By Jill Jones
A new two-year sustainment period interpretation promises quicker capital returns for EB-5 investors. However, they must understand critical factors before diving into a two-year project.
Recent changes to the EB-5 investor visa program have made it a safer path to U.S. citizenship for foreign nationals investing a significant sum, often their life savings. However, these changes have also introduced new risks that investors must understand to avoid jeopardizing both their capital and their chance to become U.S. residents.
Under the EB-5 visa program, foreign nationals are required to invest at least $1.05 million in qualifying projects, or $800,000 for projects in rural or high-unemployment areas and for infrastructure developments. Their capital often serves as a loan to real estate developers, to be repaid with an interest rate lower than the market standard. Each investment must contribute to the creation of at least 10 new jobs.
READ: How to safeguard your EB-5 visa investment (June 29, 2022)
Two years ago, the EB-5 Reform and Integrity Act of 2022 (RIA) renewed the Regional Center Program, which allows immigrant investors to pool their EB-5 capital in large projects, such as large-scale real estate developments. The RIA created new reserved visa categories that could help investors from China and India, who currently face a long visa backlog, to get their green cards faster. It also authorized the concurrent filing of Adjustment of Status, which can help H-1B or student visa holders move through the EB-5 petition process quicker and seek business opportunities in the U.S. in the meantime.
Unfortunately, one provision of the law that wasn’t totally clear upon its passage was a change to the EB-5 investment sustainment period, something that presents new opportunities for investors but brings with it added potential risks.
How the EB-5 sustainment period has changed
In the old days of EB-5, investments had to remain “at risk” during investors’ entire period of conditional residency. Because of long wait times, this could be many years, long after the 10 required jobs were created and the projects completed. Investors were sometimes forced to redeploy capital into a second or even third project. In many cases, they might not have much choice in and couldn’t properly vet, these redeployment projects. The investment decisions were in the hands of Regional Centers.
READ: What the new reformed EB-5 visa program brings along (March 18, 2022)
The RIA changed this. In guidance released in October 2023, U.S. Citizenship and Immigration Services (USCIS) clarified that investments made on or after the enactment of the RIA only need to be sustained for two years. This was great news for investors who liked the idea of getting their money back faster but raised skepticism from others in the industry.
Among the concerns was the fact that it hasn’t been made clear how this two-year period would be calculated, potentially leading to denied petitions if capital is returned too early, and the widely-held belief that two-year projects will be far too risky. The two-year sustainment period has led to a lawsuit from industry trade association Invest In the USA (IIUSA) and plenty of debate within the industry.
For investors, it’s important to understand the risks of EB-5 projects touting a return of capital within two years and how to select projects that will help you get your green card and also get your investment back.
Potential risks of short-term projects
A majority of successful EB-5 offerings have been real estate developments with a standard project timeframe of 4-7 years. This is a lot longer than the two-year minimum, but it is based upon the length of time development projects traditionally take to get from shovel-ready to stabilization.
EB-5 investors may care more about successful green card applications than profiting from their investments. They may also want their money back as quickly as possible, especially if their EB-5 investment is financed by retirement savings or taking out loans from family members. As such, a new wave of projects promising a two-year return may be enticing.
READ: Indians received 17% of all EB-5 investor visas in 2020 (December 28, 2021)
But a two-year project may be clouded by a lot of unknowns. Beyond the issue of how those two years will be calculated, there is the fact that two years is likely not long enough to complete the type of institutional-grade real estate development that has been successful in EB-5. That means the investment might be used in a less-proven type of project, it may not create the requisite jobs, and it could potentially lead to a loss of invested capital if the project fails.
It’s important for investors to balance the probability of obtaining permanent U.S. residency with the risks of expedited capital return timelines. You won’t get your money back if it’s lost, and you won’t get your green card if the project doesn’t create the requisite jobs or follow the rules of the EB-5 Program. The risks of a two-year project may outweigh the potential rewards. That’s why the best move for investors is to perform their own due diligence on the projects and choose the one that offers the best chance of both immigration and investment success.
Best practices for investors when selecting an EB-5 investment project
Due diligence is an important part of selecting the right EB-5 investment. Investors should vet the experience of all parties involved, including the Regional Center, developer, and any service providers. Working with a Regional Center that has successfully completed EB-5 offerings before can increase your confidence that you’ll have a successful result as well.
Another thing investors should look for is a Regional Center that retains a third-party fund administrator, especially one with a history of EB-5 best practices and the experience to navigate the nuances of fund administration in an immigration program. Third-party oversight means mistakes can be caught and corrected or avoided altogether, and demonstrates a commitment by the Regional Center to helping investors succeed in their immigration goals.
EB-5 investment, just like any investment, involves a certain level of risk, but investors should do all they can to put themselves in a position for success. Not all projects are created equal and there are no guarantees. It is more important than ever for EB-5 investors to evaluate the projects, the parties, and the risks to choose the one they feel has the best chance of leading to a permanent green card and the ultimate return of their capital.
(Jill Jones is General Counsel of Institutional Client Services USA for JTC Group. She is responsible for legal, governance, risk and compliance activities in the US, and oversees the Specialty Financial Administration pillar, which includes EB-5 Administration, 1031 Exchange, and Delaware Statutory Trust services. Jill has over 20 years of corporate and compliance experience and has been directly involved in over 600 EB-5 development projects. As a third-party administrator specializing in the EB-5 market, JTC offers a suite of services meant to comply with program guidelines and protect the interests of the investors.)