New bill from the Obama administration includes raising the EB-5 minimum investment.
The Obama administration proposes raising the EB-5 minimum investment amount from $500,000 to $1,350,000. This new change in the investment amount is 2.7 times the minimum.
In addition to raising the EB-5 minimum investment, the Obama administration also proposed changes to the how targeted employment areas (TEAs) can be designed.
For many months now, EB-5 industry insiders have expected a slight raise in the minimum EB-5 investment amount, but also a slight increase in the amount of visas available. Many suggested the Regional Center Program's minimum investment requirement would rise from $500,000 to $800,000, but this new proposed amount of $1,350,000 is a little steeper. There would also be no increase in the number of visas distributed.
Would this new proposal affect the amount of foreign investors investing in U.S. businesses?
Currently, there are more people interested in the EB-5 Program than there are visas available and that has created a massive backlog. It's also important to note that the majority of EB-5 investors are from Mainland China, where economic uncertainty has led many wealthy Chinese investors to look at investing overseas in the U.S.
Despite the increase in the minimum investment amount, a $1,350,000 investment in exchange for green cards (and ultimately citizenship!) for the foreign investor and his or her family is still a great deal.
Would the changes to the TEAs affect the EB-5 Program?
The location of EB-5 project investments determine the minimum investment amount required. At the moment, an EB-5 project located in a targeted employment area can acquire investors for the low investment amount of $500,000. An investment located outside of a TEA requires a higher investment amount of $1,000,000. (Ignoring the new proposed changes to the investment amounts for the moment...) It's easy to see that an EB-5 project with a lower investment amount will attract more investors. The investor's ultimate goal is a green card for their investment, so they have no interest in paying more into the investment than absolutely necessary.
The purpose of lowering the investment amount for TEAs was to encourage project developers to build in cities with high unemployment. Skilled economists have figured out how to design targeted employment areas in such a way, however, that allow project developers to say their project is located in a TEA even if it might not seem that way (such as projects located in New York City), and therefore, they can receive EB-5 investments at the minimum amount of $500,000.
The new change the Obama administration proposes is to reform how TEAs are designed so that investments that are intended for rural or high-unemployment cities actually go to those cities.
Why not take advantage of the intense interest in the EB-5 Program and raise the minimum investment amount required? Currently, in return for their very small investment of $500k, foreign investors are receiving green cards for themselves and their families. It seems more than likely that these same investors would just as easily invest the $1,350,000 in exchange for U.S. green cards.
The proposed changes to the TEAs could be very beneficial to depressed areas in the U.S. that could use the large real estate projects to revitalize industries.
Although these changes were proposed in a bill by the Obama administration, the Trump administration will be the one with the power to make changes.