With the signing of the EB-5 Reform and Integrity Act (RIA) in March of 2022, a new law was put into effect that changed the program significantly. As you can imagine given the name of the new law, the EB-5 Reform and Integrity Act holds regional centers more accountable with mandatory oversight and heightened transparency measures that help ensure anti-fraud protections.
Perhaps most importantly, however, is that bipartisan support for the bill from Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vermont) deemed that metropolitan areas were too large of an emphasis for the previous EB-5 program. With its renewal last year, 20% of all EB-5 visas each year are now being “set aside” for those who place their funds in rural investments.
In addition to this and other positive new practices now being required, U.S. Citizenship and Immigration Services (USCIS) has made it a point to speed up lengthy processing times. As of 2023, the truth is that processing times are taking longer and longer for traditional EB-5 investments. In fact, waiting periods for countries such as China and India can be over 10 years for investors to receive both their I-526E and I-829 approvals.
Investors Have Become More Open-Minded to Investing in a Rural Area
What has truly made investors more interested in rural investments is that this act has opened the door to priority processing. Petitions for approval from USCIS are now being processed on a “priority” basis. This benefit of a rural investment can literally slash the wait time for approval, making these set-aside visas one of the most enticing options available for those seeking a green card and achieving the dream of U.S. citizenship.
Additionally, rural investments receive the largest share of set-aside visas (20%), strongly benefiting investors from high-demand countries (i.e., China and India) to bypass the long waiting times faced by their respective countrymen who invested pre-RIA. The set-aside visas are the only viable route forward for applicants from high-demand markets, and investors can maximize their chances of having a visa immediately available upon approval by selecting rural category projects with the highest allocation of visas.
Since the majority of investors right now utilizing the EB-5 program are either Chinese or Indian born, investing in rural areas is the most promising path to avoiding interminable waiting periods. Noticing this need, more regional centers have begun offering projects in rural areas.
Many of these new EB-5 projects span numerous industries, including agriculture, manufacturing, and the energy sector, providing jobs to U.S. citizens while providing America with economic growth. Viable options like these should not be overlooked, although among these rural projects are also opportunities in real estate, especially in hospitality and housing. These real estate-oriented undertakings have always been a more traditional EB-5 investment that many families are more comfortable placing their funds in.
Following the COVID-19 pandemic, a substantial portion of the workforce has continued to work remotely, opting for life outside of densely populated areas. This too has opened the door for the success of housing and hospitality destinations in these rural areas. Many towns lack affordable housing since most housing has been bought by wealthy individuals for vacation homes or investments, often on large estates with unoccupied land that is privately owned.
The surge in nature-based hospitality is an incredibly strong trend with millennials that has surpassed pre-covid levels. A growing percentage of the population becoming decision makers are these same millennials who prefer rural destinations for everything from vacations and weddings to work retreats and permanent homes. Meanwhile, urban-based hospitality occupancy and REVPAR (revenue per available room) is still below its pre-covid numbers.
All of this together, combined with recent EB-5 reform, has created a perfect storm where rural land in high-growth regions outside of city limits is ripe for development with new multi-family housing, restaurants, hotels, event space, and more.
The Structure of Investments Are Becoming More and More Important
With faster processing times for rural EB-5 investments, the natural progression of investors has been to care more and more about the structure of investments as opposed to just looking at the location. For example, in the past, potential investors looking to immigrate to the U.S. along with their immediate families might have been more enticed by investments in the largest markets available, such as New York City, Miami or Los Angeles. A quick Google search will show multiple mega-projects by EB-5 promoters that have recently failed in all those areas…
Sage advice for rural project offerors is to clearly demonstrate to investors that your regional center has skin in the game and is not just making money off of raising money. This is exactly what families want to see in order to feel secure about investing in an EB-5 project.
Most EB-5 projects are structured to where the offeror or regional center raises EB5 capital and loans it to a project as high interest mezzanine financing, only paying the investors a very small return in exchange for their risk. This form of practice adds significant risk to projects by adding sunk financing costs and allows regional centers to profit on the interest spread regardless of the EB-5 investor’s individual success. In financial language, this is called “moral hazard” and it is the reason why many regional centers have failed to repay EB-5 capital in full.
All of this, of course, is a work in a progress where new methods are being devised and refined daily to do right by immigrant investors and give them as much transparency and detail as possible prior to investing. With so much interest in rural projects as of late, there is no choice but to adapt to its growing demand.
