Wednesday, September 16, 2015

To Grandfather or not to Grandfather

One of the major controversies with the re-authorization of the EB-5 regional center is whether current projects should be grandfathered under the existing EB-5 laws. The proposed legislation change to EB-5 regional center program will reform the EB-5 program and brings up the issue of grandfathering. One side of the argument is from existing project developers and regional centers who are currently promoting their projects overseas. They feel they should be grandfathered at the existing EB-5 laws as they have spent large capital to market the project and meeting the current requirements. Many EB-5 projects spend months and years promoting their EB-5 project to investors overseas. Would it be fair to change the rules in the middle of their project causing them to have to spend additional money to update their existing offering documents and marketing strategies? For example, a project may have recruited 40 of the 100 investors needed in their project at the existing $500,000 (assuming it increases). Is it fair for the remaining 60 investors to follow different rules than the first 40 investors?

The other side of the argument expresses the concern of grandfathering all projects and any projects who may have filed a project exemplar or I-526 petition before September 30th expiration date. Under this argument, the new EB-5 regional center laws would keep the investment level at the $500,000 for hundreds of projects. The new EB-5 laws would not affect EB-5 marketing for years to come as all older projects would have a huge advantage against any new project launched in the market. Congress is trying to pass a new EB-5 law to transform the program now, not 3-5 years from now.

The issue of grandfathering will dramatically impact the marketing of projects. Investors are going to look to invest in the lower capital amount projects and essentially make it impossible for any new projects to find EB-5 capital. This is a tremendous issue in the EB-5 industry and we will continue to monitor updates. We hope Congress can come up with a fair and practical policy on this most important issue.

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