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EB-5: How Immigration is Driving the American Real Estate Recovery

By John J. Slater III on April 11, 2013

When traditional sources of financing for real estate projects became more difficult to find in 2007 and 2008, some business owners and real estate developers turned to a new source of funding for their businesses and projects which, as it turns out, was not so new at all: foreign immigrant investors. The Immigrant Investor Program, or EB-5 Program, as it is widely known, has been around for over 20 years, but it is only in the past five years that the program has become a popular tool for real estate financing and a catalyst for the American real estate recovery.

The EB-5 Program was created by Congress in 1990 as a tool to propel the American economy out of recession and is administered by U.S. Citizenship and Immigration Services (USCIS). The EB-5 Program allows wealthy foreigners to obtain a green card and become a Conditional Permanent Resident of the United States if they invest a minimum of $500,000 in a qualified, for-profit U.S. business that creates or preserves at least 10 full-time jobs for two years. In turn, American businesses and workers benefit from an injection of new capital. This year alone, the program is expected to create 42,000 jobs at no cost to the American taxpayer and is anticipated to provide approximately $2.1 billion of foreign investment into the American economy when both jobs and investment dollars are desperately needed.

There are two basic investment options available to foreign EB-5 investor applicants. The applicant can invest directly on his own as an “individual investor” or he can invest through what is known as an “EB-5 Regional Center.” If the foreign investor elects to invest on his own, he must find a business opportunity on his own, such as one he can directly manage. This is an attractive option for investors who prefer to take an active role in managing their investments.

Alternatively, foreign investors can invest through a Regional Center, which is a specially designated form of public or private entity, created by Congress in 1992 to assist in the implementation of the EB-5 Program. These entities promote economic growth and job creation in specific geographic areas and act much like deal brokers who bring investors and target businesses together for a fee. 90-95% of all EB-5 visa investments are made through these Regional Centers which often coordinate multiple investment projects and visa applications at any one time.

Whether the investment is made individually or through a Regional Center, several requirements must be met in order for the investor to receive his green card.

Individuals must invest $1,000,000.00 (or $500,000 in a “Targeted Employment Area” defined as a high unemployment or rural area) creating or preserving at least ten jobs for U.S. workers, excluding the investor and his immediate family.

The investment must create or preserve at least ten full-time jobs for qualifying U.S. workers within two years (or in certain circumstances, a reasonable period of time beyond 2 years) of the investor’s admission to the U.S. as a Conditional Permanent Resident.  These ten jobs can be created either directly by the investment itself, or indirectly in the Targeted Employment Area as a result of the investment.  An example of indirect job creation could be those of a nearby restaurant that targets nearby business employees to frequent the restaurant for lunch.  But one does not need to be able to trace and identify the actual jobs indirectly created.  The USCIS will accept an economist’s opinion of job creation indirectly resulting from the investment based on statistical data for the Targeted Employment Area.

Mere preservation of ten existing jobs is also sufficient to meet the jobs requirement in cases where the investment is made in a “troubled business” in existence for at least two years which has incurred a net loss during 12 of the 24 months prior to the date of the investment.

To illustrate the extent to which the EB-5 Program has expanded in recent years: in 2007 there were 11 Regional Centers nationwide, today there are over 220. Similarly, in 2007 there were a total of 776 EB-5 Investor applicants nationwide. Today there are expected to be more than 3,500 applicants annually. While this represents a 350% increase in the number of applicants in just 5 years, there is still significant room for growth in the program. USCIS allocates 10,000 visas to the EB-5 program each year. To date, this quota has never been met in any calendar year. These underutilized visas represent a noteworthy opportunity for business owners and real estate developers.

An important downside to EB-5 is the time it takes to see the money.  The time between application and funding can be 6 to 12 months in some cases.  The time is needed for the Federal government to scrutinize the applicants to insure that their source of investment is not illicit and that the investor does not have a criminal past.  Not only does our government do due diligence on the investor, but so does the investor’s government.   This time period can be reduced, however, if a real estate developer wants to employ the capital before a visa is issued. But should the visa later be denied, the funds must be returned to the investor.  For this reason, some developers ask for more capital (i.e. more visas) than they actually need for their projects.  Another back up plan is to have available a line of credit.

In September 2012, President Obama signed into law a three year reauthorization of the EB-5 Program through September 30, 2015. If recent interest and past success is any indication of future results, Congress and the President would be well advised to make the EB-5 Visa program permanent, and perhaps even lower the minimum funding threshold for investment, to attract still more foreign investors to our shores to fuel a long overdue American economic recovery and an American real estate recovery.

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John J. Slater III

John J. Slater III is a partner in the firm’s Real Estate Department and Business Law Group. Read Bio