Lawsuit seeks to halt new EB-5 regulations

In a case with far-reaching implications, an EB-5 regional center claims the new rules that are designed to clamp down on abuse violate the Constitution

TRD NATIONAL /
Dec.December 04, 2019 02:01 PM
The lawsuit argues the increased amounts will deter foreign investors from the program (Credit: Getty Images, Wikipedia)

The lawsuit argues the increased amounts will deter foreign investors from the program (Credit: Getty Images, Wikipedia)

Less than a month after the new EB-5 rules came out, a Florida regional center has filed a motion in federal court, seeking a temporary restraining order to halt enforcement. The company, Florida EB5 Investments, alleges the new requirements — which took effect Nov. 21 — violate the U.S. Constitution, were not properly reviewed for potential fallout and will end up killing business.

The case could have far-reaching implications, with dozens of regional centers across the country similarly affected, and likely closely watching the case. Regional centers act as intermediaries between EB-5 development projects and foreign investors, and their business depends on a steady flow of foreign investors who want U.S. green cards

Under the new regulations, investors must contribute $900,000 to a project in a so-called low employment zone, up from $500,000. The investment amount also climbed to $1.8 million in all other areas, up from $1 million.

The rules prohibit developers from tacking a sliver of a targeted employment area on to a project in a wealthier area in order to qualify for the lower investment amount. That kind of abuse of the program is one of the reasons for the new regulations, federal officials have said. Others include modernizing the 30-year-old federal program having it keep up with inflation.

But in its court case filed late last month, Central Florida-based Florida EB5 Investments accuses the Department of Homeland Security of ignoring the economic impact the new regulations would have on investors and affiliated businesses.

The defendants in the case are Chad Wolf, acting Secretary of the Department of Homeland Security; Kenneth Cucinelli, acting director of U.S. Citizenship & Immigration Services; and Edie Pearson, policy branch chief of Immigrant Investor Program Office.

An attorney for the Department of Justice who represents the did not immediately return a request for comment.

The new regulations may have the biggest impact in places like Miami Beach or Palm Beach, which will no longer be designated targeted employment areas. Developers who want to solicit EB-5 investment in those areas would be required to solicit at least $1.8 million per investor.

The lawsuit, filed by Florida EB Investments’ Marty Cummins, argues the increased amounts will deter foreign investors from the program. It also alleges that many EB-5 developers “will simply walk away from their pending EB-5 projects, refund existing investors’ money, and pull out of the program entirely.”

As “investors lose interest in the program, EB5 Investments will not have the revenue to continue operations,” the complaint says.

The court complaint also alleges the new regulations violate the 10th Amendment by infringing on state’s rights not enumerated in the Constitution, namely the right to conduct their own government and foster economic development.

The federal government created the EB-5 program in 1990 to spur investment in distressed and rural areas across the country by tapping foreign investors. But developers looking to build in more affluent neighborhoods soon found a loophole, enabling them to take advantage of the lower investment threshold.

Developers in Miami Beach, for example, combined multiple census tracts to connect sites with high-unemployment areas. And in New York City, the Empire State Development Corporation used the method to fashion the Hudson Yards megadevelopment in Midtown to West Harlem — which qualified for the targeted employment area — via a thin strip running along the Hudson River on the Far West Side.

In recent years, developers have backed away from using EB-5 to finance projects as Chinese investment in the program has slowed. The main reason is due to visa backlogs, where the demand for visas has outstripped supply. That has led to average wait times for Chinese investors for a visa rising to 16 years.


Related Articles

arrow_forward_ios
Walker Tower at 212 West 18th Street with in-contract buyer Ron Vinder (left), and prior owner Khadem al-Qubaisi (right) (Images from JDS Development, Morgan Stanley, Pixabay)

Walker Tower condo board fights “low-ball” sale of 1MDB-linked penthouse

Walker Tower condo board fights “low-ball” sale of 1MDB-linked penthouse
Related's Stephen Ross and Jeff Blau with Hudson Yards (Getty, iStock, Wikipedia Commons)

EB-5 investors to Related Companies: Open your books

EB-5 investors to Related Companies: Open your books
Gap at 1530 Broadway (Google Maps)

Gap must keep paying rent at Times Square flagship: Judge

Gap must keep paying rent at Times Square flagship: Judge
Acting US Attorney for Eastern District of New York Seth DuCharme and Bank of America CEO Brian Moynihan (Getty, Twitter, iStock)

Bank of America will pay $300K to settle DOJ mortgage lending discrimination claim

Bank of America will pay $300K to settle DOJ mortgage lending discrimination claim
Rosenberg & Estis' Luise Barrack and Fried Frank’s Jonathan Mechanic

Commercial real estate lawyers: You’re stuck with that lease

Commercial real estate lawyers: You’re stuck with that lease
Documents filed in court say big retailers’ lawsuits show the protections go too far — and curb landlords’ right to commercial speech. (iStock)

City protects big companies, hurts small landlords: lawsuit

City protects big companies, hurts small landlords: lawsuit
(Getty, iStock, Google Maps)

Inside the hardball legal tactics retail landlords are using against tenants

Inside the hardball legal tactics retail landlords are using against tenants
Zillow CEO Rich Barton and IBM CEO Arvind Krishna (Getty)

IBM slams Zillow with second suit over patented search tools

IBM slams Zillow with second suit over patented search tools
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...