The Cloudy Future Of EB-5
The troubled EB-5 visa program, used by various real estate developers as a source of funding though fraught with clouds of suspicion and cases of fraud, got another extension on Friday when President Donald Trump signed a continuing resolution to fund the federal government. The resolution also included the continuation of EB-5, along with other immigration programs.
The extension for the widely disputed visa program that grants green cards to foreigners who invest a minimum of $500K in U.S. developments in high-unemployment areas, is only through Dec. 21. After that, all bets are off for the EB-5 program.
The program has been suffering from bouts of adverse publicity. A South Florida-based developer is being sued by a group of about 80 Chinese investors who claim he duped them out of $99.5M, the latest in a string of EB-5 fraud lawsuits. In the mid-2010s, Lobsang Dargey, a Bellevue, Washington-based developer, scammed 280 investors from China out of $24.2M. He was convicted last year.
Also in the headlines recently was a prominent EB-5-financed deal that went belly up. In October, plans were scrapped for the New York Wheel on Staten Island's waterfront, touted as one of the world’s tallest Ferris wheels. It had obtained $206M in EB-5 funding.
Defenders of the program characterize the fraud cases as rare examples of bad apples, but EB-5 has other challenges. One is simply a long backlog of applications.
Chinese investors, who make up 85% of all EB-5 investors, are now facing up to a 15-year wait between their initial petition and receiving a green card. That kind of time frame has developers turning to investors in other countries or giving up on EB-5 funding entirely.
The program has further been widely accused of being misused by developers seeking funding for major projects in core markets, instead of high unemployment or rural areas. On the whole, data about the program shows this accusation to be accurate.
Such incidents have clouded the future of the program. Congress will need to make the ultimate determination of its fate, and observers have different opinions about what Congress is up to along those lines.
“This is the first time I can remember that there’s been no recent active negotiations to try to resolve EB-5,” Saul, Ewing, Arnstein & Lehr attorney Ronald Fieldstone told The Real Deal.
Other sources told TRD that lobbying efforts are in fact underway.
“The industry is definitely not turning away from the program,” EB-5 servicer NES Financial's Reid Thomas said.
One possibility is a major overhaul of the program in response to perceived abuses.
Under the current guidelines, foreign investors may obtain a green card through EB-5 if they invest $500K (in a rural setting) or $1M (in an urban setting) in a new or existing business that creates at least 10 full-time jobs per EB-5 investor.
Last year, the Department of Homeland Security proposed changes to these minimum investment amounts and targeted employment areas, JD Supra reports. Under that plan, the minimum investment would rise to at least $1.35M and perhaps to as much as $1.8M for areas with high employment.
EB-5 reform, however, has proven to be a tough nut to crack. A number of efforts have been undertaken, only to have the program extended without much change.