A new federal lawsuit is throwing EB-5 investors a curveball, clouding the answer to a most basic question: “When will I get my money back?”
The lawsuit, filed by Invest in the USA (IIUSA), argues that the current two-year EB-5 investment period (as set forth in an October 2023 policy) is too short and should be repealed by U.S. Citizenship and Immigration Services (USCIS). In place of the two-year period, IIUSA is proposing an even longer investment timeline in which money must stay committed—or “at risk”—for at least five years. Any change would be retroactive to 2022.
EB-5 investors who were expecting a two-year financial commitment, based on current USCIS policy, now face the possibility that their money will be held for longer. With this lawsuit, several outcomes are possible, which means investors have no clarity on just how long their money will be invested.
And that uncertainty leads to another question: will their capital have to be “redeployed” (placed into a second project they do not get to choose) in order to satisfy a longer investment period?
“You invest in a project telling you, ‘Hey, it’s only three years, you’re going to get your money back’ and then, ‘wait a minute, oops, actually no, it’s a five-year minimum investment period,’” explains Sam Silverman, managing partner of EB5AN, which does not support the lawsuit nor the five-year minimum proposal.
“Even if that project was successful after three years and it repays, you’ve got to be invested and ‘at risk’ for another two years, so you’re getting redeployed,” Silverman says.
In this article, we explore the possible outcomes of the IIUSA lawsuit and their proposed five-year investment (sustainment) period rule for EB-5 investors. With Sam Silverman’s insights into the topic, we look at the risks involved in redeployment and the best strategies to avoid these risks.
How the Sustainment Period Impacts Redeployment Risk
Potential Outcomes of the Lawsuit
How EB5AN Approaches Redeployment
How the Sustainment Period Impacts Redeployment Risk
“Like politics, redeployment can be a taboo topic,” Silverman says. “With redeployment, risk to investors increases and the stakes are high. But this ongoing lawsuit and the uncertainty it’s causing are making this a must-have conversation.”
Suppose an investor placed money in an urban multifamily project with a well-regarded developer. That investor could later find that capital redeployed to, say, a restaurant project or an exotic equity stake in a less-vetted, speculative real estate development.
“When you give somebody control like that, they can put you in a much riskier project,” Silverman says.
Which is why it’s important to ask your sponsor about their redeployment strategy up front and understand what prior redeployment of EB-5 funds has been for earlier EB-5 investors.
Potential Outcomes of the Lawsuit
The best way to curb the risk of redeployment is to try to avoid it altogether, Silverman advises. Doing so now means planning around three possible outcomes of IIUSA’s lawsuit before making an EB-5 investment decision. We present those possible outcomes below.
But the safest path forward is this: pick a rural EB-5 project with a five-year holding period. This is especially true if you are an investor from India or China. By doing this, you reduce the chance of redeployment no matter what changes are made to the mandatory “at-risk” period.
Outcome 1
Under this outcome, the “at risk” period would revert to what it was before 2022. Back then, money had to stay committed for a two-year period that started when an investor obtained a conditional Green Card. Remember: under this scenario, the two-year clock does not begin at the moment of investment as it does now. Instead, it begins only after the investor applies for and receives a conditional visa.
For Indian or Chinese investors—who face a multi-year-long backlog to even acquire that conditional Green Card—this is the worst possible scenario. Their money might have to stay “at risk” for as long as eight years.
An Indian or Chinese investor who committed to a three-year urban project in 2022 will likely be waiting at least five years before they even get their temporary Green Card. Then they would have to wait two more years from that point. So these investors should expect to see their capital redeployed into new projects for at least five more years in order to fulfill the new mandatory holding period.
Investing in a rural project, however, would change the math to something more favorable. A total of 2,000 EB-5 visas are set aside each year for investors in rural locations, and this visa category has no backlog for Chinese and Indian investors. As a result, a rural investment is a fast lane to getting a temporary Green Card and starting the clock sooner on the mandatory two-year holding period.
“Investors are getting approved really quickly in rural projects,” Silverman says of this strategy. “You’re getting approved in a year or two, and then you hold it for two years.”
Outcome 2
Under the second possible outcome, the proposed five-year investment rule is formally adopted, as requested by IIUSA. If this were to happen, any investment with a term of less than five years would need to be redeployed to meet the lengthier timeline. Here, too, investing upfront in a rural project with a five-year holding period will reduce the redeployment risk.
Outcome 3
Under this third outcome, the current two-year investment policy remains in effect. This would be the most favorable outcome for EB-5 investors because it carries the lowest likelihood of redeployment. It makes it more likely that investors remain in the original project they researched and invested in.
How EB5AN Approaches Redeployment
If an EB-5 investor’s money is redeployed, the results can vary based on how a regional center approaches the process.
When EB5AN has had to redeploy investor capital, it has always strived to to do so within the same geographic area, with the same developer, and with the same risk profile to the project the investor had initially selected.
EB-5 investors who have not yet invested in a project should be prepared for any of the three scenarios to occur, Silverman advises. “We just cannot know yet how the lawsuit will turn out. So the uncertainty will remain for a while,” he says. “The lawsuit could take at least a year to be resolved, and any proposed federal rule change requires a minimum notice and comment period.”
“The big picture is that you can get the information you need to help you make a more informed decision,” Silverman adds. “If you didn’t have this information, you’d just be shooting in the dark. But with this information, you have a flashlight and can target your shot accordingly.”
To discuss the topic of EB-5 redeployment in more detail and gain valuable industry insights, book a free one-on-one call with EB5AN’s management team today.
