AVS Leadership Team in Meetings to Discuss Reforms and Future of EB-5
AVS Director Monica Pham, AVS General Counsel Laura Callava, and AVS President Jose Latour arrived in Washington, D.C. for a variety of government and private meetings to discuss the new EB-5 Rule and its potential consequences. The reforms effectively terminate TEA abuse by large luxury condo developers and offer great opportunities for disadvantaged communities in the U.S. in need of Foreign Direct Investment via EB-5.
After over two years of debate and lobbying between America's largest developers and competing interests in rural and poor urban areas, the EB-5 Immigrant Investor Program Modernization Regulation was finally published yesterday in the Federal Register. u00a0The rule radically reforms abuse by these major developers, which have managed to steer virtually all EB-5 immigrant investor funds towards the development of ultra-luxury condominiums in America's wealthiest neighborhoods, diverting investments from the poor and rural areas for which they were intended.
Congress created the EB-5 visa category in 1990 for the purpose of stimulating investment into poor, rural areas in the U.S., where jobs are needed. The program allows accredited foreign investors to invest in a U.S. enterprise and create 10 new full time jobs; if successful, the investor secures a green card. Despite its original purpose, the program was rapidly identified as an easy source of cheap foreign investment capital by the nation's biggest developers. Ensuing investigations by the U.S. Government Accountability Office verified what was obvious: the vast majority of funds were being directed to wealthy neighborhoods as a result of manipulated “Targeted Employment Area” (TEA) designations, which gerrymandered census tracts in order to qualify the wealthiest neighborhoods for the lower $500,000 investment threshold.
The final rule, which goes into effect on November 21, 2019, restores the integrity of the EB-5 program by:
- Raises the threshold investment from $1M to $1.8M for investments which are NOT located in bona fide TEAs;
- Preserves the 50% reduction for TEAS which Congress originally intended, raising the investment amount for bona fide TEA projects from $500,000 to $900,000;
- Eliminates falsified TEA, preventing luxury urban development at the lower investment threshold by tasking the federal government with determining TEA eligibility;
The new 61 page regulation (accompanied by over 100 pages of USCIS’ careful analysis and response to public comments, mostly from the adversely impacted mega-developers) reflects a comprehensive and clear-eyed review by federal regulators.u00a0 Despite intensive lobbying by the large developers, the resulting changes successfully open the door to steering future EB-5 development in poor urban areas and rural parts of America…where jobs are most needed, and where Congress intended EB-5 investment capital to flow.
While the regulations are exceedingly clear, the great question that remains is:
“What happens to fake TEA projects which are not fully subscribed when the price of admission for their investors jumps from $500,000 to $1.8M?”
While investors whose funds are out of escrow and whose I-526s are submitted before Nov. 21 will remain eligible for the current $500,000 level, even for these gerrymandered, false TEAs, the real issue is will those developers be able to raise the rest of their EB-5 capital stack at the $1.8M level? Only time will tell but, in the meantime, the ONLY EB-5 investment which is safe from these potential pitfalls is one which is situated in a true TEA and unaffected by the new regulations, such as AVS EB-5s remaining $500K investor slots.
As the leading U.S. Regional Center which has only offered bona fide TEA projects to foreign investors, the new regulations finally levels the playing field. AVS EB-5 investment has transformed some of Florida’s poorest communities and our investors have made a real difference in American lives. AVS will continue its commitment to developing legitimate TEA EB-5 opportunties for our investors…stay tuned!
Attorney José E. Latour