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.