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Developers Rush to Apply for Investor Visa Program Ahead of Looming December Expiration

Final Deadline Approaching for Popular-but-Controversial Program Trading 'Foreign Visas for Investment Dollars'
November 11, 2015
High-profile commercial real estate projects utilizing the U.S. Immigrant Investor Program, better known as the EB-5 visa program, continue to enter the development pipeline, an increasingly lucrative source of funds for developers as foreign capital seeks shelter in U.S. real estate even as critics pursue vigorous political efforts to reform or abolish it.

Under the program, business and investment sponsors apply to U.S. Citizenship and Immigration Services (USCIS) to be designated as "regional centers" under EB-5 rules offering investment opportunities in new commercial enterprises.

The program has increasingly drawn the attention of the largest and most active residential, hotel and office developers in the nation -- including Related Cos, which is using the program to finance part of its $20 billion Hudson Yards project west of Midtown Manhattan. Other big names, such as Extell Development and Silverstein Properties, have joined the EB-5 field, particularly in New York City, home to 75 EB-5 regional centers.

On Sept. 30, Congress passed a last-minute appropriations bill to fund government operations for six more weeks, including the EB-5 program, which allows foreign nationals to obtain green cards in exchange for investing in U.S. job-creating ventures. The program is now set to expire on Dec. 11.

As of Nov. 2, 2015, USCIS had approved 761 regional centers in the U.S., with more being added every month. The contribution of EB-5 project funding to overall direct foreign investment in the U.S., which stood at less than $200 million annually in the early 1990s, spiked sharply from about $633 million in 2009 to $2.56 billion in 2014, according to IIUSA Marketplace, an EB-5 market exchange and advocacy group.

Congress adopted EB-5 in 1992 as a pilot program to stimulate investment and job growth, but it languished for years due to lack of awareness and what the Government Accountability Office in 2005 called "an onerous application process," along with lengthy waiting periods for foreign investors trying to obtain visas.

Once again trying to promote economic stimulus following a recession, the USCIS began tweeking the program in 2011 to increase participation. By the end of the year, more than 3,800 EB-5 applications were filed, compared with just 800 in 2007. The program has continued to rise in popularity, led by demand from Chinese nationals hoping to invest in U.S. projects.

This week, a group of Chinese investors, China City Construction Holding Group and American Da Tang Group, announced they will seek up to $350 million in EB-5 funds for the $875 million construction of CCCC Miami Towers, a mixed-use development in the Brickell District of Miami.

In New York, City Connections Realty recently became the first residential real estate brokerage to secure approval to open an EB-5 regional center, enabling it to fund development projects in New York, New Jersey, Connecticut and Pennsylvania.

Florida East Coast Realty, developer of the 83-floor Panorama Tower now under construction in Miami's Brickell area, announced late last month that it plans to begin accepting applications for EB-5 funds -- although it will now seek only about one-third of the $160 million originally proposed for the $800 million tower.

Congressional leaders are working to draft reform legislation to extend and make changes to the program before it expires. EB-5 reform legislation has been sponsored in the Senate by Judiciary Committee Chair Charles Grassley (R-IA) and ranking member Patrick Leahy (D-VT), along with other proposals by Sen. Jeff Flake (R-AZ), and Rand Paul (R-KY).

The development and commercial real estate industry's main lobbyist in Washington, The Real Estate Roundtable, along with the EB-5 Investment Coalition and U.S. Chamber of Commerce, are urging Congress to reauthorize and reform the program without delay, supporting seven compromise measures proposed in the bills by Grassley, Leahy and others.

"In our estimation, these seven significant and achievable EB-5 reform elements are the best prospects for a compromise package before regional centers expire," the Roundtable said in a letter to leaders in Congress last week.

The Roundtable noted that the program generated $5.2 billion over the eight-year period spanning 2005-2013, with $1.6 billion in investments raised in 2013 alone. The program has the potential to generate 31,000 jobs based on minimum program requirements, advocates say.

The program, however, has been plagued with controversies involving investor and securities fraud. Critics have also raised concerns about national security, citing lax and inconsistent screening of applicants; and complained about abuses that permit large developers to benefit from program provisions designed to provide jobs in areas with high unemployment.

The changes proposed for the EB-5 program are aimed at assuaging opponents and skeptics who have a powerful ally in Sen. Dianne Feinstein, (D-CA). In a Nov. 4 op-ed article in Roll Call, a publication covering Congress, Feinstein said the program is prone to abuse and "deeply unfair" to foreign nationals seeking employment visas and others who are unable to "buy their way" into the country. Feinstein called for Congress to let the EB-5 program expire on Dec. 11.

"Simply put, EB-5 sends a terrible message to the millions of immigrants patiently waiting their turn to enter the United States legally to be reunited with their families or for legitimate employment," Feinstein writes.
"It says that American citizenship is for sale, and that’s not what our country stands for."

Under EB-5, foreign nationals, their spouses and unmarried children under age 21 are eligible to apply for green cards in exchange for investing in a new real estate project or other U.S. commercial enterprise that creates or preserves at least 10 full-time jobs.

The minimum investment amount is currently $1 million, or $500,000 if the project is located in a so-called "targeted employment area" (TEA), or within a rural area with an unemployment rate of at least 150% of the national jobless rate.

The TEAs, intended in the original program assist rural or other areas with higher unemployment, are one of the heated areas of contention for large developers. Rural and suburban areas complain that the current rules encourage large developers to "gerrymander," or draw special project boundaries around certain neighborhoods in otherwise prosperous urban areas to meet the "high unemployment" definition, allowing the regional centers to raise money from investors at the lower threshold.

Compromise legislation would expand the TEAs to include low-population communities that are rural in character but still located inside Census designated metropolitan areas, and add shuttered military bases. The bills would also raise of the minimum investment amount to $800,000 for projects within TEAs and $1.2 million for non-TEA projects.

Interest in the program has ramped up as developers face the prospect of it going away. In the mad scramble to file regional center exemplars, or pre-approval applications, before the original Sept. 30, 2015 deadline, 50 projects entered the pipeline in a three-month span, with an aggregate offering value of up to $4 billion, according to Ronald Fieldstone, a partner and EB-5 specialist in Arnstein & Lehr's Miami office.

Filing the exemplars may increase the chances of a project being "grandfathered" into the reformed bill, as well as get applicants in the queue for Immigration Services processing earlier, potentially allowing projects to come to the market sooner, Fieldstone said.

"Given the situation in China in particular, there still seems to be a very active market for investors to gain access to the EB-5 program, notwithstanding [the Chinese visa backlog], the fall in the Chinese stock market, currency devaluations and the like," Fieldstone said. "It will be interesting to see how the new legislation shakes out and what effect it will have on deal structuring, especially given anticipated changes to the targeted employment area minimum increase as well as grandfathering provisions."

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