The EB-5 program is a United States investment visa program. The program’s goal is to gather foreign investments to inject into targeted employment areas that correlate directly to job creation in said areas. The EB-5 industry is huge in Asia, with massive investment visa backlogs in places like China and Vietnam. Furthermore, as the EB-5 industry has been lightly regulated in the U.S. and abroad, quite a few fraudulent EB-5 projects have been covered in the media, but the program is booming.
The American dream for $500,000 or $1 million? Could it really cost that much to become an American? If you are trying to gain citizenship via the EB-5 investment program, there will be a hefty price, and with no guarantee that you will get your primary green card, permanent green card, or citizenship. Many Americans are probably not even aware of this program. Still, in crowded exhibition halls and hotels in Ho Chi Minh City and Shanghai, the EB-5 program is touted as the best and most surefire path to the American dream with limited capital. But does it work? Let’s break it down below.
What is an EB-5 investment visa?
The EB-5 investor visa is a U.S. permanent resident and immigration visa allowing foreign investors to invest in U.S. projects and receive a green card, permanent residency, and citizenship in return.
The investor invests directly in a business or through an EB-5 regional center that allocates capital to a business or project. The amount of the investment depends on whether the investment is in a targeted employment area (TEA) or not
History of the EB-5 program
The EB-5 program came about in 1990 with the passage of the Immigration Act of 1990. The program opened a pathway to citizenship for foreign nationals, their spouses, and their children under 21 years of age. The investors must put their money “at risk” in a project, with each investment creating at least 10 jobs.
The program was in existence for decades and seldom used. That all changed after the 2008 global financial crisis. On the back of the crisis, the American government loosened the terms of the EB-5 to a minimum investment of $500,000, as long as the investment was in an area deemed a “target employment area” or TEA. This change coincided with a period of unprecedented boom in the Chinese economy. Suddenly, EB-5 visa demand skyrocketed, as you can see in the graphs below.
As of 2019 and 2022, the EB-5 immigrant investor program, which is managed by U.S. Citizenship and Immigration Services (USCIS), was revised yet again to make it less expensive.
EB-5 regional centers
An EB-5 regional center is a private or public entity that stimulates investment and allocates capital to various projects.
Although not required, most EB-5 developments being marketed will revolve around an EB-5 regional center. According to the USCIS, a regional center is “an economic unit, public or private, in the United States, involved with promoting economic growth.”
During the original conception of the EB-5 program, investors had to invest directly into a business and create 10 jobs via said investment. These jobs had to be either direct or operational. In 1992, Congress expanded the EB-5 program through the creation of regional centers, which allowed capital to be allocated differently, and job creation was defined differently.
How the EB-5 program works, and what the changes mean
The EB5 program has several moving parts, some of which are:
- At-risk investor capital
- Investment location
- Type of project
- Job creation
- Visa processing
At-risk investor capital
The investor puts a certain amount of capital at risk in a project. “At-risk” means that there can be no explicit guarantees of capital protection when the investor invests. Usually, this is done via equity investment through a regional center or direct investments. Although an EB-5 investment can cover multiple types of projects, it has been primarily used to fund real estate-related projects. The minimum investment amount has changed over the years.
1990: $500,000 or $1 million
2011: $500,000 (TEA) or $1 million
2019: $800,000 (TEA) to $1.8 million
2022: $800,000 (TEA) to $1.05 million
Initially, the EB-5 program was only for ground-up foreign national entrepreneurs who wanted to come and do business or open up a new commercial enterprise. That all changed, however, in 2011, when the USCIS changed the terms. Now, people could invest a minimum of $500,000 in targeted employment.
To do this, they created target employment areas, which were areas that had 150% of the national unemployment average. However, just like politics, EB-5 programs would gerrymander the TEA until most of the U.S. was considered a TEA. This changed in 2022.
1990: Entrepreneurs anywhere
2011: Anywhere or target employment areas (areas with 150% of the national average unemployment)
2022: Anywhere or target employment areas with a focus on rural areas and no-gerrymandering
Type of project
Requirements for the type of project people could invest in changed in 2011. Instead of needing to create entirely new enterprises, EB-5 investors could invest in businesses directly or through third-party regional centers. This totally changed the game for the EB-5 program, as now businesses and real estate developers could raise “free capital” in exchange for investment visas.
1990: Entrepreneurs starting a business in the U.S.
2011: Struggling businesses or regional centers in TEAs can now accept EB-5 capital
Each investment, whether it be in a TEA for a discounted investment price or a full EB-5 investment, needs to create at least 10 jobs.
2011: Investors can invest through regional centers or directly in businesses
Now, it’s important to decipher how these jobs are created. Back when the program was first launched, each company had to have 10 employees or create 10 operational jobs to qualify for the visa.
However, after 2011, there might be hundreds of EB-5 investors investing in one project. So how do you define 10 jobs?
