The EB-5 visa program has become a major source of real estate financing nationwide, and in particular for large real estate development projects in New York City such as Hudson Yards in Manhattan, the New York Wheel on Staten Island, and the Pacific Park development in Brooklyn. The EB-5 program provides lawful permanent residence status to immigrants in exchange for an investment of at least $500,000 in a U.S. business venture that creates at least ten permanent jobs. While the real estate industry has to date been the primary beneficiary of investment dollars generated by the EB-5 program, proposed changes to the program’s rules could imperil what has been a reliable source of funding for new development projects.1 With the primary component of EB-5 expiring in September, many stakeholders expect at least some structural changes to be adopted by Congress as part of any effort to reauthorize the program under the Trump administration.
The use of EB-5 capital as a source of financing for ground-up development projects is widespread. With the interest rate attached to EB-5 capital as low as 2.75 percent, the cost of the financing is very appealing to developers.2 For foreign investors, the program provides a pathway to invest capital in high profile real estate projects while also providing each investor, and his or her family, a visa and the opportunity to live and work in the United States. Some critics, however, have called for eliminating the EB-5 program entirely, and others have proposed reforms that could have a significant impact on the ability of real estate developers to use the program for future projects. While proposals vary, many of the reforms would increase the current investment thresholds, which have not changed in decades, and enhance federal oversight of so-called regional centers (which pool EB-5 dollars and source most real estate EB-5 investments). Certain proposals would significantly revamp the program’s scheme for determining which geographic areas qualify for the most favorable treatment under the program’s rules, which could raise the cost of EB-5 financing for developers in the New York metropolitan area.
