What Are The Controversial Proposed Changes To The EB-5 Immigrant Investor Program For 2016?

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The main controversial proposed change to the EB-5 Immigrant Investor Program is regarding Targeted Employment Areas, or TEAs. A TEA high end employment area has one and a half times more unemployment than the national average. For example, if the national unemployment average is example is 6%, then one and a half times that is 9%. The current annual rate of national unemployment is about 5%, so this would be any location where the unemployment for last year, is 7.5% or higher. The other definition of a TEA is a rural area, or population outside of the city, no larger than 20,000 people. In these areas, the minimum investment amount would be $500,000 instead of $1 million.

Under the current law, all the states have different criteria for determining how big of an area a TEA would cover. For example, one of the types of problems the legislators are trying to fix is that there is a new hotel going up in Beverly Hills.

You may say to yourself, “How can Beverly Hills be a high unemployment area?”

Beverly Hills is not actually a high unemployment area. However, in California you can put together up to 12 contiguous census tracks. If the average is in excess of 7.5%, then you can deal with the program in an area that is actually not a high unemployment area. It’s happening in a number of states, where there are these so called abuses. The same thing is happening in New York as well with big developments in Manhattan that are allowable as TEAs; it’s the state of New York figuring TEAs.

The controversial proposed change is that you have to build in the area where your project is. You can’t add-on other census tracks or other areas in the average to be in a TEA. This is a big stumbling block because there are a lot of lobbyists from big developers who want to keep it the way it is.

Do Most EB-5 Investors Participate at the $500,000 level or the One Million Mark?

The regional center investors are over 95% of all investors. The other 5% are individual “direct” investors who are investing in their own projects. Of the regional investors, there isn’t an exact figure, but probably over 98% of these projects are in an investment of $500,000. Every once in a while you hear about a $1 million regional center project but it is very rare. Why would somebody spend a million dollars when they can do the same thing for $500,000?

As far as direct investment, there are no statistics. However, if you are forming your own business, you invest whatever you need to for the business. Certainly within the direct investment, there may be a number of $1 million investments, but that is a minority of all cases.

What Can Be The Potential Issues With The Lower Amounts?

There aren’t any issues in the lower investment amounts. For example, let’s say someone is building a hotel and the cost to build the hotel is $40 million and the EB-5 investors will contribute $20 million and then the developers put in $20 million themselves. It’s just a matter of being able to show you are in a TEA so that the lesser amount is the amount that is required. There are no issues at all.

Have The Investment Threshold Amounts Ever Been Adjusted For Inflation?

The investment threshold levels have never been adjusted for inflation. Therefore they have remained at the $500,000 and $1 million which dates back to 1997.

This is one of the reasons why both Immigration and Congress are going to raise the minimum from $500,000 to $800,000. That will most likely happen October 1st or the end of the year, at the same they address TEAs and other issues.

Does The Increased Amount Include Any New Fees Or Is It Just the Existing?

There are two types of fees. The filing fees are going up in the next month or so and those are for someone who wants to qualify for an EB-5 Regional Center. The first application to file is called the I-526. That’s the petition to show that the investor has selected an investment and made the investment for $500,000. Additionally, in all regional centers, there is also an add-on of administrator’s fees.

The administrator fee is anywhere from $40,000 to $50,000. When you are an investor, you are investing $540,000 to $550,000. That’s the investment amount. At the time you file the I-526, you also have to prove source of funds; in other words, where the money came from. The I-52B application fee to Immigration has been $1500 and it is going up to approximately $3650. This is a big increase in the fee to adjudicate an I-526 application. Other fees are going up by an average of 20%. This is a dramatic increase, over doubling of the cost of this application.

For more information on Changes To EB-5 Program, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (310) 477-3000 today.

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