By Mona Shah, Esq. and Rebecca Singh, Esq.
Memo to the EB-5 industry: Lobbying works!
This practice, judiciously applied by certain practitioners in the sector, elicited a legislative triumph that will ensure immigrant investors using the program will not be subject to restrictions prescribed by a law prohibiting ownership of Florida real estate by people domiciled in China. The law, S.B. 264, had been worrisome owing not only to the implied xenophobia informing the bill, but also to the possibility that this legislation could stymie current and future projects funded by thousands of petitioners from the country … as well as American applicants of Chinese ethnicity.
Thanks, however, to the efforts of the aforementioned lobbyists (represented by The Advocacy Partners, which helped usher this process), the impact on EB-5 will be nil—due to a carveout in the law that is specifically tailored to exempt EB-5 petitioners from the restrictions. Although the text does not impact the anti-China sentiment saturating this bill overall, immigrant investors, practitioners, regional centers, migration agents, and all other industry players can breathe a sigh of relief that Chinese and Chinese-American individuals infusing their Florida projects with equity will not find themselves shut out of the process or, even worse, potentially arrested or deported for their involvement.
Senate Bill 264 now applies to EB-5 investors who invested preferred or common equity in an EB-5 project.
S.B. 264, which went into effect July 1, would have applied to EB-5 petitioners who invested preferred or common equity in an EB-5 project, but the legislation would not apply to a loan model where there would be no ownership in real estate. A preliminary injunction was thereafter filed, and the U.S. District Court for the Northern District of Florida denied the motion—confirming that the Plaintiffs had standing to bring the action but that they failed to show a substantially likelihood of succeeding. That ruling has been appealed to the Fifth Circuit Court.
“We hope this exemption will be followed by other states should they go down the same path as FL with respect to limiting foreign ownership of certain real estate assets” —Gar Lippincott, Managing Partner at Atlantic American Partners
Reaction in the industry to this development has been sanguine. “We hope this exemption will be followed by other states should they go down the same path as FL with respect to limiting foreign ownership of certain real estate assets,” said Gar Lippincott, Managing Partner at Atlantic American Partners, a Florida-based private equity fund manager with a specialty in real estate. “I had also heard some rumblings about this in … Congress as well. Let’s hope not.” He added: “Florida is wide open for EB-5 investing, so the Dept. of Commerce was very willing to accommodate the exemption.”
Such accommodations have an especial provenance. Back in July, the Florida Legislature overwhelmingly approved S.B. 264, which provided in part for restrictions by certain domiciliary individuals from directly or indirectly owning an interest in Florida real estate. Intended to curb the reach of the People’s Republic of China and the Chinese Communist Party as part of DeSantis’ tough stance on the country, the law hones in on a group of nations (including the People’s Republic of China) that are each labeled a “foreign country of concern”; the others are the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro, and the Syrian Arab Republic.
Despite these litigative vicissitudes, the lobbyists’ efforts paid off—resulting in the Florida Department of Commerce publishing a proposed rule to specifically exclude from the legislation investors involved in an equity model. Clarification was provided to note that “foreign principal” has the meaning as defined in Section 692.201(4), F.S., stipulating that individuals approved by the federal government to participate in the EB-5 Program are excluded from this definition. As such, the proposed rule confirms the exemption for applicable EB-5 investors involved in an equity program and eliminates the requirement that only a loan model could be utilized.
Reasons Why This Result Is a Positive for the EB-5 Sector
There are various reasons why this result is a positive for the EB-5 sector. For one, Florida has been a haven for projects in EB-5-friendly sectors such as real estate, with scores of hotels, apartment buildings, and the like popping up in various stages of construction. According to U.S. Citizenship and Immigration Services (“USCIS”), Florida has 59 out of the 640 approved regional centers as of April 4, 2023—almost 10% of the total.
Additionally, a cessation of funding for such initiatives by Chinese investors would have been catastrophic for the industry, given the fact that these individuals have previously made up a significant portion of EB-5 participants. For example, out of a total of 10,885 EB-5-related visas issued by USCIS in fiscal-year 2022, the agency awarded 6,125 to immigrant investors from China. So the EB-5 space dodged a proverbial bullet.
Does that mean practitioners and investors can rest on their laurels? It is hopeful that the EB-5 carveout for real estate investment in Florida will serve as a template for other states that are considering the adoption of legislation similar to SB 264.
That, perhaps, is reason enough for industry players to give thanks—especially to its lobbyists—this fortunate holiday season.
Simon Butler contributed to this article.