EB-5, the once wildly popular green card program giving developers easy access to financing at low rates, is alive but in limbo.
Developer demand has fallen, and backlogs in issuing those green cards has created investor uncertainty. The program, which was scheduled to expire Sept. 30, received a reprieve Friday from President Trump, but only through Dec. 7. The extension was part of a spending package the president signed to avoid a government shutdown. Congress will have to decide whether to create a more permanent solution, but industry pros say it isn’t on the radar. If the government doesn’t create new legislation, more foreign investors will start to back out, market experts say, looking instead to similar visa programs in others countries.
The lack of clarity surrounding the federal initiative has already tamped down demand among developers, said Ronald Fieldstone. He is a partner at the Miami law office of Saul, Ewing, Arnstein & Lehr, which has represented developers and regional centers in EB-5 matters.
“This is the first time I can remember that there has been no recent active negotiations to try to resolve EB-5,” he said. “This hasn’t been on the radar screen for months.”
The EB-5 program gives foreign investors the opportunity to obtain a green card if they invest at least $500,000 in a project and create at least 10 jobs. It has been extended on a short term basis for the last three years. Direct foreign investment in EB-5 fell nationwide to $3.81 billion in 2016, a 13 percent drop from $4.37 billion in 2015, according to Invest in the U.S.A, a prominent industry trade group for EB-5 regional centers.
Though real estate developers looking to finance deals have been weaning themselves off EB-5 money, many investors — especially those from China — still like the program. Seventy-five percent of EB-5 visas, or more than 7,500, were awarded to Chinese mainlanders in 2017. The U.S. government now issues about 10,000 new EB-5 visas per year, and sets quotas on how many it awards to each country. Chinese demand has far exceeded supply. But there is a limit.
The list of EB-5 investors from China who are waiting for their green cards has gotten so long that many have begun backing out, exploring other option such as private equity or other countries with similar programs.
Developers are also turning to other countries, such as some in South America and India for EB-5 investors, though the demand is not as high in those places.
Meanwhile, Congress’ inaction comes at a time when much of the news about EB-5 has concerned fraud and abuse.
Earlier this year, two owners of a Vermont ski lodge were charged with misusing more than $200 million of EB-5 investor money and in South Florida, a group of EB-5 investors is suing the developers behind a failed hotel project in Fort Lauderdale Beach. The list goes on.
But Rodrigo Azpurua, the founder of Riviera Point Development Group, a Miami-based company that has successfully financed a number of hotel projects with EB-5 financing, said the program is a good one but needs repair.
“They definitely need to put more regulations and supervisions so it can be clear of the bad actors in the industry,” he said.
Others don’t see that happening soon.
“Honestly, we’ve had Democrats and Republicans administrations under the program…and no meaningful change,” said Michael Gibson, managing director at USAdvisors.org, an EB-5 advisory firm. “I don’t see any change coming.”