The new regulations take effect Nov. 21 unless challenged in court or Congress approves new legislation. 

U.S. Citizenship and Immigration Services, which issued an advance copy of the regulations Tuesday, oversees EB-5 in the Department of Homeland Security. The agency dialed back the bottom-rung minimum investments from a 2017 proposal that called for $1.35 million.

The new dollar amounts are based on the original 1992 levels indexed to inflation. An estimated $35 billion was raised under the program to create 350,000 jobs since 2010.

Some developers who use EB-5 financing foresee a short-term deluge of investments before the changes take effect as applicants seek to qualify with lower contributions.

A change that's more worrisome to program boosters is a tougher standard to land the targeted employment area designation, shrinking eligibility for the lower-tier category.

Power over the designations also will switch from states to the federal government, and program supporters fear a backlog after the change.

[falcon-embed src="embed_1"]

A targeted employment area is either rural based on a low population or it has over 20,000 people but an unemployment rate that's over 150% of the national average. The new rules keep the rural designation but make it more difficult to qualify under the unemployment rule.

“They felt that the program was not being utilized properly because you are building skyscrapers in New York,” said Ronald Fieldstone, a Saul Ewing partner in Miami.

The Related Cos. raised $600 million in EB-5 funds for its mixed-use Hudson Yards project, and the Four Seasons New York Downtown hotel raised $250 million.

Under existing rules, if a project location didn't meet the unemployment threshold, those seeking financing could add contiguous census tracts with higher unemployment until they meet the unemployment threshold, Kapuria said.

The new rules still allow other census tracts to be included but limit the number of tracts to about five and require all to border the project location.

“If I pick one census tract that's adjacent to me and then another one that's adjacent to it and I build this map that has 15 or 20 tracts, you can build out a much larger group of tracts” under current rules, Kapuria said.

Miami immigration attorney Jose Latour of Latour Law doesn't see the changes as bad news. Investment will keep flowing to where it's supposed to go — poor and rural areas.

“The rule radically reforms abuse by major developers, which have managed to steer virtually all EB-5 immigrant investor funds toward the development of ultra-luxury condominiums in America's wealthiest neighborhoods, diverting investments from the poor and rural areas for which they were intended,” Latour said by email.

Existing census tract aggregation amounted to gerrymandering to qualify “the wealthiest neighborhoods” for the lower-tier investment threshold, he said. The new rules will restore the integrity of the program.

Effects 

The change in the census tract methodology is worrisome to father-son development team Carlos Rodriguez Sr. and Carlos Rodriguez Jr., who lead Coral Gables-based Driftwood Acquisitions & Development.

The duo, which uses EB-5 funds to help finance new hotels, isn't as worried about the financial step increase. Rodriguez Sr. is more concerned that fewer projects will qualify.

“Now its going to be harder for projects to qualify for the $900,000 as opposed to $1.8 million,” he said.

Fieldstone expects a chilling effect on EB-5 applications with more investors required to hit the $1.8 million threshold.

“There's a cost of doing business,” he said. “That doesn't mean some people won't pay $1.8 million, but it's going to dramatically cut down the program. Why is it so popular? Because you are migrating a family for $500,000. That sounds good. $1.8 million will eliminate a lot of people.”

Immigrants could seek a visa in other countries with more favorable terms, he added.

History

The argument over whether funds were misdirected stretched on when Congress repeatedly extended the existing law without addressing issues raised by critics.

The rules are intended to push lawmakers to pass a new law that addresses both “the rural and urban factions,” Fieldstone said. ”The regulations are an effort to say, 'OK, now you are stuck with these new regulations and in four months you can legislate and fix them or you are stuck with the regulations indefinitely.' ”

In South Florida's booming real estate market, EB-5 is helping finance major projects, but some have landed in court with investors alleging fraud. Developers and financial recruiters have been accused of pocketing money and not creating the promised job-creating businesses.

To get a visa, investors must wait to determine whether an EB-5 project created the minimum number of new jobs.

One of the most notable alleged flops was at Vermont's Jay Peak ski area, which met the definition of a rural, economically challenged region. A federal indictment issued in May charged AnC Bio Vermont was supposed to raise $118 million for a biotech center and other new businesses in Newport, a town of just over 4,000.

On the flip side, Kapuria said, “ But for the money coming in, most of these jobs would not have been created and most of these developments would not have been done.”