The Real Risks to EB-5 Rural Projects

EB-5 Visa investment is back in full swing and this article talks about a new visa-set aside category for Rural based investments. More specifically, how to address the real risks to EB-5 rural projects. The EB-5 Immigrant Investor Program is a popular choice for foreign nationals seeking to obtain a green card for themselves and their family members. The program requires a minimum investment of $800,000 in a qualifying project that creates at least 10 full-time jobs for U.S. workers. However, the recent passage of the 2022 EB-5 Reform and Integrity Act has created new opportunities and risks for investors, particularly when it comes to selecting between urban and rural TEA (Targeted Employment Area) projects.

Many investors are drawn to rural projects due to what was described in statute as priority processing, however the government still has not found a way to actually initiate it yet rendering it useless and “expiring“. The rural category seemed attractive but outside of a slightly larger set-aside visa count and the empty promise of priority processing, the category doesn’t offer any obvious benefits. Also, when retrogression hits, that single benefit will literally be gone leaving only exposure to increased risks. Investors should exercise caution when considering these projects as they carry increased financial and construction risks. Being invested long term with no benefit of priority processing may be a recipe for disaster. Below are  five key issues to consider about rural projects.

1. Higher financial risks: Rural projects often lack the economic diversity of urban projects, which puts them at higher risk of financial instability. In addition, the reduced demand for commercial and residential properties in rural areas makes it harder for developers to attract tenants or buyers, which can lead to lower returns on investment.

2. Higher construction risks: Rural projects may face logistical challenges during the construction phase, such as limited access to materials, skilled labor, and transportation. This can lead to delays and cost overruns, which can negatively impact the financial viability of the project.

3. Limited economic diversity: Rural projects typically have a narrower range of industries and job types compared to urban projects. This can limit the potential for job creation and put the project at risk if the primary industry or employer experiences a downturn.

4. Advantage limited to some set-asides and the empty promise of priority processing: Rural projects may qualify for set-asides and priority processing, which was meant to give priority in the allocation of EB-5 visas. However, if the backlog of EB-5 applications grows or retrogression occurs, the advantage of qualifying for set-asides disappears, leaving the project with basically no advantages at all and just the diminished financial prospects of the rural asset itself.

5. Short-sighted marketers: Some promoters of rural projects may be motivated by short-term commissions and other financial incentives, rather than the long-term interests of investors. As a result, investors should carefully evaluate the promoters and their track record and motivations before investing in any project.

In conclusion, while rural projects may seem attractive at first glance, investors should exercise caution when considering them. The risks associated with these projects can outweigh the potential benefits, particularly in light of the new provisions under the 2022 EB-5 Reform and Integrity Act. Investors should carefully evaluate the financial and construction risks, the economic diversity of the project, and the motives of the promoters before making any investment decisions. Ultimately, the key to success in the EB-5 program lies in conducting thorough due diligence and selecting the right project for one’s individual needs and goals.