New EB-5 "Discussion Draft" Excludes Larger Cities From Qualifying

WASHINGTON, DC—A discussion draft on potential legislation that would renew the EB-5 program's statutory authority, now set to expire on Dec. 11, is being circulated by the House of Representatives' Judiciary Committee.

The draft precludes Downtown business districts in the larger US cities from qualifying as targeted employment areas, thus making them ineligible for the lower-tier investment level, a source who is familiar with the draft, tells GlobeSt.com.

The "winners" under this new measure appears to be rural areas and cities that have less-dense population centers. The real estate industry, for the most part, has been pushing for the program to use census track commuting pattern statistics as the basis for Targeted Employment Area, or TEA, designations. This approach would still allow EB-5 projects within metro areas, but at the same time ensure that people in high unemployment areas are being employed by EB-5 projects.

Conversations about the draft are continuing, according to the source. Also, as any Capitol Hill watcher knows, even this stage of the legislation-making process can be surprisingly fluid.

Waiting for Renewal

The EB-5 program's statutory authority was extended in October as part of the continuing resolution passed by Congress to keep funding the government. Lobbying for its renewal -- and in a form that would hew close to its current incarnation -- has been intense from the industry. Critics, though, have pointed to perceived abuses under the current Eb-5 program, such as the development of projects in areas that do not need them and by developers that do not need government-subsidized funding.

One such project these critics might highlight would be the CCCC Miami Towers, a $1-billion mixed-use project in the city's Brickell area. This week the developers, China City Construction Holding Group and American Da Tang Group, announced they planned to tap EB-5 investors to help fund $350 million of its construction.

A Miami-based regional center called American Life Investments will promote the project among EB-5 investors in China and Latin America. The co-owner of the center, attorney Roger Bernstein, is adamant that the project fits within the perimeters of the program and is a genuine economic development initiative. "When you have a highly-regarded Chinese company investing close to $1 billion in Miami and creating nearly 9,000 jobs that is significant," he told GlobeSt.com reporter Jennifer LeClaire.

"This EB-5 project will serve as a catalyst to attract wealthy Chinese investors to Miami for many years to come. It's a win-win for Chinese investors and the South Florida economy."

There is a fair share of Congress people who would side with Bernstein about EB-5. Unfortunately for advocates of the program's renewal, they did not appear to get much input in this draft.

A Proposal from the Industry

The Real Estate Roundtable, EB-5 Investment Coalition and US Chamber of Commerce have been in the front lines urging Congress to reauthorize the program. In a letter they sent to congressional and Judiciary Committee leaders on Tuesday, November 3, the organizations suggested the following be included in the draft. Many of these measurs have been suggested by various Congress people and included in some of the EB-5 measures already introduced.

• "Integrity measures" that would help deter fraud and safeguard national security. 

• An increase in the minimum investment amount to $800,000 for projects in TEAs and $1.2 million for non-TEA projects. These increases would be phased in over two years.

• Expanding the definition of "rural" areas, for TEA purposes, to include low-population communities that are rural in character, but located inside officially designated metropolitan areas.

• Qualifying shuttered US military bases as TEAs.

• A Department of Homeland study of the types of projects receiving EB-5 financing, and where these projects are located. This measure was suggested by Sen. Rand Paul and it would address complaints about the lack of EB-5 data, as well as provide a baseline of information regarding the program.

• Applying any reforms prospectively or "grandfathering" investor petitions that have already been approved or that were filed under current rules.

• Packaging EB-5 reauthorization with other expiring programs such as the R-1 visas for religious workers, the Conrad 30 waiver program for J-1 medical workers, and the E-Verify platform.

The organizations would also like to see TEA designations based on a replicable, data-driven analysis that avoids arbitrary selection of Census tracts perceived to "game the system."

Asked about the discussion document making the rounds, Roundtable CEO Jeff DeBoer told GlobeSt.com only that "we continue to meet with all the relevant parties to discuss how this important program can be reformed to improve its integrity and also increasingly serve those who otherwise would find it difficult to work. "