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Waning Interest Harming Rural Access to Immigrant Investor Funds

Oct. 29, 2019, 9:46 AM

Plummeting interest in the immigrant investor visa program is creating a roadblock to accomplishing the Trump administration’s goal of raising more money to create jobs in rural, economically depressed areas.

On Nov. 21, a recently finalized regulation will raise the minimum required investments for the EB-5 program and redefine “targeted employment areas” where investors can contribute less and still qualify for a visa.

The move responds to critics who say the program’s allowance of development in wealthy, urban areas and failure to account for inflation have caused it to stray from its original purpose of creating jobs where they’re otherwise scarce. The program provides green cards to immigrants who invest in commercial enterprises that create at least 10 U.S. jobs.

At its peak, EB-5 brought in nearly $11 billion and created more than 355,000 U.S. jobs.

But foreign investors, spooked by the impending price increase, are scrambling to get their paperwork in to be grandfathered into the current minimum investment of $500,000—that is, if they haven’t already given up because of lengthy visa wait times.

These two deterrents are likely to diminish interest in the EB-5 visa, if not kill it entirely. And that spells trouble for the prospects of meaningful job creation in areas that need it.

Chinese Investment at ‘Trickle’

For years, Chinese investors have dominated the EB-5 visa program. But that flow of Chinese money is now “down to a trickle, if that,” because of the uncertainty of when their green cards might come through, said Ithaca, N.Y.-based immigration attorney Carolyn S. Lee.

Recent estimates have put the wait time for Chinese nationals at around 16 years if they were to invest today.

Attorney Mitch Wexler of Fragomen, Del Rey, Bernsen & Loewy in Irvine, Calif., said he’s seen a “significant spike in interest” from Indian investors in the past few months as they scramble to get their petitions in at the current, lower investment amount of $500,000. That jumps to $900,000 in the new regulation.

“The urgency factor has caused a lot of people with interest to actually jump in” rather than just casually inquire, said Wexler, the managing partner of his firm’s Southern California offices. “It’s happening pretty fast and furiously,” he said.

But there’s a limit to that fury.

Immigration firms that handle EB-5 visas are starting to reject new clients due to an inability to handle the workload to get petitions in before the new requirements are in place, Wexler said.

And Indian investors, who became a new, emerging market for EB-5 investments after Chinese wait times started climbing, also are seeing backlogs, as are investors from Vietnam, he said. Even though EB-5 is still the fastest way for an Indian immigrant to get a green card, the roughly eight-year wait is dampening demand, he said.

“The market definitely has shrunk” and “it’s going to shrink even more,” Wexler said. Raising the investment amounts, coupled with wait times, is a “double whammy to the Indian market,” he said.

Billions Raised

The EB-5 program brought in $10.9 billion in fiscal years 2014 and 2015 alone, creating a total of 355,208 U.S. jobs, according to a recent report based on USCIS data.

At the same time, it’s attracted some scandal. Various civil and criminal cases have been brought against the operators of EB-5 regional centers—a popular investment vehicle—after they misappropriated investors’ funds for personal use.

For this reason, Sens. Charles Grassley (R-Iowa) and Patrick Leahy (D-Vt.) have railed against the EB-5 visa. Although they both approve of the changes in the new regulation, they also have introduced legislation requiring stronger anti-fraud measures for the program.

Yet it’s the visa backlog—not the potential for fraud or the minimum investment increase—that’s driving away investors.

“People still want to immigrate to the United States, but it’s the uncertainty of the wait time that’s the biggest chill factor,” said Lee, who heads the American Immigration Lawyers Association’s National EB-5 Committee. There’s more interest now in other countries’ immigrant investor programs than there has been in the past six to eight years, she said.

And the lack of interest from foreign investors means the U.S. won’t see the benefit of their money going to rural areas, Lee said.

Even if there’s a temporary rush to get in before the investment amount goes up, “it’s not like it was in 2015,” said Laura Foote Reiff, an immigration attorney with Greenberg Traurig in McLean, Va.

The number of investors peaked in fiscal year 2015, with 14,373 immigrants seeking an EB-5 visa. It also was the first fiscal year when backlogs developed.

The number of petitions filed has been dropping steadily since, with 6,424 filed in FY 2018 and only 3,003 filed in the first three quarters of FY 2019, according to the most recent USCIS data.

Focus on Legislation

Groups representing the businesses that receive EB-5 funds are “very much focused on getting a legislative fix,” more so than worrying about the regulations’ effects, said Reiff, who serves as counsel to the EB-5 Investment Coalition.

“We’ve got some really good bipartisan, bicameral players,” and “the moon and the stars have kind of realigned” in favor of EB-5 overhaul legislation being passed, she said.

Although optimistic, Reiff said “it’s not like the world is going to end on Nov. 21" if the regulations go into effect without Congress. EB-5 “might be dormant for a while,” and investment projects will just seek out other sources of funding, she said.

“People are very practical in trying to raise what they can,” she said.

“The market will be initially shocked” by the new $900,000 price tag, but “I think that will settle down,” Wexler said. Still, with EB-5 visa wait times what they are, “I don’t think it will ever be as robust,” he said.

To contact the reporter on this story: Laura D. Francis in Washington at lfrancis@bloomberglaw.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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