The EB-5 visa program has become a major source of real estate financing nationwide, and in particular for large real estate development projects in New York City such as Hudson Yards in Manhattan, the New York Wheel on Staten Island, and the Pacific Park development in Brooklyn. The EB-5 program provides lawful permanent residence status to immigrants in exchange for an investment of at least $500,000 in a U.S. business venture that creates at least ten permanent jobs. While the real estate industry has to date been the primary beneficiary of investment dollars generated by the EB-5 program, proposed changes to the program's rules could imperil what has been a reliable source of funding for new development projects.1 With the primary component of EB-5 expiring in September, many stakeholders expect at least some structural changes to be adopted by Congress as part of any effort to reauthorize the program under the Trump administration.

The use of EB-5 capital as a source of financing for ground-up development projects is widespread. With the interest rate attached to EB-5 capital as low as 2.75 percent, the cost of the financing is very appealing to developers.2 For foreign investors, the program provides a pathway to invest capital in high profile real estate projects while also providing each investor, and his or her family, a visa and the opportunity to live and work in the United States. Some critics, however, have called for eliminating the EB-5 program entirely, and others have proposed reforms that could have a significant impact on the ability of real estate developers to use the program for future projects. While proposals vary, many of the reforms would increase the current investment thresholds, which have not changed in decades, and enhance federal oversight of so-called regional centers (which pool EB-5 dollars and source most real estate EB-5 investments). Certain proposals would significantly revamp the program's scheme for determining which geographic areas qualify for the most favorable treatment under the program's rules, which could raise the cost of EB-5 financing for developers in the New York metropolitan area.

Regional Centers

In order to assess the potential impact of reform proposals on the local real estate market, it is important to understand the role of regional centers and the designation of targeted employment areas (TEAs) in the program's structure. Regional centers, which were created to allow participation by passive investors, pool EB-5 dollars from various investors to finance projects in a specific geographic area. The designation of a project as within a TEA lowers the investment requirement for program participants from $1 million to $500,000. As a result of these features, the overwhelming majority of EB-5 projects are financed through a regional center and are located in an area designated as a TEA. In 2014, 97 percent of all EB-5 visas issued relied on such investments.3

Funding a project through a regional center also helps investors meet the job-creation threshold of the EB-5 program by removing the onerous requirement, which would otherwise apply, that the immigrant investor directly manage the job-creating business.4 In addition, projects financed through a regional center are able to meet the program's job creation requirements by counting jobs created indirectly through the economic activity of the project—for example, counting any jobs created by a supplier to a construction site. This feature allows investors to count jobs created through the broader economic impact of a particular project, and makes it easier to meet the program's job creation requirements than would otherwise be the case if the investor could only count workers directly employed by the enterprise in which the investment has been made.5