Comment: Magnitude 9 RIA Earthquake

Magnitude 9 RIA Earthquake

1. Cascading change

• American law has a pyramidal structure - the statute is at the top, rules and regulations are in the middle, and at bottom are the policies and procedures of the implementing agency (USCIS). A change at the top of the pyramid produces cascading effects throughout the structure, with new forms, new regulations, and a myriad new policies and procedures (ever changing and contradictory).
• While policies and procedures change every 3 to 6 months; and regulations and forms change every 5 to 10 years; statutory changes happen once in several decades. RIA is the first statute change to EB5 in about 30 years. Very few people in the EB5 industry have experience with change of this scale. RIA is a magnitude 9 earthquake causing upheaval in the entire EB5 ecosystem.

2. Uncertainty

• It will take 2, 4 or even 6 YEARS for primary, secondary, and tertiary changes to cascade through the pyramid. During that time, things will be changing back and forth, contradictorily. Players in the EB5 industry must learn to live with uncertainty (and many won’t, choosing instead to exit the industry).
• All previous expectations should be re-examined and questioned: this is true of players and their positions within the industry, compliance requirements, USCIS actions, time frames and much more. This is deeply unsettling to those in the US real estate sector, who are accustomed to established rules of the road, which are constant and dependable - EB5 agents and investors should be wary of those in American real estate who seek inexpensive EB5 capital, without a commitment to navigate and adjust to USCIS’s swirls and eddies, these fair weather friends will surely desert EB5 agents and investors as the slow motion magnitude 9 RIA earthquake ripples through USCIS and produces flips and flops in the coming months and years.

3. RIA has punished urban EB5

• No urban: large glitzy urban EB5 projects in the New York, Miami and LA metro areas are permanently out of EB5.
• China back, but only for rural: Chinese who faced a 12 year wait, now suddenly find their waiting time drop to 2 years. Chinese investors are back with a vengeance for rural EB5.
• USCIS to attack urban (old and new) using all tools at its disposal: Congress has given clear instructions to USCIS that EB5 investments must be dispersed throughout the country, and has provided USCIS with a powerful new set of enforcement tools to carry out Congress’s will.

4. RIA net effect

• Supply side: With old urban developers out of the EB5 market, new players are entering the market–especially in rural EB5.
• Demand side: EB5 agents need to sell two new kinds of projects: rural EB5 projects, and small, ugly urban projects (as opposed to large glitzy urban projects). The demand side needs to absorb this fact.
• Supply ecosystem is transformed: All EB5 supply side players (RCs, securities attorneys, immigration attorneys, business plan writers, economists) have found their old friends - the large urban developers - suddenly removed from the market. They need to work with new players entering the market.
• Asset classes are changing: New asset classes like manufacturing are becoming more dominant in the new EB5 ecosystem. Both supply and demand sides need to adjust to these new asset classes.

5. RIA magnitude 9 earthquake

• RIA’s forthcoming cascading effects flowing through regulations and forms and then through policy and procedures - is transforming EB5 – turning previous expectations of all players in EB5 topsy-turvy. Like covid was for the world, RIA is a Black Swan event for EB5. When covid hit, initially many people viewed it as just another flu epidemic (of course, none had lived through the 1918 Spanish flu)–little did most people imagine how much covid would change their lives. Similarly, most in the EB5 industry are currently blithely unaware of how much the ground under their feet has changed, and EB5 upheavals of the magnitude 9 RIA earthquake are yet to be registered by most.

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