The EB-5 program has funded some of the largest commercial real estate development projects in recent years. The government program is designed to attract foreign money into large-scale projects that create jobs and stimulate the economy. In return, the investors receive immigrant visas for themselves and their families. The program has been a source of controversy in recent years and has been criticized as a program that favors developers and doesn't create enough growth in distressed areas.
What is EB-5?
Although it only gained widespread attention in the post-recession years, EB-5 has been around since 1990. The EB-5 program allows foreign investors in job-creating businesses to receive immigrant visas. Until recently, the program required a $1 million investment in any location or $500,000 in locations designated as targeted employment areas. Each of these projects must also create at least 10 full-time jobs. Targeted employment areas are either rural locations or areas with unemployment that is at least 150% of the national average.
Investors receive a two-year conditional visa, and after two years, if they can prove that the money was invested in the project and the jobs were created, the conditions on the visa will be removed. Investors are also allowed to extend the visa to dependent family members.
The program is allotted approximately 10,000 immigrants each year, and no one country can exceed 7% of the total visas. Many visa applicants are from large countries such as China and India. This created a situation known as visa retrogression, in which applicants from these countries must wait to be approved.
Why is the program controversial?
EB-5 has been a part of large, successful projects like the Hudson Yards in New York City and the Wharf in Washington D.C. It has also been used in developments that never got off the ground, such as the plans to create a giant observation wheel on Staten Island. In another case, a developer funneled the money into his personal accounts. Some lawmakers have said EB-5 is a flawed program that is prone to abuse, which has prompted some new updates.
How is the EB-5 program changing?
In 2019, the program was amended so that the amount investors must now spend is $1.8 million in any location or $900,000 in the targeted employment areas. The new rules went into effect in November.
Another change to the EB-5 program came in January 2020. The United States Citizenship and Immigration Services (USCIS) announced it would change how it processes EB-5 applications. It previously reviewed them on a "first-in, first-out" basis but is now shifting to a "visa availability" approach.
The investor's place in line is determined by the "priority date," or the date the EB-5 petition was filed and received by the USCIS. Investors and their dependent family members can't obtain a conditional green card until their priority date becomes "current" according to the Visa Bulletin. Because of the change, priority dates that are not yet "current" on the Visa Bulletin will have to wait longer for their EB-5 petition to be approved by USCIS.
What is the future of EB-5?
EB-5 investment has slowed, partly due to new regulations in China that discourage the wealthy from investing in foreign projects. A group of Republican and Democratic senators, including Lindsey Graham and Chuck Schumer, have sponsored a bill that would roll back some of the new requirements. The bill also addresses some of the concerns that investors have, including long wait times for visas, by allowing investors to move to the U.S. on a temporary work authorization ahead of being approved for an official visa. The bill would continue the program until 2025.
While EB-5 investments aren't as popular as they were a few years ago, they are still a major source of funding for large-scale developments across the country. Concerns over changes to the program may cause developers to scale back their use of it as a way to raise money for new commercial real estate projects.