Waste and abuse in the EB-5 immigrant investment program
As the world grows smaller, foreign capital continues to emerge as a viable option for U.S. real estate developers. The EB-5 Immigrant Investment program is a popular category among this foreign direct investment flowing into the U.S. real estate market. Although the original EB-5 Program was established by the Immigration Act of 1990, the program initially failed to gain popularity until early this century. The program’s usage skyrocketed during the great recession due to the lack of financing options available as a result of commercial lending restraints. For the first time in its 25 year history, the 10,000 immigrant investor limit achieved full capacity in 2015 Approximately 85-90 percent of these 10,000 individuals and their families originate from the People’s Republic of China. While federal regulations allow for 10,000 EB-5 immigrants per year, the EB-5 investors’ eligible family members count against the EB-5 limit. Assuming the average immigrant family from China consists of three individuals, this translates into only about 3,000 places available per year for EB-5 immigrant investments.
The EB-5 Immigrant Investor Program allows foreign individuals to invest a minimum of $500,000 or $1,000,000 (depending on the location of the project) in U.S. projects that creates at least 10 EB-5 qualified jobs per investor and these jobs must exist for at least two years. U.S. real estate developers receive affordable and available capital for their projects, and in return, qualified EB-5 immigrant investors obtain green cards for themselves, their spouses, and eligible children.
Originally, at the program’s inception in 1990, the intention was that each investor must create at least 10 real, full-time jobs for U.S. citizens and/or permanent residents that were at least 35 hours a week at or above the minimum wage level. However, in 1992, the EB-5 Immigrant Investor Pilot Program was enacted in an attempt to stimulate the program with increased investment participation. Just as the title of this new law inferred, it was passed as a “Pilot” or temporary tactic. Under this new approach, indirect jobs could be credited as part of the 10 required full-time jobs if the potential immigrant invested through an EB-5 Regional Center.
An EB-5 Regional Center is a private entity approved and overseen by United States Citizenship and Immigration Services (USCIS) that is eligible to receive immigrant investor capital within a designated geographic area. Under the Regional Center model, developers obtain third-party economic reports that are presented to USCIS to justify consequential economic impacts of projects in the form of indirect job creation. Indirect job creation is calculated through complex equations and in any many cases, hocus pocus economic theorems. For instance, a multi-family real estate development project located in an American urban market may use EB-5 capital to finance $35 million of its $100 million total development costs. This project may only produce 10 real, full-time jobs such as leasing agents, security personnel, maintenance workers, and administrative employees. Hence, the project under the original 1990 EB-5 regulations would only be eligible for $500,000 in EB-5 capital. However, in the present day of EB-5 utilizing the Regional Center model, the developer may present a lengthy and dizzying economic reports to USCIS stating that his development actual creates 700 indirect jobs. Therefore, the project is now eligible to receive up to $35M in EB-5 affordable capital.
The Regional Center model comprised of the indirect job creation ploy is set to expire on September 30th, 2015. The U.S. Congress is struggling to wrap their heads around the Regional Center program in order to assess its potential future within EB-5. In 1992, when the EB-5 Regional Center Pilot Program was first introduced, less than 1,000 individuals per year showed significant interest in the EB-5 program. Due to this lack of investor participation, it made sense to modify the employment threshold for each EB-5 investor to allow indirect job creation. Congress thus allowed the establishment of Regional Centers, and the counting of indirect jobs to qualify for a green card. However, since 1992, the EB5 program has experienced dramatic change. Currently, there are an estimated 14,000 investors in the queue, which is enough to take up the investor quota for many years.
The EB-5 program has matured beyond expectations and is at maximum capacity. Therefore, it now makes economic sense to return EB-5 back to its original intent by requiring each immigrant investor to hire 10 employees and creating 10 real, American jobs instead of obtaining illusory job credit via economic impact studies. There are dozens of qualified, professional projects across America ready to accept foreign investment and create 10 real U.S. jobs per EB-5 investor. Allowing the Regional Center model and its inherent indirect job creation method to expire on September 30th would be the true patriotic action. The U.S. economy would not only benefit from the EB-5 program’s supply of affordable and available foreign capital, but also through the creation of tens of thousands of real, full-time jobs across the United States.
- New York
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