This visa program connected foreign investors to dozens of real estate projects. Is it doomed under Trump?
The Trump administration’s shifting policies on immigration and a variety of other concerns have prompted some to wonder what will become of EB-5.
The EB-5 program was created in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. The program allows foreign investors and their wives and unmarried children under 21 to obtain a green card and eventually become U.S. citizens in exchange for a $500,000 or $1 million investment in a commercial enterprise creating at least 10 jobs.
Locally, EB-5 investment dollars are being used for development of a mixed-use hotel/retail project in Pasadena, redevelopment of the Proper Hotel in downtown Los Angeles and for development of the Goleta Hilton Garden Inn near Santa Barbara Airport, among others.
SOME SAY EB-5 HAS STRAYED FROM MISSION
But despite its successes, EB-5 has generated controversy. And if Congress doesn’t reauthorize or temporarily extend the program it will wind down at the end of April.
The program is intended to spur investments in rural areas and regions with high unemployment. But some of the nation’s wealthiest areas have been inaccurately designated as having “high unemployment” so lower-level investors who bring in $500,000 can get a green card, according to U.S. Sen. Dianne Feinstein, D-Calif.
Feinstein recently partnered with Sen. Chuck Grassley, R-Iowa, to author legislation that would do away with EB-5.
“The EB-5 program is inherently flawed,” Feinstein said in a statement last month. “It says that U.S. citizenship is for sale. It is wrong to have a special pathway to citizenship for the wealthy while millions wait in line for visas.”
TRACKING INVESTMENT DOLLARS CAN BE TOUGH
Much of the EB-5 money that comes into the U.S. is funneled into regional EB-5 centers and then used to fund large projects. But therein lies the problem, according to Grassley.
Speaking recently before the House Judiciary Committee, Grassley said the program is “deeply flawed” and has strayed from its original intent.
“Jobs that are created are not direct and verifiable jobs,” he said. “They instead are indirect and based on vague estimates and economic modeling. A foreign national is allowed to count all jobs created by a project when obtaining a green card. And this is if EB-5 money is only a mere fraction of the total investment.”
Niels W. Frenzen, a professor of law at USC and director of the school’s immigration clinic, agreed that tracking EB-5 investment dollars has been difficult.
“They are investing in multi-investor projects like some of the big buildings that are going up in downtown L.A.,” he said. “Those are basically EB-5 investment pools. They are coming from developers or whoever is behind the development of the projects.”
Large projects like that, he said, make it tough to determine whether each investor actually sank at least $500,000 of their own money into the development and whether they each created at least 10 jobs.
WILL CHANGING POLICIES IMPACT THE PROGRAM?
Others are wondering how EB-5 will fare under President Trump’s move to curb immigration into the U.S. Figures from Invest in the USA, a national membership-based trade association for EB-5 regional centers, show a drop-off in the growth of foreign investment through EB-5 in 2016 compared with previous years.
In 2008 the program generated $321 million in foreign investment. The following year that nearly doubled, rising to $632.5 million. And it increased each year, up until 2016 when Trump was running for president and spoke in harsh words about immigration and economic competition from other countries.
Last year EB-5 centers helped facilitate $3.8 billion in foreign investment, down from $4.3 billion in 2015.
Still, Edward Mermelstein, a founding partner with RheemBell & Mermelstein LLP, a New York-based law and consulting firm that helps foreign investors direct their money into viable projects, wasn’t sure there was a Trump effect.
“The kinds of investors this program attracts are the type of immigrants we typically want in the U.S.,” he said. “We want someone who is fairly well educated and is able to support themselves when they arrive in the U.S., so I think EB-5 will survive.”
BOOSTING THE MINIMUM EB-5 INVESTMENT
The Department of Homeland Security is seeking to boost the minimum investment threshold for a green card through the EB-5 program from $500,000 to $1.35 million.
Angelique Brunner, who operates five EB-5 regional centers across the nation through her company, EB5 Capital, said that will effectively “shock the marketplace” and decimate the EB-5 program. In testimony during a recent House Judiciary hearing, Brunner explained her reasoning.
“The U.S. competes for investors with about 40 other countries,” she said. “Our ability to attract investors is already compromised because of our complex program requirements, visa capacity issues — with more than seven-year waits for some countries’ residents — and overwhelming processing backlogs.”
AREA PROJECTS THAT BENEFIT FROM EB-5
The EB5 Capital company helped funnel foreign investment dollars into the Proper Hotel, a 13-story commercial building in downtown Los Angeles that’s being converted into a luxury, boutique hotel. Representatives from The Kor Group, which is handling the renovation, could not be reached for comment regarding how big a role EB-5 funds have played in the project.
EB-5 dollars are also helping to fund expansion of a mixed-use development in Pasadena that includes the dusitD2 Constance Pasadena hotel. That project, which is being built by Singpoli, will eventually include a retail component and a parking garage, among other upgrades.
EB-5 funds for that project and others have come through the Invest LA Regional Center at 2 N. Lake Ave. in Pasadena. William Chu, Invest LA’s president, also serves as chief financial officer for Singpoli Capital Corp., a division of Singpoli.
Representatives with Singpoli also declined to discuss the EB-5 program.
EB-5 capital also helped to attract foreign investment money for construction of the Goleta Hilton Garden Inn, a new 142-room Hilton hotel with 4,500 square feet of indoor conference and meeting space, in downtown Goleta.
Additional hotel projects that will benefit from EB-5 money are planned in Agoura Hills and Temecula.
Despite the criticisms of the program, few would deny the program’s effectiveness in getting projects funded and built.
Brunner said EB-5 Capital manages more than $400 million of investment capital representing more than 20 projects in five states. The centers’ investments, she said, have anchored roughly $2.4 billion in development, creating more than 23,000 American jobs.
Frenzen also figures EB-5 will likely stay around.
“Based on his recent speech, President Trump talked about bringing people with skills and abilities to the U.S.,” he said. “So the EB-5 program might be safer than some of the family categories.”
- New York
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