Last week, Bloomberg News published an article about the EB-5 Regional Center Program, creating U.S. jobs and providing much needed capital to U.S. businesses. Peter D. Joseph, IIUSA Executive Director, was interviewed, along with the following IIUSA Board Members:
And following Members:
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Visas Lure Foreigners Seeking U.S. Residency Through Real Estate
2011-06-09 By John Gittelsohn
June 9 (Bloomberg) — International investors are helping to create jobs and jumpstart real estate projects in exchange for a path to U.S. residency, with applications for a government program granting special visas poised to double this year.
The EB-5 visa program teams developers with overseas investors who put up at least $500,000 for projects that create a minimum of 10 jobs. Convention centers, resorts, office buildings and shopping malls are attracting the most cash as builders seek an alternative to bank loans, which became tougher to get as defaults rose, according to Peter Joseph, executive director of the Association to Invest in the USA.
“Commercial real estate is absolutely, hands down, the largest recipient of this capital,” said Joseph, whose Chicago-
based trade group represents public and private agencies that pool money from investors seeking visas. “It’s incredibly useful money, cash ready to put to use.”
Applications for EB-5 visas jumped to 1,955 in the year ended Sept. 30, up from 1,031 in fiscal 2009, according to U.S. Citizenship and Immigration Services. For 2011, there have already been 1,927 applications submitted in the first half of the fiscal year. Chinese investors are leading the requests.
The visas will raise $1.25 billion this year and create or save 25,000 jobs, Joseph’s group estimates, up from $845 million and 17,000 jobs in 2010. The program may reach its annual limit of 10,000 visas for investors and their families for the first time in 2013, he said. That cap represents 2.46 percent of the average number of U.S. immigration visas approved per month since 2005.
Lending Curtailed
Lenders tightened construction financing after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008 deepened the global credit crisis. U.S. banks’ outstanding loans for construction and development projects totaled $272 billion as of March 31, down 52 percent from the first quarter of 2008, as their delinquency rate soared to almost 17 percent, according to data from the Federal Deposit Insurance Corp.
The visa program is “a great alternate source of capital” for developers, said Thomas Rosenfeld, chief executive officer of CanAm Enterprises Inc. The company, based in New York, has raised $1 billion through 19 partnerships and helped 1,500 investors qualify for U.S. residency.
“With the cutbacks that are happening, cities are telling us we’re one of the more important programs they have right now to create jobs,” Rosenfeld said in a telephone interview.
3,100 Jobs
CanAm raised $122 million from 244 foreign investors in 2008, as credit was drying up, to help finish the Pennsylvania Convention Center in Philadelphia, he said. The $1.12 billion project created almost 3,100 jobs in a city where unemployment was 9.3 percent in April, the most recent month for which data is available, compared with a U.S. rate of 9 percent.
“Without our capital, they would’ve had to stop construction,” said Rosenfeld, whose company runs centers for
investor partnerships in four states. The EB-5 program, created by Congress in 1990, has generated at least $4.48 billion in foreign investment, including $1.93 billion since 2008, according to Citizenship and
Immigration Services data.
Investors must present a business plan showing how their cash will create sustainable jobs. They are required to put in at least $500,000 for development in high unemployment and rural areas, and at least $1 million elsewhere.
After the plan is approved and the money invested, applicants and their dependents are granted temporary residency.
If after two years investors demonstrate they have created 10 jobs — directly or based on approved economic models — they qualify to become permanent residents with green card status.
Pools of Capital
More than 80 percent of investors apply for visas through projects coordinated by regional centers approved by Citizenship and Immigration Services, enabling developers to assemble large pools of capital through limited partnerships. As of June 1, 142 centers operated in 40 states, the District of Columbia and Guam. That compares with 11 centers in 2007.
While the agency doesn’t provide a dollar breakdown of investments by industry, 116 of the regional centers are
approved for real estate and are raising money to build such projects as a charter school in Arizona, ski lodges in Vermont, a water park in San Diego and an auto plant in Alabama.
