EB-5 Visa Program Extension Likely Without Reform
The widely disputed visa program that grants green cards to foreigners who invest a minimum of $500K in U.S. developments in high-unemployment areas will likely be extended at the end of the week without reform.
Congress extended the EB-5 visa program in December through April 28, and experts say it is unlikely to be killed off — especially since the program created more than 35,000 jobs in 2015 alone, boosting the U.S. economy by $8.7B. One & Only Realty partner and international real estate attorney Edward Mermelstein said a lack of interest from the new administration may result in any major overhaul being placed on the back burner for a time.
“You’ve got a new administration with different interests than the prior administration. There’s typically a lot of haggling when new people come in trying to press their own agenda,” Mermelstein said. “The current administration comes from the real estate world. It’s unlikely that they would kill off a program that today is moving a substantial amount of development forward.”
Interest in the program remains strong. Chinese investors dominated more than 80% of EB-5 visa participants in 2015, and the new administration’s stringent immigration policies have made the program all the more appealing to investors from other countries. European, Middle Eastern, Turkish and even Canadian foreign nationals who have studied in the U.S. are all the more compelled to pursue permanent residency through this program as Trump’s immigration policy causes many immigrants to question their status here.
Controversy Remains
Despite the economic benefits, many call for a reworking of EB-5, criticizing the legislative policy for having too many loopholes that open doors to fraud. Proposed revisions include boosting the minimum investment requirement to upward of $1.3M, in addition to revising “targeted employment areas” to high unemployment or rural areas where investment is concentrated. But few steps have been taken by Congress to implement change.
Mermelstein said the industry has lost sight of the program’s overarching goal.
“The intended purpose of the program has changed from what it was originally … which was creating jobs in underserved and underprivileged areas,” Mermelstein said. “All of sudden it’s changed to a financing vehicle that at the same time is creating jobs, but not necessarily in underserved areas where the potential disconnect is.”
Those reaping the greatest benefit tend to be high-end developers using the investment as an alternative funding option to fill the void left by traditional lenders, Mermelstein said.
EB-5 funding is behind some of the country’s biggest projects in gateway markets, such as Related Cos.’ Hudson Yards and Forest City Ratner's Atlantic Yards/Pacific Park in New York, The Wharf in Washington, DC, and Paramount Miami Worldcenter in Miami.
Combating investor fraud and the scamming of foreign nationals is also a big concern. There have been several instances of fraudulent business activity where fake businesses and developers will market themselves as EB-5 qualifying investment opportunities to gain access to investor funds. Peter Fuhrman, CEO of Chinese investment bank China First Capital, said these scams remain a growing concern for Chinese regulators.
"EB-5 has its detractors also in China. It has come under increasing criticism, with Chinese media reports emphasizing the few instances where Chinese investors were defrauded,” Fuhrman said. “But, there's a lot of pent-up demand by Chinese individuals to participate in EB-5. If the program gets a new lease on life from Congress, I expect Chinese interest to remain high."
