EB-5 Program Needs Planning and Policy

The EB-5 program is a little-understood, rarely-utilized opportunity for financing complex United States development projects. When you’ve fully leveraged every source of financing you can think of, you may find yourself at a dead-end with a remaining finance gap, wondering what else you could leverage. It turns out you could be leveraging the deep pockets of Chinese (or other) nationals with $900,000 to spend (or “invest” in a qualified investment) on an expedited visa.

As a program of U.S. Citizenship and Immigration Services (USCIS), it may frankly be more convoluted than it really needs to be, but essentially the investment is funneled through “Regional Centers” and remains open until the full investment need is met. In this process, immigration lawyers play a key role, similar to accountants and compliance specialists in the tax credit world – and all projects must be in high-unemployment counties or in “Targeted Employment Areas” which can be a combination of Census tracts. Think of it like an Opportunity Zone Fund, providing expedited visas instead of tax benefits. It’s a nice incentive package that can bring investment to your project.

So what kind of projects are currently qualified for EB-5 investment? Answer: A mixed bag with a lot of duds. See for yourself on this EB-5 listing.

In Colorado, the most attractive opportunity was the Solaris project in Vail, in which 160 Chinese nationals invested $500,000 each, in their own tranche of $80 million of equity. The “loan” was under-collateralized with only 19 condo units, cumulatively worth less than $40 million, which have to compete for buyers against the 60 units owned by the borrower, who controlled the sales. In three years, only 1 of the 19 EB-5 units had sold, which sold for nearly one-third less than it was valued – repaying 8 investors at 50 cents on the dollar. This is drastically over-simplifying a very complicated, and very screwy deal. Effectively, the foreign investors got screwed, and the developer is quoted in the linked article claiming that “getting a green card is enough of an investment return.”

Wow.

I have my own reservations about foreign capital flooding U.S. housing markets – BUT, there are legitimately some markets that are starving for investment. Much of rural and southern Colorado is comprised of such markets. This goes without saying for most of the Deep South and Rust Belt.

This leads me to the question of how a program – written to direct foreign investment to high-unemployment and “Targeted Employment Areas” – ended up mired in a Vail condo deal? Vail, Colorado is the last place that should ever be a “qualified” EB-5 investment as the program is currently written, but I’m sure you can gerrymander some Census tracts together through rural Eagle County to meet the eligibility.

This is where planning and policy should come into play. The EB-5 program is not well-planned through murky USCIS-approved investment funds. It would be far more effective if block granted back to states with accountability, exactly like HOME or CDBG dollars, and managed along with other economic development programs.

When you combine investment with planning and policy, good things typically happen. When you don’t have planning and policy around investment is when bad things typically happen. Unless you consider getting a green card to be a good enough return.

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