Economic analysis of job
An army of economists was hired by different regional centers to come up with job creation reports. Here’s an example of a real estate project report:
- 200 jobs were created by workers directly in the project
- 200 jobs were created by the drivers going to and from the project delivering materials
- 400 jobs were created by the fast-food restaurants serving the workers in the area
- 50 jobs were created by the need to put air in the tires for the trucks to come and go with building materials
Instead of directly creating 10 jobs with a company like before, now there are feasibility studies conducted by economists to prove how jobs are created in the TEA.
EB-5 visa process and wait times
The EB-5 program allows individuals and their immediate family members to obtain visas, as long as the children are under 21 years of age. Visa processes and wait times for the EB-5 are crucial when considering an EB-5 investment. The process is as follows:
The I-526 is the first approval stage; in 2022, this changed to two separate I-526s:
- I-526 – stand-alone investment (direct investment)
- I-526E – investment through a regional center
The I-526 is a conditional green card, with the condition that the jobs must have been approved within two years of an I-526 issuance.
I-526 wait time: 30-61 months
The I-485 is an “Application to Register Permanent Residence or Adjust Status.” It grants full residency to the applicant. It is known as an “adjust status” visa, as it adjusts the I-526 to a permanent green card.
I-485 wait time: 7-29 months
EB-5 and U.S. citizenship
After five years of being a lawful permanent resident, the I-485 holder can apply for U.S. citizenship and receive an American passport.
Why take EB-5 money as an investment?
EB-5 money is so attractive to real estate developers and business owners because it is essentially free money. Some EB-5 investments might return a paltry 1% per year, and some might not return anything at all. The point is that the investors don’t care about the return; they care about the visa.
This gives businesses and real estate developers access to capital they would otherwise need to pay for. Usually, project owners would need to be paid a preferred return in addition to part of the upside to raise equity.
We spoke to Gar Lippincott, a founder of Atlantic American Partners, which runs one of the most successful equity funds available. His fund provides developers with EB-5 capital raised around the world.
“For instance, 18 months ago, developers could get 70% of their development budget from a construction loan; today, you can get 50-55%,” he says. “And the interest rates were around 5% then, but today are between 8-11%. The benefit of EB-5, either as a mezz loan or equity, is that our return hurdles are lower because the cost of EB-5 capital is much less than for traditional sources of mezzanine loans or equity. Because we can take a lesser return on our investment than our non-EB-5 competitors, the returns for the developers are better. So there may be some deals that don’t pencil out for the developer unless they use EB-5 capital in their project.”
EB-5 regulation: fixed or not?
One of the difficulties regarding EB-5 investments has been the limited regulation of the program in the U.S. and virtually no regulation abroad. This has led to numerous scams in which foreign investors are holding the bag. Two of the most famous ones are:
A Chicago Convention Center
A developer with close to no track record, Anshoo Sethi, claimed to be building Chicago’s most important hotel complex development worth billions of dollars. He took hundreds of millions of dollars in investment from mainland China and was arrested and tried in the U.S. for fraud.
Jay Peak Resort
An EB-5 regional center that was intended for two separate projects was instead allocated to the Jay Peak Resort. Millions of dollars in EB-5 investor money was rerouted through a complex web of accounts and unaccounted for when the project hit receivership.
However, although there have been scams, these are rare and by no means the norm. In most cases, EB-5 visas will be granted as long as the program is what it says it is. If you are considering an EB-5 investment, make sure you do your due diligence, so you can avoid some of the pitfalls that come with lack of regulation, overseas.
What are the benefits and advantages of an EB-5 investment?
The benefits and advantages of an EB5 investment are that they are one of the few pathways to American citizenship, many visas have been granted, and the types of projects or businesses one can invest in are quite diverse.
What types of projects or businesses are commonly funded through the EB-5 investment program?
Originally, EB-5 projects were primarily businesses. However, after the 2011 legislation, many EB-5 investments were related to real estate and infrastructure developments. Part of the reason is that the EB-5 program was so heavily marketed in Asia, and Asian investors both prefer and understand real estate-related investments more.
Are there any risks or considerations associated with EB-5 investments?
Yes, in fact, the money has to be “at risk” to qualify for the program. The largest risk is that the investor loses all of their money, but there can also be risks in backlogs, being denied visas, and lack of evidence of job creation.
- The EB5 program is an investment visa program offered in the United States to create jobs.
- The EB5 program requires an investment that is considered “at risk,” directly in a company or through a regional center.
- Once an investor receives their I-526 visa, the I-485 permanent visa is conditional, based on the jobs created (10 per investment).
- Businesses and developers see the EB-5 program as a great way to raise cheap capital while helping the U.S. economy.
View Article Sources
- EB-5 Immigrant Investor Program – U.S. Citizenship and Immigration Services
- EB-5 Immigrant Investor Regional Centers – U.S. Citizenship and Immigration Services
- Immigrant Investor Visas – U.S. Department of State
- The Immigration Act of 1990 – Immigration History
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