due to potential opposition from their constituents. This cycle has persisted for decades, with universal recognition of a broken system but little progress in addressing the underlying problems.