EB-5 Visas Just Got More Expensive

NEW YORK CITY—New regulations published on Wednesday will impact the real estate industry raising the minimum investment amounts to be eligible for the EB-5 visa and limiting targeted employment areas (TEAs). Allison Berman, the managing director and general counsel of Greystone EB-5, highlights how the new rules will affect the real estate industry.

The EB-5 program allows foreign investors to obtain green cards by investing in US businesses that employ American workers.

When the rules came into play in 1990, they required a $1,000,000 investment creating 10 jobs. In a TEA, defined as having 150% of the national unemployment average, being a low employment area or a rural area, the rules required only a $500,000 investment and creating 10 jobs, explains Berman. But these amount have increased.

Now, on or after November 21, 2019, the EB-5 visa seeker will need to invest $1.8 million and create 10 jobs. For TEAs, the required investment amount has risen to $900,000, maintaining the same job creation threshold.

Plus, now every five years the minimum dollar amounts will be increased based on the consumer price index referencing the initial $1,000,000 criterion of 1990.

“It’s going to be a lot harder to raise EB-5 money,” says Berman. “It’s going to make the program a lot more expensive for potential investors.” She says previously EB-5 investors were often middle class people who wanted to get green cards, planning for their children to study in the US, then work, live and stay in the country.

The new regs also change the approvals of TEAs, which in the past state agencies handled. The EB-5 expert says, now the Department of Homeland Security is going to determine what’s an approved TEA and what’s not. Also, the program will no longer allow “snaking” contiguous tracts to qualify for TEA zones. “That’s how a lot of projects have been approved in New York City. They’ve been able to string one [area] after the next and to get investors at the lower $500,000 level,” she notes. This includes EB-5 funding at Hudson Yards and for Midtown buildings.

These changes will make things less certain with Homeland Security analyzing TEAs and less flexible than with the states, according to Berman. In addition, instead of the contiguous tracts, TEAs are going to require a “donut formation.” The tracts will have to actually touch the census tract where the project is located. “So you can go in a circle but you can’t snake them. It’s much more limited as to where those TEAs will be located,” she explains. In the past, people had argued for the tracts to follow the commuting lines that workers on the development were using.

Berman states one clarification in the new rules benefits investors regarding preservation of original priority dates in filing for green cards. There are strict limitations capping the numbers of visas. China, for example, has a backlog with waiting lines up to 16 years for green cards. If an investor had an initial petition approved but just say the regional center handling the EB-5 visa went bankrupt or the project experienced problems, absent any fraud, the original filing date can be preserved. This way the investor does not need to go to the back of the line.

“I think we are going to see a surge because if they’ve been sitting on the sidelines, everyone’s going to want to get in and get their application now before the rates jump up in 120 days,” she says.