EB-5: Who’s after China?

With Chinese investors forced </br>to wait for visas, other countries </br>step into the fray

Attorney Kate Kalmykov flew to China every other month last year to drum up EB-5 business. This year, her travel schedule includes new stops in countries including Vietnam, Brazil, Mexico and Dubai.

“Vietnam is probably in the same place [economically] that China was 10 years ago. There’s a class of people that has rapidly gained wealth,” said Kalmykov, who works at Greenberg Traurig.

As most in the real estate world know, Chinese investors have gobbled up the vast majority of visas through EB-5 — the much-hyped program that grants foreign investors green cards in exchange for a $500,000 investment in a U.S.-based venture that creates at least 10 jobs. But because no single country is allowed more than 7 percent of the EB-5 visas, Chinese applicants are now being waitlisted for the program for the first time (see related story on page 56). That’s opening the door for other foreign investors — who are now being wooed by deal-makers in New York who are wary of losing Chinese money.

Last year, EB-5 investors pumped $2.5 billion into projects in the U.S., according to Invest in the USA, the trade group for the EB-5 industry.

Of 10,692 EB-5 applications filed in 2014, Chinese investors accounted for 9,128, or 85 percent. The next highest was South Korea, with just 225 investors, or 2 percent.

New countries are, however, beginning to step up.

While still low, the number of investors from the United Arab Emirates, Nigeria, Russia, India and Vietnam has shown significant gains, according to data from the U.S. Department of State.

For example, the UAE had 121 investors in 2014, up from just two in 2013, and Vietnam had 121 investors compared with 46 the prior year. Meanwhile, Russia had 100, up from 70, and Nigeria had 50, more than double the 23 investors who applied for EB-5 visas in 2013.

The ebb and flow of EB-5’s popularity often coincides with political and economic conditions around the world.

whos-next-quoteIn 2011, for example, there was a spike in EB-5 applications from Iranian investors that coincided with the Arab Spring. Egypt, too, has shown renewed interest in EB-5 since 2012, and last year saw 37 investors file EB-5 petitions.

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Kalmykov said interest from Brazil is tied to instability there, namely a sluggish economy, austerity measures and a bribery scandal involving the state-owned oil company. “People are nervous about their future, their business future and their security,” she said.

Scott Bettridge, a Miami-based attorney with Akerman, said emerging markets “are becoming a hotbed for EB-5.”

He said investors from Brazil and Venezuela, in particular, are poised to join Chinese investors at the forefront of the EB-5 program since their countries don’t have treaties of commerce with the U.S. Given those circumstances, their citizens cannot come to the U.S. on other types of investor visas.

Attorney Mark Edelstein, chair of Morrison Foerster’s real estate finance and distressed real estate practices, said investors from Korea and India are also poised to make their mark. “A lot of developers and regional centers are running down to Latin America now,” he said. “China could shut off its spigot at any minute.”

Tawan Davis, chief investment officer at the Peebles Corporation, the Manhattan- and Coral Gables, Fla.-based development firm, said the EB-5 program needs to attract investors beyond China to retain broad bipartisan support in Congress.

“China’s continued investment is a good thing; but I think for the program to be sustained, it has to be about other parts of the world [as well],” he said. “Otherwise the political backlash will be severe.”

But Kalmykov said it’s unlikely that Chinese investors will lose interest in EB-5. “They’re all trying to file right now and secure their place in line before the backlog balloons further,” she said.

Mona Shah, an EB-5 attorney and principal of the Manhattan-based Mona Shah & Associates, said she, too, doesn’t think Chinese investors will be replaced at the top of the EB-5 heap. “Their goals are different,” she said, of how Chinese investors view the program.

For example, South American investors turn to EB-5 because they want to emigrate to the U.S., whereas Chinese investors primarily want green cards so their children can attend school in the U.S., she said during The Real Deal’s New Development Showcase & Forum last month.

Because not all Chinese investors are looking to uproot their lives and relocate to the U.S., their investment decisions are notoriously fast. Meanwhile, she said, “The rest of the world is still relatively new and still learning.”

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