The US’ EB-5 investor visa program is set to expire on September 30th this year, and while it is expected to be renewed, the new version of the popular pathway to US residency (and source of investment funds) is due for some significant changes.
A bi-partisan bill, sponsored by Senators Charles Grassley (R-Iowa) and Patrick Leahy (D-Vermont) is expected to make its way through the US Congress in time to keep the program running. However, the new law would raise minimum investment levels by as much as 60 percent, and impose tougher restrictions on US companies seeking to qualify their projects for EB-5 funds.
The changes to the investor visa have brought some complaints from companies in the US who have benefitted from the program who worry that the revisions will hurt the country’s competitiveness as an investment destination, and stunt the program’s growth. The quota for 2015’s allotment of 10,000 investor visa was exhausted before May this year due to the program’s overwhelming popularity.
In China the program has been particularly well-received with Chinese wealthy individuals looking for US residency accounting for 90 percent of EB-5 visas issued last year, according to official figures.
Some US Businesses See Benefits in New Requirements
The major changes in the new law for property investors seeking to raise funds are the hike in minimum investment levels, and the change in requirements for certifying regional centres – the geographically based organisations that are qualified to offer investors lower investment thresholds in return for bringing capital into low employment areas.
The Grassley-Leahy bill would boost the minimum investment levels through regional centres from $500,000 to $800,000. For projects based outside of what the program defines as “troubled employment areas” the minimum investment level would rise from $1 million to $1.2 million under the proposed statute.
To ensure that the EB-5 investments help to create jobs where they are needed in the US, the act includes requirements aimed at preventing the gerrymandering of locations qualifying as “troubled employment areas.” The legislation also includes a number of other new stipulations, such as requirements that at least 10 percent of the jobs proposed to be created by EB-5 projects be with the project itself, rather than being created indirectly
Some US businesses that have benefitted from the existing EB-5 program have protested the new statute, but not everyone sees it that way.
“From a regional center point of view, raising the minimum investment from $500,000 to $800,000 is actually a positive,” said Scott Barrack, China Director with the Hollywood International Regional Center. “It may reduce the total number of applicants but we think the total capital raised will increase.”
Barrack’s firm, which is developing three hotels in Los Angeles with the help of EB-5 funds, has already already raised $100 million in the last 18 months through the investor visa program, and is targetting another $30 million before the end of 2015.
As for the stricter rules on what locations qualify for lower investment level, Barrack sees this as a positive development as well.
“The new rules mean that projects in downtown Manhattan or Beverly Hills would no longer qualify as troubled employment areas, and would have to require potential investors to put in $1 million to 1.2 million,” Barrack commented.
The entrepreneur, who says his firm’s projects have targetted areas with high unemployment, sees the Grassley-Leahy bill as leveling the playing field. “The new rules may knock a lot of these other projects (those that would no longer qualify as troubled employment areas) out of the market and help bring capital to the areas that really need development, instead of pulling the capital to high-income areas that would already be able to readily source funds domestically,” Barrack added.
US Investor Visa Program Has Proven Too Popular
Demand for EB-5 visas has been growing rapidly in recent years, with 2014 being the first time that the program exhausted its supply of visas. In the 2014 fiscal year would-be investors filed 10,928 EB-5 applications – up from just 6,346 in 2013, and in 2008 there were just 1,258 applications.
The popularity of the program, and the healthy sums of low-cost capital that it produces, have led to EB-5 investors becoming an important source of funds for many real estate projects in the US. The 111 Murray Street project being built by US developers Witkoff, Fisher Bros, and Howard Lorber is said to have raised $175 million in mezzanine financing through the EB-5 program and the investor visa scheme has been used by a number of other projects in New York and cities across the US.
Although the US investor visa program is more expensive than some other such offerings in Europe or in developing nations, the minimum investment level for those seeking migration to the US is still much lower than in some other countries.
Even if the new bill pushes the minimum investment level from $500,000 to $800,000, that number is still far below the equivalent program requirements in Australia which call for an A$5 million ($3.73 million) investment.
Canada recently reintroduced its investor visa program with a minimum investment requirement of C$1 million ($788,000) and a cap of 50 visas per year, after a previous program mandating only that applicants only purchase a C$1 million bond was scrapped due to excessive demand and criticism that it sold residency too cheaply.