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MIAMI—Created in 1990, the EB-5 program allows international investors to fund job-creating projects in exchange for green cards and subsequently, citizenship for themselves and their family members. Minimum investment is $1 million with $500,000 being accepted in some high-unemployment areas.
With fraud plaguing a good amount of EB-5 deals, a new USCIS rule is going into effect Nov 21. Two aspects of the rule will impact developers.
- Minimum investment amounts are raised from $1M to $1.8M or in the case of a targeted employment area (TEA), $500K to $900K. Every five years, these minimum investment amounts will also automatically adjust up.
- Rather than state agencies, the Department of Homeland Security, will designate the TEAs – those geographic locales where only half of the normal investment amount will be accepted.
"We have definitely seen a rush to submit petitions before the November 21st deadline. In our case, in the last 2 months, five times the regular amount of investors have closed in one of our deals," observes Alejandro Navia, Managing Director, Investment Sales, Driftwood Acquisitions & Development, LP. Navia is a Miami-based hotel developer who has completed five EB-5 hotel developments and who currently has two underway in Tempe, AZ, and in Melbourne, FL.
"To us the biggest issue is the new TEA designation rules. Many of our development sites do not fall in the TEA zone according to the new rules. This will slow down our speed of how fast we can develop new hotels due to funding availability," explains Navia. "The biggest issue is not the rise of the minimum required investment. In our case, we deal with Latin American and European investors who have the motivation and financial resources to invest at the $900K level in order to get a green card for themselves and their families."
TEA Zones
The TEA designations were executed so that EB-5 funding goes to high unemployment areas, but that does not mean the projects would be quality profitable developments. As a matter of fact, it is likely that both investors and developers would be running a big risk. Having said that, there are opportunities for successful projects in TEA zones, but those are very scarce.
"Ironically, this also affects our ability to create new jobs, which is the whole point of the EB-5 program," says Navia.
Non-TEA Zones
"The non-TEA zone new minimum investment of $1.8 million is completely out of market," says Navia. " "Not many investors are willing to pay that kind of money."
Looking Ahead
Navia believes the new regulations are going to decrease the amount of investors.
"We are hoping for new legislation that would be significantly better than the new regulations that take effect November 21st. That new legislation should provide for lower investment amounts for non-TEA zoned projects and some resolution for the backlog and adjudication wait times which can take 2 to 3 years for the approval and in cases of countries like China, up to 15 years to get the green card."
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