The impact of changes to the EB-5 program on commercial real estate investment in South Florida and beyond
For developers, one of the keys to seeing a proposed project completed is sufficient capital. At the same time, investors are looking for the right projects with the best potential returns on their investments—wherever those investors are from. Enter the Immigrant Investor Program or EB-5.
A brief history of EB-5
Created by Congress in 1990, the program was designed as an incentive for foreign investors to help stimulate the US economy through capital investments and job creation in exchange for green cards and eventual US citizenship. In its early years, the program was practically dormant. But during the Great Recession, when banks were reluctant to approve construction loans, EB-5 was able to help fill that void.
Mixing immigration with money, it’s no wonder the EB-5 has, over the decades, seen its share of criticism. While some have seen this as a green-card-for-cash initiative that favors wealthy investors, others view it as a highly beneficial job (at least 10 jobs per project) and investment program that’s good for the US economy.
Changes to EB-5
Nevertheless, the Obama and Trump administrations have each taken a very critical look at EB-5, with each making its own set of recommendations and changes. In July 2019, the Department of Homeland Security (DHS), which oversees the program, released its latest rules:
- At the core of EB-5 are targeted employment areas (TEAs), which are determined by unemployment rates. For TEA investments (high unemployment), the minimum investment is $900,000, up from $500,000. For the non-TEA projects, the minimum investment amount is $1.8 million, up from $1 million. While these increases were made to account for inflation, the higher minimum amounts may shrink the pool of potential foreign investors.
- The Office of US Citizenship and Immigration Services and DHS will now designate TEA areas. In the past, this was left up to the individual states. While some projects may no longer qualify as being located in a high-unemployment area, the change is meant to stimulate job growth in the newly defined and targeted areas.
- When an immigrant investor files an EB-5 petition, he or she receives a priority date, which is the date the USCIS receives that petition. In essence, this is the investor’s place in the green-card line. In the past, the immigrant would receive a new priority date each time a new EB-5 petition was filed. With the current change, investors can retain their first priority date.
- The final regulation is designed to clarify the technical and procedural issues as the immigrant investor files an I-829 petition, which must be submitted within 90 days preceding the second anniversary of when he or she received conditional resident status. Additionally, the regulation clarifies which family members can be included in the principal investor’s petition and who must file independently. The change is meant to bring the EB-5 green card process in line with the current USCIS green card process.
EB-5 advice for developers and investors
Very often, EB-5 is considered an immigration program—but that doesn’t even begin to scratch the surface. It is, in fact, so much more than that and it’s constantly evolving. As a result, developers and investors have to be aware of the changes and be willing to adapt to them.
- EB-5 is actually a security. And as a result, it is heavily regulated and full of financial complexities.
- EB-5 is often thought of as a means to acquire quick funds for a project when it’s really a slow-money concept. As a result, not all projects are suitable for EB-5 investment.
- While the EB-5 interest rates are low, they are rising. In addition, foreign governments have their own regulations and fees when monies are transferred across borders.
- As part of the investor’s due diligence process, they will require a developer’s strong history of completing other EB-5 projects and possibly request tours of those sites.
- Because of political and economic turmoil, Latin America has surpassed China in EB-5 demand. At the same time, gateway cities, such as New York, Los Angeles, and Miami, continue to be attractive locations for EB-5 interest.
It’s important for all parties to work with a team skilled in the nuances of EB-5. Morris Southeast Group is one such group. And because of our reputation in South Florida, we are especially skilled at building the EB-5 bridge between Latin America and the SoFlo region.
To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: EB-5 advice for developers and investors, EB-5 Immigrant Investor Program, EB-5 program, New rules for developers and investors
