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EB-5 Investment Program Continues to Gain Momentum

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The EB-5 immigrant investment program has had a rocky road to recovery since Congress resurrected the program about 18 months ago, but industry players are optimistic about the outlook, due to pent-up demand from international investors and developers looking for alternative sources of financing in a capital-constrained market.

EB-5 is an incentive program for foreign investment in the United States in exchange for green cards for capital. Its proponents have long touted it as a key economic stimulus tool for economic development and job creation. The program, which requires a minimum investment of $800,000, has so far generated billions of dollars in funding each year and issued about 10,000 visas per year. Industry group IIUSA estimates that at least $834 million A significant amount of money has been generated through the EB-5 program in just the first half of fiscal year 2023. This money will be used to finance commercial real estate and infrastructure development.

Congress has debated reforming the program for years but failed to reach an agreement and renew funding for the program. The EB-5 Regional Center program was eliminated in June 2021, leaving operators in limbo for several months. The program was eventually reinstated in March 2022 as part of the EB-5 Reform and Integrity Act.

“Programs are picking up and gaining momentum, but we’re still remaining cautious,” said Jill Jones, senior director and general counsel at global professional services firm JTC. Restarting programs is by no means flipping a switch back to the “on” position. While the reforms were welcomed across the industry, they did create some obstacles to restarting programs. “The biggest obstacle we’re facing right now is uncertainty. There’s so much that’s not clear about how to do it, and people aren’t 100% sure how to proceed,” Jones said.

Another major hurdle was that the U.S. Citizen and Immigration Services (USCIS), the agency responsible for administering the EB-5 program, interpreted the new law as requiring hundreds of existing EB-5 regional centers to be reauthorized. The industry fought back with lawsuits, but the case was ultimately ruled in favor of the regional centers in September 2022. “Once the settlement was reached, it was a race to the finish,” said Christine Chen, chief operating officer of CanAm Enterprises, a leading operator of EB-5 regional centers.

Potential demand

Although the program’s revival has been slowed by the learning curve regarding the new rules, there are also some powerful tailwinds that have unleashed huge potential demand. Notably, the Integrity and Reform Act created new categories with new quotas or visa allocations for applicants. These categories include qualifying projects in rural areas, designated high employment areas, and infrastructure projects. In effect, that means individuals investing in these areas will receive priority processing for their EB-5 visa applications, noted Ronald Fieldstone, an EB-5 expert and partner at Saul Ewing LLP.

One of the chronic problems with the EB-5 program before it was briefly shut down was the cap on the number of visas that could be issued to certain countries. Overwhelming demand, particularly from China, created 10- to 15-year waiting lines and halted new activity. Demand from Chinese nationals has now bounced back. “There’s been a surge of excitement and new activity among Chinese investors who feel they have another chance to get into the program,” Jones said.

This is also good news for EB Regional Centers, which have already built up infrastructure in China with agents and educational resources. China, India, Vietnam and South Korea are the four traditional countries with the highest demand. EB-5 companies are focused on rebuilding networks and relationships in all of these countries. There is also strong demand from Latin America and from Russians who have emigrated to countries outside of Russia.

“The United States is seen as a strong passport globally, so when the program was reopened, there were a lot of people waiting who were ready to emigrate,” Chen said, “and the changes to the program have given them new opportunities that they didn’t have before.”

Another big change that has revitalized the market since the program was reauthorized is the ability to file concurrently. People who are in the U.S. on a legitimate visa, such as a student or work visa, can stay in the U.S. while their EB-5 visa is pending. “This has become a way for people to invest and wait for their EB-5 green card, but in the meantime, they can continue to live and build a life in the U.S.,” Jones added.

Alternative Sources of Capital

The return of EB-5 capital is good news for developers looking for alternative sources of financing. Some believe the EB-5 program’s sudden surge in popularity could be reminiscent of the Great Financial Crisis. According to IIUSA, the EB-5 program helped generate $20.6 billion in foreign direct investment between 2008 and 2015. “As we all know, interest rates are going up and it’s getting harder to get loans, so all of a sudden EB-5 has become a much more attractive alternative for developers,” Fieldstone said.

Developers use EB-5 funds to pull more expensive portions of the proceeds, such as mezzanine debt and preferred equity. The cost of EB-5 capital varies depending on the regional center’s strategy and the risk of the project and ranges from 6% to the low teens.

Additionally, developer demand and the evolution of EB-5 have given investors access to more investment opportunities. “For us, it’s a great opportunity to put EB-5 capital into really quality projects,” Chen says. “EB-5 is a victim of the environment we’re in, so it’s a really dynamic time for us to benefit.”

Though the program has had some recent disruptions, many participants are optimistic about its future growth. “Thanks to the Reform and Sanitation Act, the whole industry is maturing and becoming more sophisticated,” Jones added. Some of the bad actors have been weeded out, and hopefully people realize this is a government program to do good by creating and developing underserved communities, she added. The Reform and Sanitation Act extended the EB-5 Regional Center program until Sept. 30, 2027.

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