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Opinion

EB-5 2.0? Not Even 1.1 – For Now

By Jeanne Calderon and Gary Friedland

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As a result of this reprieve, we expect a flood of applications to be filed with the USCIS by investors and developers who scramble to be covered and raise funds under the existing law, rather than be subject to a new law that undoubtedly will impose more stringent standards.

New York City developers and regional centers are breathing a collective sigh of relief as Congress granted a “one-year” extension of the EB-5 Regional Center Program until September 30, 2016, without any changes. The development community had braced for the worst since the leading bill was introduced in June 2015 by Senate Judiciary Chairman Chuck Grassley and ranking Democratic Senator Patrick Leahy. Various drafts of the bill that circulated over the course of the past few weeks reflect that deals were struck behind closed doors in Congress to protect different pieces of the program — deals were made, resurrected in different forms, and ultimately died. In one form or another, the bill would have tied a longer extension period to the imposition of sweeping reforms. The negotiations pitted a battle between lawmakers from rural states, like Senator Grassley’s Iowa and Senator Leahy’s Vermont, and states with thriving urban areas, like New York’s Senator Charles Schumer.

Some of the proposed reforms were controversial. The most controversial issue centered on a revised definition of Targeted Employment Area (TEA) for projects located in urban areas. Immigrant investors prefer to invest in TEA projects so they can qualify for a minimum investment amount of $500,000, rather than $1,000,000, particularly given the less than 1 percent return they earn for the investment that qualifies them for a visa. Critics have been outraged that projects in thriving urban areas that would have been developed in any event, albeit with more expensive capital, qualify for the lower amount even though the lower threshold was intended to create an incentive for investments and jobs in rural areas and high unemployment areas. These urban projects have commanded the lion’s share of EB-5 investment due to their size and the attraction that Chinese investors have to bi-coastal real estate.

The proposed legislation that had been under consideration would have sharply limited the ability of projects located in urban areas to qualify. A related provision would have increased the minimum investment to $800,000 in any TEA, urban or rural, given that the minimum amount had not been raised since 1990 when the EB-5 Program was enacted. The effective date for the TEA and the minimum investment amount has generated enormous controversy as these two factors play a pivotal role in the immigrant’s decision to invest in a project. Thus, the implementation date of the law and who would be grandfathered was divisive.

Read full article as published in the Commercial Observer.

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Jeanne Calderon is a Clinical Associate Professor of Business Law. Gary Friedland is a Scholar-in-Residence.