With growing lobby for an increase in the minimum investment requirement under the EB-5 program and a bar on gerrymandering, real estate developers have intensified lobbying efforts to ensure high-end projects not cut off from this affordable source of funding.
The EB-5 visa offers fast-track permanent residence to immigrants investing at least $500,000 in targeted employment areas and $1 million in other areas. Intended primarily to attract investment to rural areas and other high-unemployment regions, this program has become the preferred choice for affordable funding, especially for developers of high-profile real estate projects.
Developers resort to gerrymandering and combine multiple census tracts to combine urban areas with districts with high unemployment to qualify for the lower investment limit applicable to targeted employment areas. Even high-end areas of cities like New York have projects where foreign investors can obtain the green card by investing just $500,000.
This has led to a situation where rural areas struggling to attract investment lose out to urban centers that offer greater security and better chances of attractive returns to investors. Critics have called for reform of the EB-5 program and have sought realignment of the program with its original purpose—creation of jobs in rural and low-employment areas through foreign investment.
With growing demands for reforms raising fear of the suspension of the entire program, real estate developers are lobbying for a compromise when the program comes up re-approval in December 2015.
Proposed reforms include a hike in the minimum investment limit for targeted employment areas from $500,000 to $800,000; restricting the benefit of the reduced limit to projects located in targeted areas or census tracts adjacent to such areas; and a hike the general investment limit from $1 million to $1.2 million.
Developers are adopting different strategies when lobbying for a compromise with the lawmakers.
Some trade groups have proposed a compromise where developers can combine a maximum of 12 census tracts when defining a targeted area. Further, developers cannot combine tracts that are connected solely by rivers or parks.
Many have highlighted that that projects situated in urban areas with low unemployment often attract workers from poor localities often situated far away from such projects. Such rules, according to groups opposed to any compromise, will end up hurting workers living in such high-unemployment districts.
Tough revisions may force investors to setup unviable projects in areas that are not developed enough to benefit from such ventures. This, industry groups warn, may affect the overall popularity of the EB-5 program.
Blatant misuse of existing rules combined with instances of fraud, mismanagement, and lack of oversight have dimmed the prospects of continuation of the status quo. It remains to be seen whether the lawmakers will accept the 12-tract compromise, which will allow some developers to continue enjoy funding from foreign investors seeking permanent residence in the USA.
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