Launched in 1990 by the U.S. Citizenship and Immigration Service (USCIS), the EB-5 visa program helps the U.S. compete for international capital against other countries that offer similar programs. It is designed to attract foreign investment in projects that create jobs for U.S. citizens.
Applicants must commit $500,000 to $1,000,000 to a new business or project that will create at least ten jobs over a speciﬁed time period and submit a detailed business plan to be approved by the USCIS. Upon approval of the application process, an investor receives conditional U.S. residency. Permanent residency can be granted after a 2-year conditional period if the employment objectives are fulﬁlled.
The EB-5 visa program beneﬁts both applicants and the marketplace:
- Investors receive conditional green cards for themselves, their spouse, and any children under the age of 21.
- U.S. developers gain access to low-cost international capital.
- Economically depressed Targeted Employment Areas (TEAs) get jobs.
- Real estate agents may also beneﬁt because EB-5 visa holders must establish a U.S. residence, and therefore may become prospective home purchasers.
There are two main types of EB-5 visas. The Individual EB-5 requires direct investment in any for-proﬁt of business that creates at least 10 full-time jobs for U.S. workers. The Regional Center EB-5 visa requires investment in USCIS-approved regional centers creating at least 10 direct, indirect or induced jobs per investor. The investor is usually a limited partner or member of an LLC and is free to live anywhere in the United States, and can work or not work as the investor wishes. (See the April 2011 issue of Global Perspectives or the USCIS website uscis.gov for more information.)
Several steps have helped the EB-5 program manage its growth pains. In September 2012, President Obama renewed the program for a three-year period, eliminating some degree of hesitancy among potential investors with what had previously been termed a “pilot program.”
The USCIS has also reorganized its EB-5 processing unit to help it deal with a surge in applications during the recession. To tackle its processing backlog, an additional EB-5 unit was hired in Washington, D.C. and more personnel were added, which hopefully will improve wait times for approval or denial of I-526, the initial EB-5 petition.
Some of the most signiﬁcant changes in the EB-5 arena resulted from a memorandum issued by the USCIS in May 2013. It clariﬁed the USCIS’ position on key issues that were causing delays and inconsistencies, and which were most likely to result in denials.
Clariﬁcations and policy changes included the following:
- EB-5 funding may be used to replace initial bridge funding in Regional Center projects. This means that an investor can join a project after it has moved beyond its speculative pre-construction stage, reducing ﬁnancial risk and the risk of the project failing to meet USCIS requirements.
- The USCIS recognized the “fund model” so that an investment in a single Regional Center enterprise can fund a portfolio of approved projects, reducing investor risk.
- The USCIS no longer requires an investor to restart the entire application process if the business plan materially changes after conditional residency has been approved, but before permanent residency is granted.
EB-5 Market Matures
In recent years the number of EB-5 visas issued has more than doubled, from 3,463 in FY 2011 to 7,641 in FY 2012. The increase has been driven by investors from mainland China, who make up more than 80 percent of EB-5 investors. Earlier this year EB-5 professionals feared the program would reach its limit of 10,000 visas per year for the ﬁrst time in 2013. That did not happen, but the risk that it could raised new questions and concerns.
The market has also evolved in terms of the types of projects that utilize EB-5 funding. In the mid-2000s many EB-5 projects were run by small developers who were crowded out of the credit market. The EB-5 program gave them access to low-cost capital they couldn’t ﬁnd elsewhere. For example, Jay Peak, a ski resort in northern Vermont, used foreign funding in 2008 to expand its ski facilities.
Since then very large developers have begun utilizing the EB-5 program. Major hotel developers like Marriott, Hilton, Hyatt and Starwood have tapped it for large projects throughout the country. Hotels are a particularly good ﬁt to the programs because they generate so many jobs. Now smaller EB-5 projects ﬁnd it hard to compete for EB-5 investors against large ones which have a lower risk of non-completion.
Fraud and the SEC
In October 2012, the USCIS announced plans to work with the Securities Exchange Commission (SEC) in identifying and prosecuting fraud in EB-5 Regional Centers. Regional Center projects must now issue Private Placement Memos (PPMs) that follow strict SEC securities guidelines. The SEC charged two EB-5 projects with securities fraud in 2013.
In SEC v. Marco A. Ramirez, et al., the USA Now Regional Center is alleged to have solicited investors prior to receiving its Regional Center designation. Its PPM promised investors a ﬁve percent return. Further, funds that the owners should have escrowed were put to personal use. Investors received no visas from their investment in the USA Now Regional Center.
