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The New EB-5 Rules Are Out, And The Rush To Invest Is On

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U.S. Citizenship and Immigration Services has finalized a new rule for the EB-5 Immigrant Investor Program that will nearly double the funds foreign investors need to loan to U.S.-based projects in order to get green cards. The new limit could have a substantial impact on funding for development projects around the country.  

Uline Arena REI NoMa
The redevelopment of Uline Arena in Washington, D.C., into an REI was financed partly with EB-5 investment.

Allison Berman, the head of the EB-5 group at New York-based real estate lender and broker Greystone, predicted that there would be an "immediate run" on EB-5 investments from foreigners who want to get in while the price is cheap, but after that, investment volume would cool off long-term, though the program will remain in demand.

"It's still one of the shortest paths to a green card," she said.

Berman expects sustained interest from India, Taiwan, Hong Kong, Brazil and Korea. The program has proven especially popular with investors from China, who now face waiting lists up to 16 years because of immigration quotas.

Since the EB-5 program was created in 1990, foreign investors who want U.S. visas for themselves and their family members have been able to loan $1M toward certain job-creating projects, or half that sum in certain high-unemployment areas, and in return, get green cards and eventually citizenship.

Because fraud has plagued many EB-5 deals, many stakeholders have sought for years to reform the system, resulting in the new USCIS rule, which the agency has been working on for years.

Two aspects of the new rule will have the biggest impact on developers.

The Department of Homeland Security, rather than state agencies, will designate targeted employment areas, or TEAs, where investors need put up only half the normal investment amount. Savvy stakeholders had been finagling the borders of TEAs, linking prosperous census tracts with distressed areas to obtain the qualifying average unemployment rate and thus be designated as a TEA. 

USCIS said in a statement that going forward, DHS will make TEA designations directly, based on revised requirements.

"These revisions will help ensure TEA designations are done fairly and consistently, and more closely adhere to congressional intent to direct investment to areas most in need," agency officials stated.

Minimum EB-5 investment amounts will be raised from $1M to $1.8M, or from $500K to $900K in a TEA. Minimum investment amounts will also automatically adjust for inflation every five years.

Berman said that under the current rule, TEAs can be gerrymandered with census tracts strung together in a snake-like shape on a map. Under the new rule, TEAs will radiate outward from the development site, more like a doughnut shape.  

Other aspects of the new rule will affect the immigrant investors. It makes clear that certain family members must independently file paperwork to remove conditions on their permanent residence. It also lets EB-5 petitioners who have a previously approved immigrant petition and are filing a new one to keep their original priority date, subject to certain exceptions.

USCIS Acting Director Ken Cuccinelli said in a statement the EB-5 program was designed to boost the economy and aid distressed communities, but "the program has drifted away from Congress’s intent."

"Our reforms increase the investment level to account for inflation over the past three decades and substantially restrict the possibility of gerrymandering to ensure that the reduced investment amount is reserved for rural and high-unemployment areas most in need," he said. "This final rule strengthens the EB-5 program by returning it to its Congressional intent.”

This is first significant revision of the program’s regulations since 1993 and will become effective Nov. 21, 2019.

Sen. Chuck Grassley, an Iowa Republican
Sen. Chuck Grassley, an Iowa Republican and EB-5 program critic

"Despite an abundance of examples of fraud and national security vulnerabilities in the current system, bipartisan efforts to reform the program through legislation have been repeatedly stymied by big-money interests — the very definition of swamp monsters," said Sen. Chuck Grassley (R-Iowa), an outspoken EB-5 reform advocate since 2013, and perhaps the most outspoken critic of EB-5, in a statement.

Some EB-5 industry players have been lobbying the White House to step in and stop or tweak the new rule. The family of Trump's son-in-law, White House senior adviser Jared Kushner, had used EB-5 funding in past projects — and subsequently drew scrutiny from both federal prosecutors and the Securities and Exchange Commission. Kushner Cos. has since ceased using the EB-5 program or other foreign capital sources to finance its projects.   

Berman said some foreign investors may choose to go to Portugal or Greece rather than the U.S. because of the new rule and higher investment amount.

"But a good project in a TEA at $900K — I think that's very attractive to investors," she said. "We'll adapt."

Driftwood Acquisitions & Development, a Miami development firm, is developing two hotel projects in South Florida with EB-5 funding, and CEO Carlos Rodriguez Sr. said he expects a surge in interest among investors eager to place capital under the lower limit before November when the new rule kicks in.

"After the deadline passes, we will need to work harder to raise the EB-5 money since there will be a smaller pool of applicants that can invest $900K," Rodriguez wrote in an email. "But on the other hand, we won’t need nearly as many investors to reach the capital raise required for each project.”