A proposed EB-5 rule is already changing how sponsors and developers think about their capital stack strategy, but for now it is not disrupting deals that are in the market or underway.
The Department of Homeland Security recently issued the most significant proposed changes to the EB-5 Immigrant Investor Program since Congress enacted the Reform and Integrity Act.
According to the filing, the Notice of Proposed Rulemaking is highly technical, but its reach extends far beyond immigration into how foreign capital flows into US development, job creation and the communities that rely on EB-5 financing.
For commercial real estate sponsors and investors, the immediate takeaway is that the proposal will not directly affect offerings or projects in the market today, according to Jill Jones, head of specialty administration/general counsel – USA.
Jill Jones notes that “EB-5 issuers and sponsors are likely to bring offerings to market quickly so they can be adjudicated under the current rules rather than delay and be forced to accept what is likely to be a much more restrictive regime.”
They will review feedback after the public comment period ends on Aug. 31.
US Citizenship and Immigration Services will consider revisions and eventually issue final rules.
One of the key aspects of the proposed rule is the potential disqualification of jobs created through bridge financing that is later paid down with EB-5 proceeds, which could significantly impact the program’s effectiveness in supporting projects in underserved, rural, and high-unemployment communities.
The bridge financing structure has long been a key component of the EB-5 program, allowing developers to meet their financial obligations while waiting for EB-5 proceeds to be invested, and any restrictions on this structure could make EB-5 financing less attractive to both developers and investors.
The public comment period provides an opportunity for stakeholders to provide feedback on the proposed rule and its potential impact on the EB-5 program, and it is likely that developers, sponsors, and investors will carefully review the proposal and submit comments to ensure that their concerns are heard.
The eventual issuance of final rules will mark a significant milestone in the evolution of the EB-5 program, and it is likely that the program will undergo significant changes in the coming months and years, with potential implications for the US development industry and the communities that rely on EB-5 financing.
The proposed rule’s focus on improving the program’s integrity and efficiency is likely to be welcomed by many stakeholders, but the potential increase in costs and reduction in participation may be a concern for others, highlighting the complex trade-offs involved in reforming the EB-5 program.
As the public comment period comes to a close, it is likely that the proposed rule will undergo significant revisions, and the final rules will reflect a careful balancing of competing interests and priorities, with the goal of creating a more effective and sustainable EB-5 program that supports economic growth and job creation in communities across the US.
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