When you think about construction and immigration it’s usually about undocumented workers and the underground economy, at least here in California and other border states. But a recent article I read wasn’t about poor, illegal aliens being paid under the table, but rather, about wealthy foreign nationals investing in real estate projects in exchange for a green card.
“Give me Your Tired, Your Poor, Your Huddled Masses Yearning to Breathe Free . . .”
Immigration has always been a hotly debated topic here in the United States. And, contrary to the Emma Lazarus sonet most famously associated with the Statute of Liberty, immigration has always been a socio-economic and political issue, from my family’s immigration from Japan in the late 1890s, to political refugees from Vietnam in the 1970s, to the government’s efforts to counter the brain drain of the 2000s.
More recently, developers have begun to realize that the lure of the coveted green card and a relatively obscure federal program that offers U.S. citizenship to foreigners who invest at least $500,000 in a U.S business that creates 10 local jobs could be used as an alternative means of project finance.
The EB-5 Program
During the recession of the early 1990s, Congress enacted the Immigration Act of 1990 which created the EB-5 Immigrant Investor Program administered by the U.S. Citizenship and Immigrant Services Agency (“USCIS”).
Under the program, 10,000 EB-5 visas are allocated to foreign investors investing at least $1 million in a “new commercial enterprise” or at least $500,000 in a new commercial enterprise in a “Targeted Employment Area” which is either a high unemployment area with an unemployment rate at least 150% of the national average or rural area.
A “new commercial enterprise” is a commercial enterprise established after November 29, 1990 or a commercial enterprise established on or before November 29, 1990 which is either: (1) restructured or reorganized such that a new commercial enterprise results; or (2) the foreign investment results in a 40% increase in the net worth or number of employees.
In addition, the EB-5 investor must demonstrate that their investment will create or preserve at least 10 jobs for qualified U.S. workers in the United States.
The EB-5 Pilot Program
Under a pilot program established in 1992, an EB-5 visa can also be obtained by investing at least $1 million through a Regional Center designated by the USCIS or at least $500,000 through a Regional Center in a high unemployment area or rural area designated by the USCIS. Under the pilot program, foreign investments are subject to less restrictive job creation requirements based on the creation of “indirect” or “direct” jobs.
“Direct jobs” are actual identifiable jobs for qualified employees located within the commercial enterprise affiliated with a Regional Center. “Indirect jobs” are jobs shown to have been created collaterally or as a result of capital invested in a commercial enterprise affiliated with a Regional Center.
EB-5’s and Project Financing
Interest in the EB-5 program has skyrocketed. In 2008, only 642 EB-5 visas were issued. Compare this with 2014, when by August of this year, the annually allotted 10,000 visas had been exhausted.
For developers, the EB-5 program has been used to finance large-scale projects more cheaply than through conventional bank loans since the goal of an “EB-5 investor,” as the USCIS refers to them, is a green card and less so a gain on their investment. This lack of mutuality in economic objectives, however, has led to allegations of fraud and abuse in the program.
Nonetheless, through the program, EB-5 investors have helped finance high-profile projects throughout the United States, including the revitalization of Seattle’s SoDo district, military base reuse projects in California and Philadelphia, and New York City’s ambitious Hudson Yard development project.
Citizenship for cash, anyone?