You have no doubt read about the decision in Behring v. Wolfe invalidating the 2019 regulations of the EB-5 Program. The decision rolls back the minimum investment amount from $900,000 to $500,000 (and from $1,800,000 to $1,000,000 outside of targeted employment areas). The decision also invalidated the USCIS’s new method of determining TEA status and all other changes to the program that took effect in November 2019.
The Behring decision has been issued very close to the termination date of the Regional Center Program on June 30th. The latest news from the Senate would indicate that the program will not be renewed on June 30th, but will expire – and, it is hoped, be revived at some point in the near future.
If you plan to take in investors at the reduced $500K level, be aware that the USCIS has made it known that it will not review I-526 petitions submitted on the 30th, so petitions will need to be received no later than the 29th (Tuesday). Please contact me immediately if you plan to take advantage of this very brief window.
It will usually be necessary to update offering materials (likely with a supplement) to include not only the reduced investment amount and its effect on jobs per investor and possible effect on total offering amount, but also any updates for material developments on the project. There should also be risk factors around the uncertainty of the current legal and regulatory situation. A new TEA letter from a state agency (in accordance with the old rules) may currently be unobtainable because the agencies closed down that function in November 2019. In some cases, an update to the business plan and economic report may be necessary and unobtainable on such a short time frame. In addition, the issuer will not want an investor to be able to say in a future dispute that they were unduly rushed into an investment decision.
While all of the above concerns can be addressed and mitigated, many regional centers and project sponsors are taking a wait-and-see attitude and not seizing on this opportunity. Among other things, there may be an appeal of the Behring case and a request for a temporary injunction to keep the 2019 regulations in force. While an injunction seems unlikely, many are waiting for the dust to settle on both the Behring case and legislative efforts to renew and reform the Regional Center Program. It is expected that the new administration will act quickly to properly re-adopt the 2019 regulations, a process that would take a few months.
If you are currently accepting investments at the $900,000 level, one strategy would be to escrow $400,000 of the capital and undertake to return it if the investor’s petition is accepted at $500,000.
Please be aware that “direct” (non-regional center) projects are not affected by the June 30 sunset date. A developer that is affiliated with a regional center can also participate in direct projects, but direct projects rely on actual sustained payroll jobs for job-creation and can’t count indirect and induced jobs determined in an economic report. As a result, direct projects are more difficult to use for pure construction projects.
If you want to discuss any of these developments and possible short-term strategies, please contact us as soon as possible.