Industries including alternative energy, entertainment, food processing, health care and shipbuilding also have approved investment plans.
Chinese Investors
Investors from China submitted 3,483 visa applications since 2008 and received 1,955 temporary residency permits, the most of any country, according to Citizenship and Immigration Services. Korea, the U.K., Iran and India complete the top five.
“Economies overseas, especially in China, have been growing very, very fast,” said Brian Su, CEO of Artisan
Business Group Inc. in Springfield, Illinois, which helps developers find investors from Asia. “There are more people
with cash and the United States is the most desired destination for Chinese parents. The investors are coming here for their kids’ education.”
Interest in the program is picking up in Venezuela and Mexico, where wealthy families seek a haven from political,
social and economic instability, said Enrique Gonzalez III, an attorney with Fragomen, Del Rey, Bernsen & Loewy LLP, a law firm that specializes in immigration matters.
Two-year residency visas for investors and their immediate families are usually processed within nine months, he said. In May, Immigration Services circulated a plan to speed up approvals, granting visa status to “shovel ready” proposals within 15 days.
‘Quickest Way’
“It’s the quickest way to get a visa if you don’t have a sponsor, such as an employer or a family member,” Gonzalez said in a phone interview from his office in Coral Gables, Florida.
Success isn’t guaranteed. Of 15,646 initial applications, 30 percent have been denied two-year residency permits. For the 6,399 investors who qualified to apply for long-term residency, 19 percent were rejected.
Last year, Immigration Services denied permanent visas for investors in a CanAm project in Philadelphia because the money was used to build a steakhouse rather than the original plan for a building-materials company. CanAm is challenging the denials in federal court, claiming the visas were pulled “because the agency applied a newly issued guidance memo retroactively,” Rosenfeld said.
Rejected Applications
Such incidents show that Immigration Services sometimes stands in the way of more investment and job creation, said Ira Kurzban, an immigration attorney with Kurzban, Kurzban, Weinger, Tetzeli and Pratt PA in Miami.
“It is a classic example of an agency being overly and unnecessarily focused on fraud and the most restrictive
interpretation they can give the law,” Kurzban said. “In the current economic environment, the agency should strike a balance between preventing fraud and encouraging investment and job creation.”
Citizenship and Immigration Services administers the program “through two lenses,” creating jobs through foreign
investment and ensuring visas go to residents who play by the rules, said Luz Irazabal, a spokeswoman for the agency in Washington.
“We want to make sure these are legal, licensed businesses operating in the U.S.,” she said in a telephone interview.
The ratio of visa approvals to denials for temporary residency was 8.3-to-1 last year, up from 3.3-to-1 in 2007. In
the first half of this year, the ratio fell to 3.8-to-1, a period too short to establish a trend, according to Irazabal.
Limited Liquidity
Property investments through the program are often limited partnerships, requiring a minimum five-year commitment with little liquidity and no guarantee of a profit, said Henry Liebman, president and co-founder of American Life Inc., a Seattle-based company that runs regional centers for 33 real estate projects in five states.
The company is seeking to raise $118 million from EB-5 applicants for a 377-room Marriott hotel in Los Angeles.
Investors can expect a 6.42 percent annual return after the hotel achieves rent stabilization in 2016, according to the prospectus. That’s a similar yield to investments in hotels that have already been developed and are therefore less risky, according to data from Real Capital Analytics Inc. American Life has raised $560.4 million since 1996, helping more than 1,000 investors become U.S. residents. It’s soliciting another $163 million in funds, including the Marriott money. All the recent cash has come from EB-5 applicants, Liebman said, a change from the pre-Lehman bankruptcy era.
“Before the bust it was slightly more immigrant than domestic money,” he said in a telephone interview from Seattle.
“After the bust, it’s virtually all immigrant.”
