Real Estate Developer and Investor Arik Kislin: Should the EB-5 Visa Program be Renewed?

The EB-5 program is set to expire on September 30, 2017, raising controversy about its future.  Senator Chuck Grassley and Senator Dianne Feinstein are pushing for the program to be changed drastically, by raising the minimum cost to $750,000 and/or capping Chinese investors.  If that’s not possible, then they believe it should be abolished completely, since it can be a tool that’s utilized for fraud. In January, Senators Grassley and Feinstein introduced bill S.232 to end the EB-5 visa program and reallocate the 10,000 EB-5 visas among different immigrant visa programs.

Where the EB-5 Visa Program Came from and Where it’s Going

Created in 1990 by the Immigration Act of 1990, the EB-5 program allows immigrant investors to become lawful residents by investing $1,000,000 in the U.S. in commercial real estate in a business that will employ at least ten American workers. This can be reduced to $500,000 if the investment is in a rural area, or an area with high unemployment. The EB-5 Immigrant Investor Visa Program is one of five employment-based preference programs in the United States. However, it has been criticized for favoring Chinese investors and encouraging fraud.  The fraud surrounding EB-5 has led to several arrests over the years, most notably the arrest of Shilan Zhao in March 2015, the ex-wife of a former Chinese official Jianjun Qiao (the couple also purchased U.S. property with laundered money.)

The EB-5 Visa Program’s Influence on the US Economy

Now, let’s assume that the EB-5 program changes, keeping in mind that the program has funneled over an estimated $18B in foreign dollars into US development since 2008.  Perhaps those changes to the program will take away $5-$7 billion in base investments, for a total effect that is about 5x more than that. Most deals have 80 percent financing, which brings it to about $35B. EB-5 was cash equity. This ensured that cash would be coming into this country, a major boon for both local and our national economy. Without that cash-flow, our real estate markets could take a dip.   

The Bottom Line

If the changes take away $35B in development, that will impact the market tremendously. Developers rely on funding that comes through the EB-5 program to help finance new properties and projects. On the other hand, there is so much development now in big cities like Los Angeles, Chicago, Miami, New York, etc., that some in the real estate community, myself included, believe that there is too much supply. A limit on EB-5 may offer a short-term lag in building projects and short-term pullback, but it will offer longer term gains, as it will allow the market to absorb the supply and catch up. September 30th is the deadline for renewal of the program. I’m confident it will be renewed, but we’ll see soon if it’s with changes, or not.

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