The EB-5 program has long been a source of inexpensive and low-risk capital for real estate developers across the US. How have the changes introduced by the EB-5 Reform and Integrity Act of 2022 impacted this aspect of the program?
The increase in minimum investments and reauthorization of the Regional Center program have dominated the headlines.
Clarity over the RC program is good news for developers because approaching direct investors individually for contributing capital to real estate projects is not an option.
However, the act has introduced additional changes to the program that will have far-reaching consequences for those seeking equity or debt capital for their real estate projects in the US.
No More 100% Indirect Job Creation for Regional Centers
The requirement to create full-time jobs for at least 10 citizens or permanent residents in the US has been the most unique feature of the EB-5 program.
While direct investors setting up a new commercial enterprise had to show proof of direct job creation to qualify for permanent residence, Regional Center projects were allowed to include indirect jobs created by their projects.
Under the revamped program, indirect job creation can account for not more than 90 percent of the jobs created.
In the past, an EB-5 petitioner investing in a Regional Center project could qualify for PR if the project created 10 direct or indirect jobs. In future, the investor will qualify only if there is proof that the RC project has created at least one direct job.
An RC project receiving funds from 10 EB-5 investors must create 100 jobs. If the project creates 100 indirect jobs, then only 90 such jobs will be counted towards the job creation requirement. The remaining ten jobs must be created directly by the EB-5 project.
Short-Duration Jobs Count for Less
If the RC project involves construction activity of fewer than two years, then only a proportionate number of jobs to the total time period will be considered and only 75 percent of such proportionate jobs will count towards the job creation requirement.
If the RC project creates 80 construction jobs for one year, then only 40 jobs will be counted. And only 75 percent of those jobs will be counted towards the job creation requirement.
Relocations Don’t Count as New Commercial Enterprises
Jobs in any business relocating to commercial real estate built out of EB-5 investments will no longer be counted.
Only jobs created by a new business that is established in such a project will count. So, investors must show proof that the business operating in the project is a new business or a new branch of an existing business.
Better Prospects for Targeted Employment Areas and Infrastructure Projects
Previously, Targeted Employment Areas – covering rural and high-unemployment zones – received around 3,000 EB-5 visas every year.
Now, rural areas will get 20 percent of all EB-5 visas – at least 2,000. High-unemployment areas will get 10 percent or 1,000 visas, and infrastructure projects in TEAs will get an additional 2 percent, or 200, EB-5 visas.
Unused visas are carried forward, which means the quota for TEA projects may, in the future, exceed the total visas available in the general pool.
With the USCIS becoming the sole designating agency for TEAs, investors and developers must be prepared to bear the higher risk involved in projects in rural or high-unemployment areas.