“God forbid we should ever be 20 years without such a rebellion”, said our founding father Thomas Jefferson. By all accounts, the EB-5 program is about 5 years overdue. The EB-5 program has come to a moment of truth in its quarter century history. The program has done much good, and some bad things have occurred in its name. At an increasing rate over the last several years, the program has started to forget its roots, as a job creation program, to become a small part of high-end large real estate project finance in a few prime cities in America. This is not the fault of the real estate developers who simply saw an opportunity in a program that was misunderstood by its administrators and mis-designed by Congress. Not being at fault, however, is not an excuse to leave a broken system unrepaired.
At its heart, the EB-5 program has the potential to be among the crown jewels of American immigration policy. Whether it can live up to that potential may largely be determined by the events in the next day or at most several days. Early in the day, yesterday, on December 2nd, compromise EB-5 reform language was proposed for inclusion in the Omnibus spending bill that must be enacted by December 11th to avoid a government shutdown. The bill contained real reforms. If enacted many things in the EB-5 program would change. And change it should. Change, especially to the most entrenched members of the EB-5 community is a scary thing. Despite a nearly non-stop barrage of negative press and SEC activity in the space over the last two years, many incumbent Regional Centers want nothing more than to be left alone so business as usually can continue undisturbed. As Rome burns around them, they see no peril at all in perpetuating the status quo. They fail to see that against a backdrop of trillions, EB-5’s few billions are at risk of getting cancelled entirely if the risks and distractions prove not to be worth the effort to our government. They fail to see that the blind acceptance of Chinese investors and agents is starting to change.
The bill is not the end of the EB-5 program as some complain, but rather, to quote another great leader, Winston Churchill, “It is [or would be] the end of the beginning.” With any ending, the next phase will require an adjustment process. Foremost, the shenanigans that were allowed in constructing TEAs would end and there would be no project grandfathering. The draft bill contains a very reasonable compromise that allows truly disadvantaged areas and the immediate proximate areas to qualify for the lower investment threshold. It is true that some projects, those in the most affluent areas, may no longer qualify as TEAs. To those developers, please stop whining. If you are fortunately enough to have the right to develop a plot of land in Manhattan, Los Angeles or Miami with a budget of hundreds of millions of dollars, whether or not EB-5 capital is part of your program will not matter one iota. Your project will get financed and you will make your many millions. A few less than without EB-5 capital, but so be it. Or maybe your investors would be willing to pay the 20% additional amount required to be part of a project in a premium location. Even if not, use the disappointment as a challenge and deploy the needed skill and efforts to a development that is slightly less lucrative, but that does qualify for EB-5, which then makes it worth a good bit more. Learn, adapt, adjust. A new challenge is simply an opportunity for those willing to take hold of it. The objecting Regional Centers are acting like the auto makers faced with mandated seat belts and then air bags a generation later. They screamed and predicted massive woes. Instead, the market embraced the newer better technology, which ultimately helped propel further growth. So too will be the path of an improved Regional Center program in EB-5.
The bill requires all Regional Centers to have 10% direct jobs. Read another way, that’s one whole job per investor. One, the smallest possible integer. Is that so much to ask? The currently accepted econometric methodologies fail to prove two important points. Firstly, that the jobs created will have a long duration and secondly, whether the created induced and indirect labor actually goes to American workers. This requirement simply insists that America, the “we the people,” get one single eVerified job per investor to insure, at a minimum, some verified value to our society in exchange for the coveted lawful permanent residency. Again, some Regional Centers complain that their current way of doing projects would not qualify. The answer is, so change. Evolve. If you are building an office building, add a call center or health clinic as part of your plan. If you are building a warehouse, add a trucking company. If you don’t know how to do it, joint venture, engage with other professionals. One job per investor would require 10% of the EB-5 capital. If you can do that at the present $500K level (which many who focus on Direct EB-5 know how to do), then at $800K investment levels, it would require a little over 7% of the EB-5 capital to work. Or simply gross up the budget for the new requirement.
The anti-fraud, securities laws and verification requirements are needed reactions to a history of abuses that have only recently garnered regulator attention. No one can nor should object. It’s a pain and expensive, but deserved. If the industry had done a better job at policing its own ranks, the heavy hand from above would not have been needed. This can and will force the marginal and fraudulent players from ever wanting to try their hand at the game.
This doesn’t need to be a war, it should, in fact, be a celebration of the next chapter in the evolution of the EB-5 program. I call on everyone to reach out to their Senators and Representatives in Congress (especially those on Judiciary and Appropriations Committees) to express strong support for inclusion of the EB-5 reform language in the Omnibus bill. Let us work together to build a better EB-5 program and with it a better America.
About The Author
Matt Gordon is a noted policy expert in the visa-based investments field and is an authority on structuring visa-based investments. Mr. Gordon’s career spans business operations, finance and law. He is the editor of the EB-5 Book, the legal treatise on the EB-5 program and a frequent lecturer to immigration attorneys. Mr. Gordon has participated in policy events, including those hosted by the White House and Harvard University’s Kennedy School of Government. Prior to founding E3iG, Mr. Gordon was an investment banker for a decade and ran the US division of a Swiss multi-national corporation. Mr. Gordon is a licensed attorney, having practiced mergers and acquisitions law at the beginning of his career with the largest and most reputable Wall Street firms including Fried Frank and Sullivan & Cromwell. Mr. Gordon received his B.S. in Policy Analysis from Cornell University and his J.D., cum laude, from the University of Pennsylvania School of Law.