On Dec. 15, as part of the omnibus spending bill, Congress extended the EB-5 program—which essentially grants visas to foreigners in exchange for a sizable investment stateside—without any changes until Sept. 30 of next year.
The extension marked a turning point after discussions of the issue in Washington, with lawmakers such as Sen. Chuck Grassley (R-Iowa) eager to reform the EB-5 (Employment-Based, Fifth-Preference Category) program following concerns about national security and fraud allegations.
Despite Congress essentially kicking the can down the road regarding the program’s extension, the move has given much-needed stability to projects that depend on EB-5 as a source of capital, said attorney Rogelio Carrasquillo, a partner at New York City-based law firm Fox Rothschild LLP.
Moreover, the program’s proposed changes, although due for discussion next year, are nevertheless unlikely to affect EB-5 projects in Puerto Rico, Carrasquillo said. Partly as a result, he expects an increase in EB-5 applications on the island during the first quarter of next year.
The commonwealth has increasingly relied on EB-5 as a source of funding for capital-improvement projects amid an economically and fiscally turbulent environment. To that end, various EB-5 regional centers have been established on the island to help manage investments and spur development of projects related to the program.
There are about 800 EB-5 regional centers nationwide and at least seven in Puerto Rico. One of the local centers, run by the Economic Development & Commerce Department, is among the few public regional centers in the U.S., joining similar ones in Vermont, Michigan and the city of Miami.
Several tourism related projects reportedly being developed in Puerto Rico using EB-5 funding include a Marriott hotel at the Mall of San Juan, a $30 billion redevelopment of the former Roosevelt Roads Naval Station in Ceiba, a transshipment port in Ponce and construction of Science City, a re-search & development facility at the former Oso Blanco prison in San Juan’s Río Piedras district.
“Now that there’s some stability in the program, and we know the rules of the game in the medium term, we’ll see movement on some projects that the Puerto Rico regional centers were looking at,” Carrasquillo noted. “We’ll see a lot of projects in advanced stages filing for EB-5 soon.”
One of the issues that Congress has discussed about EB-5 involves the designation of Tar-get Employment Areas (TEAs). Investing in projects located in TEAs allows foreign nationals to spend less in exchange for a green card, with a minimum investment of $500,000 under the EB-5 program compared to a minimum of $1 million anywhere else.
The U.S. Immigration & Customs Service (USICS), which runs EB-5, defines TEA as either a rural or an urban area with an unemployment rate of more than 150% the national average. State governments such as California came up with stricter definitions of TEA in an attempt to close loopholes, and some lawmakers sought to expand the measure nationwide.
However, even with more stringent TEA definitions, Carrasquillo said Puerto Rico wouldn’t be affected by the change. “Unfortunately, the is-land has a very high unemployment rate,” said the EB-5 expert, who recently joined Fox Rothschild after a lengthy stint at Ackerman LLP.
Puerto Rico’s unemployment rate hovered at 12.5% in November, per the local Department of Labor. This is more than double the U.S. national unemployment average, which re-mains at 5%, according to the U.S. Bureau of Labor Statistics.
Another proposed amendment—which would have increased minimal investment in TEAs from $500,000 to $800,000—could have had a more lasting effect on Puerto Rico and other U.S. jurisdictions. “It would have made it more difficult to raise projects,” Carrasquillo explained. “There were also problems in the way the bill was drafted be-cause it didn’t establish any kind of transition for the process; the hike in minimum investment would have taken place overnight.”
Each year, the USICS issues 10,000 visas under the EB-5 program, which is a limit that has remained unchanged. “We’ve lobbied to increase or relax the concept of defining what constitutes an investor under EB-5,” the Fox Rothschild partner explained. “For example, if an investor brings a wife and two children, those are four visas against a 10,000 limit [overall]. Lobbying for that per-son qualifies as one visa against 10,000, so we can increase the number of investors.”
About 85% of the investors taking advantage of EB-5 are Chinese, the attorney said. “Now there’s been a refocus due to immigration is-sues and the fact that China maximized its quota of visas,” he went on. “There’s now an in-crease from Latin America, Europe and other areas, and that gives Puerto Rico an advantage partly due to its geographical and cultural proximity to those regions.”