Impact of the new EB-5 regulations:
The industry anticipated that the EB-5 changes implemented on November 21, 2019, would have a major impact. The simple math of the increased investment amount has lead to a smaller pool of investors. And because the pool of EB-5 investors is smaller, Fuller remarks that stronger safeguards are now required to protect those investors.
The raised investment amounts and stricter requirements have lead to not only a more affluent investor market but a more sophisticated one as well. Investors now are more concerned with due diligence and safeguards. And with fewer stakeholders doing more business, this heightened level of sophistication applies to them as well.
The stricter Targeted Employment requirements have meant that percentage wise, more investors are investing into rural projects. As Fuller has observed, most EB-5 projects that once had a TEA designation no longer qualify.
COVID’s impact depends on the market
The pandemic has caused a liquidity crisis that has limited the number of people able to invest in EB-5. Thus, investors with liquid capital and looking for more value opportunities with income generation have shifted their focus on a more traditional asset, real estate. While the real estate investing boost may be positive news for the EB-5 industry, a concern about the coronavirus’s financial impact on foreign investment remains. For affluent foreign individuals who have experienced substantial loss of capital due to the market contraction, the EB-5 visa may now seem less affordable. Others, whose businesses have been sidelined by their government’s pandemic response, may feel a more urgent need to liquidate these businesses and seek a new beginning in safer grounds.
The EB-5 outlook for the rest of 2021 and beyond
Both the new regs and COVID-19 have caused significant slowdowns to the EB-5 market. Certain markets face particular challenges: China is challenged because of their backlog, for example; while Vietnam has a heightened liquidity challenge. Though the Indian backlog was probably overestimated in the past, right now that country has a significant issue with the pandemic that will delay the “inevitable rebound” of India’s EB-5 market. Growth is expected from Latin America, though that region has some economic and currency troubles.
Pandemic causing high-net-worth people to reconsider residency
A collateral consequence of navigating the global pandemic is that these limitations have forced prospective immigrant investors to re-evaluate whether possessing global mobility options remains important at this time. These kinds of decisions among foreign nationals with the resources to invest can have a rippling effect upon an already shaky global economy. Despite the challenges that COVID-19 presents for the EB-5 market, it has caused many wealthy foreign nationals to reconsider their residency options — and realize they need an alternative residency in times of crisis.
Competition from other residency by investment programs
Haggenmiller says that looking long-term at individual markets, socioeconomic conditions will be a key driver. But he also anticipates that EB-5 as a whole will face increased competition from other countries like Canada and New Zealand.
He admits that because of the current political administration and rhetoric, the appeal of moving to the U.S. is not as strong as it historically has been for many affluent families around the world; America may no longer be their number one destination choice. It will be interesting to observe the impact a new U.S. administration may have on EB-5. One would be hopeful that a more immigration-friendly government could go a long way in correcting the damage to the American reputation as a premier place to live, work, and raise a family.
EB-5 Markets with stable economies will fare better in the future
Not all markets will move forward according to the same timeline; Fuller tells us that more stable foreign economies will be better EB-5 markets in the near future than those from emerging or under-developed markets, which will take longer to recover from the global crisis.
Thus, while COVID-19 has tempered short-term issuer optimism, and depending on what happens with a new wave of the pandemic this winter, we could be “ok” in the short-term. Given the challenges of more stringent EB-5 requirements coupled with a global health and economic crisis, Haggenmiller still remains optimistic about his EB-5 pipeline.
Industry stakeholders who might be experiencing a crisis of faith at the moment should have a similar long-term belief that the world and the program will recover.
