EB-5 Financing Matters: 5 Things The Wall Street Journal Did Not Mention about Real Estate Finance and the EB-5 Program
The Wall Street Journal recently published two articles about the EB-5 Regional Center Program: a blog entry and a front page editorial-like review of the program. Both articles highlight gerrymandering of targeted employment areas, purported use of the EB-5 Program as cheap financing, lobbying and special interests, and abuses of the Program. This picture is both incomplete and cluttered. The EB-5 Regional Center Program brings millions of dollars of foreign investment into the US. The Program’s positive attributes counterbalance its challenges.
Let’s set the EB-5 record straight
The EB-5 Regional Center Program is good for the US economy.
Here are five points that were overlooked and that give a more robust view of the EB-5 Program:
1. The EB-5 Regional Center Program creates jobs for US workers.
According to Invest in the USA (IIUSA), the leading trade association and EB-5 think tank, the economic impact of the EB-5 Program is far-reaching. Specifically, funds invested in EB-5 projects supported 41,271 jobs for US workers in 2013 alone.
2. Regional Centers and developers that issue EB-5 investments are subject to securities laws.
EB-5 investments made in connection with the EB-5 Regional Center Program are securities. Investors are entitled to statutory anti-fraud protections, and issuers of EB-5 securities have substantial obligations and legal requirements to fulfill. We have a strong securities law infrastructure in place to continue to make the Program work as intended by Congress.
3. EB-5 investors place their investment funds at-risk and do so with no guarantee of a green card.
The EB-5 Program requires investors to make at-risk investments that are job-creating as a condition of permanent residence. This means that every EB-5 investor channeling funds into an investment is guaranteed neither the return of his or her capital or a green card. If the investment fails and jobs are not created as planned, an investor may be unable to secure a green card.
4. Foreign investment in the US is vital to our economy and good for our communities.
The US economy needs foreign investment. The Regional Center Program is one path for foreign capital into the US. The Program is overall positive, facilitating job growth in rural states such as Vermont and enabling the construction of affordable housing in urban areas. IIUSA correctly calls the EB-5 Program an engine for economic growth.
5. EB-5 investors seeking green cards are subject to intense scrutiny by the US government.
US regulators and agencies are more aware of and involved with the EB-5 Program than ever before. We have banking, immigration and securities law regulatory frameworks that, when coordinated, can work together to ensure that all parties in an EB-5 transaction are compliant with US law. We don’t need any agency reorganizations to manage what is a relatively small investment program that the SEC and USCIS are already overseeing.
The 10,000 annual numerical limitations on EB-5 visas should be increased
In the broader context of our immigration system, the EB-5 Program is one of many avenues to a green card, and Congress should renew the Program or even make it permanent. The positive aspects of EB-5 outweigh the problems. We have regulatory resources in place to manage issues that arise. Congress should focus on continuity of the Program so that developers and other businesses relying on EB-5 financing have certainty. And Congress should also raise the numerical limitation on investors. Why?
The EB-5 Program’s allocation of 10,000 visas for each year is actually modest when viewed in the broader context of US immigration laws. This numerical limit of 10,000 is eclipsed by leaps and bounds by our Diversity Immigrant Visa Program (known as the “Visa Lottery”), which makes up to 50,000 visas available by lottery to individuals who are from countries with lower immigration rates to the United States.
Conclusion: EB-5 Financing Matters
A strong Immigrant Investor Program keeps the United States competitive with other countries that encourage immigration through investment. The Program creates jobs, offers investors the protection of our securities laws, requires a commitment that investors place funds at-risk in real projects that may or may not succeed, benefits the US overall and is overseen on many levels by various government agencies. Simply put, the Program is a win-win.
There is no question about the EB-5 industry needing to mature. More resources need to be committed to federal agencies to curb abuses in private offerings in general, EB-5 offerings included. But Congress slamming the door on potential immigrants and future US taxpayers wanting to invest in the US is something that should concern all of us. Any changes to the Program should be introduced with a clear intention to continue the Program, and to make the Program accessible to US businesses seeking EB-5 capital.
EB-5 Financing Matters: The EB-5 Regional Center Program is still relatively new, having been created in the early 1990s. We have not yet seen the potential of the EB-5 Regional Center Program to impact key areas of national interest that are in need of equity funding such as Clean Technology. Alongside reasonable changes to the Program, Congress should consider incentives for specific industries to seek capital through EB-5 financing.