After months of close to no action, senators are finally updating their proposed reforms to the controversial EB-5 investor visa program and circulating draft legislation ahead of an April 28 expiration date. On Tuesday, the offices of Sen. Patrick Leahy (D-VT) and Sen. Chuck Grassley (R-IA), two of the EB-5 investor visas’ loudest voices for reform, began shopping a tweaked draft of a bill they introduced in the previous Congress.
Though still far away from where much of the real estate industry stands on EB-5, it does include some provisions that reflect changes that real estate lobbyists have said they could live with. Although the Department of Homeland Security under President Obama set forth a proposal to raise the minimum invest for a visa from $500,000 up to $1.35 million, Grassley and Leahy’s current legislative proposal would would usher in an $800,000 minimum.
That’s likely an acceptable figure for many EB-5 stakeholders: In a March 8 hearing in the House Judiciary Committee, Angelique Brunner, the president of EB5 Capital and EB-5 Investment Coalition’s spokesperson, said she was hoping to see legislation that would result in a minimum much lower than $1.35 million and more in the neighborhood of $1 million. She previously said that the Obama-recommended minimum of $1.35 million would “kill the program.”
The bill also includes integrity measures that appear universally well received, such as requiring routine audits of regional investment centers to check for compliance with SEC regulations.
“The industry is viewing this as an offering of some type,” said Holland & Knight lobbyist Ron Klein, who represents EB-5 clients like the US Immigration Fund. “This is their attempt to put something in front of everybody and ‘say let’s get back to work on this,’” Klein said, “but there are still some very substantial issues to be resolved here.”
Key issues the real estate industry is still waiting to debate include how the effective dates of any new reforms will be put in place, as they have the potential to rock deals already in progress, damaging project finances. There are also significant disagreements on the designation of Target Employment Areas (TEAs), in which foreigners must invest to qualify for the lowest possible investment amount, currently just $500,000 and $800,000 under Leahy and Grassley’s proposal.
The proposal could change how TEAs are drawn and wrestle control away from the states, making TEAs conform with census tract criteria. Some in the real estate industry argue this is shortsighted, and that census-guided TEAs are a poor standard for measuring whether projects are impacting underserved communities.
The bill would further mandate that some EB-5 visas be reserved exclusively for rural projects, which could mean the backlog for investors who want to invest in urban projects just grows larger, said Allison Berman, head of EB-5 at Greystone. “By making the set asides, you’re not guaranteeing that funds are going to those areas,” Berman said. Ultimately, investors will decide where they are willing to put their money and where they just aren’t interested, she said.
As for when real progress will be made towards finalizing EB-5 reform, Greenberg Traurig lobbyists Kristen Ng and Laura Foote Reiff on Tuesday wrote in a blog post published on the New York Law Journal website that the expiration date for EB-5 might be extended by as many as four weeks, so Congress has time sort out other outstanding budget issues to prevent a government shutdown. Others say they don’t expect real EB-5 reform to come until after a continuing resolution of the current budget is passed, which would kick the reform can to September.
That sober reality would fly in the face of what some representatives, like Rep. Jim Sensenbrenner (R-WI), have recently said about such extensions for EB-5, however. “The days of last-minute extensions and continuing resolutions are over,” Sensenbrenner told the House Judiciary Committee in March. “Let me repeat that: No more extensions in CRs [continuing resolutions].”
Although all sides urge that they want to negotiate, there’s been no shortage of tension between the real estate lobby and some members of Congress.
In March, Grassley and Leahy wrote a disapproving letter to the Chamber of Commerce and the Real Estate Roundtable, expressing disappointment in learning that the two lobby groups “may have recently agreed to a secretive backroom ‘deal’” in order preempt various rule changes to the EB-5 program.
The comment period for the new rule making proposed by the Obama administration closed on April 11, but the Trump administration has decided to delay consideration for all pending federal regulations anyway, following an executive memorandum sent out to all federal agencies on inauguration day. In other words, it’s up to Congress to make any substantial changes to EB-5.