In the high proﬁle SEC v. A Chicago Convention Center, et al., the SEC halted a project that had brought in $156 million in overseas funds. The developer is alleged to have falsely promoted the project as the “World’s First Zero Carbon Emission Platinum LEED-certiﬁed” hotel and conference center in Chicago, and to have falsely claimed that all necessary building permits had been acquired and that it had the backing of major hotel chains including Hyatt and Starwood.
“This case received widespread media attention in China,” reports Adel Elmankabady, ALC and Principal of Georgia Center for Foreign Investment and Development in Suwanee, Georgia. “It left a bad taste in the mouths of Asian investors. They have become more cautious.”
Both cases underline the need for investors to do due diligence, and to work with experienced, well respected professionals. An Investor Alert released jointly by the SEC and USCIS states that “the fact that a business is designated as a regional center by USCIS does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment.”
Implications for Global Real Estate Agents
The EB-5 visa may be a good ﬁt for those who seek entry to the U.S. and the opportunity to buy residential property, including individuals, couples and families who prefer to live and school their children in the U.S.; foreign nationals on long waiting lists for other visas; entrepreneurs who want to start a U.S. business; and afﬂuent buyers who want a second home in the U.S. and more ﬂexibility to use it.
If you have prospects who ﬁt these descriptions, consider learning more about EB-5 visas (see sidebar on page three for resources) and expanding your professional contacts so that you are able to discuss the program with knowledge and refer your clients to experts who can advise them on next steps.
Identifying EB-5 Professionals
Applying for the EB-5 visa is a complicated process requiring an extraordinary amount of paperwork as well as due diligence on the project.The applicant needs experienced advisors with strong backgrounds in EB-5 projects to navigate the process, including immigration attorneys specializing in EB-5 law. They can explain more about the process and current waiting times (timing may be critical to your buyer’s plans).
Immigration attorneys with EB-5 experience do not have to be local. In fact, they probably won’t be. Go to the websites for the American Immigration Lawyers Association (aila.org) and the Alliance of Business Immigration Attorneys (abil.com) and contact their EB-5 committees. Websites for experienced EB-5 attorneys should contain information on their specialists, publications and seminars.
Beyond the Investment
In some cases persons pursuing an EB-5 visa may be willing to make such an investment as a vehicle to achieve residency. Returns on EB-5 funding are very low compared to other investment products. The main goal is residency, which is only granted unconditionally if the EB-5 project fulﬁlls its job creation requirements. Successful project execution is of the utmost importance. Urge your client to hire advisors to do due diligence and to examine the soundness of the developer’s business plan.
If overseas investors are looking for higher returns, they may also be able to invest in the non-EB-5 funded part of the project. “I had a client who wanted to invest more than $500,000 which was earning one percent as EB-5 money,” recalls Elmankabady. “The developer let her invest an additional $2,000,000 in the general fund which returned 12 percent.”
The EB-5 visa program is a great way to help afﬂuent overseas buyers obtain residency and spend more time in their U.S. properties. Be prepared to suggest it where it ﬁts, but avoid presenting yourself as an investment advisor. Caution your clients that you are not recommending any particular program and urge them to discuss the EB-5 with their attorneys and investment advisors prior to making any decisions. If you point the way to a successful transaction, these new residents will very likely tell their friends, creating opportunities for additional referral business.
Noteworthy EB-5 Blogs
Association to Invest in the USA
For EB-5 advocacy news
Lucid Professional Writing
Updates to Regional Center list, news and statistics
Greenbert Traurig EB-5 Insights
Klasko Immigration and Nationality Law
Articles by prominent EB-5 law firms
Three Unique Regional Center Projects
Discovery Times Square is a new large-scale exhibition and experiential museum that used EB-5 funding during construction. As an ofﬁcial Discovery Channel promotional partner, its exhibitions include King Tut, Harry Potter and Titanic artifacts. DTS opened in 2013 and is the ﬁfth most visited museum in New York City. It has generated over 590 new jobs.
The Marriott Corporation has used EB-5 funding for 14 of its recent hotel developments. Underway is a new 377-room hotel located near the Staples Center in Los Angeles expected to open in 2016. American Life Inc., a commercial property development and management company, worked with Marriott in the procurement of EB-5 funding for this and other projects. This one is expected to generate over 4,200 direct and indirect jobs in and around the hotel when completed.
The Florida Restaurant Franchise Group (FRFG) has tapped EB-5 funding for restaurant development. Three of its brands, Five Guys Burgers, VooDoo BBQ & Grill, and Twin Peaks Restaurant, are expanding in the Palm Beach Regional Center. With several EB-5 projects complete, FRFG is now in its eighth EB-5 offering and has generated over double the number of jobs required by the USCIS.