EB-5 Regional Centers

By Wing Leung

When capital from traditional financial institutions and investors is tight, non-traditional avenues garner increased attention. One such avenue has been expanding rapidly in the wake of the capital shortages that have followed the subprime crisis: EB-5 investments. These are investments made by foreign nationals in new commercial enterprises in order to secure legal permanent residence status in the U.S.

While the EB-5 program has nominally existed since 1990, it was originally hamstrung by strict requirements, bureaucratic delays and inconsistent rulings and regulations. However, a series of improvements in recent years have loosened the technical requirements and provided greater certainty to EB-5 investors that they will actually have permanent resident status, encouraging the growth of the program.

The program originally required investors to put at least $500,000 at risk in an investment that benefitted the U.S. economy and directly created at least ten jobs. The minimum investment now is $1 million unless the investment is made in a Targeted Employment Area, with unemployment at least 150% of the national average. However, the program now allows investments to be made through Regional Centers that pool investments so that the individual investor need not be responsible for directly overseeing the specific investments. Moreover, investments made through Regional Centers need not create ten jobs directly; indirect job creation can be counted as well.

As of 2010, there were roughly 100 Regional Centers, each of which focuses on investments in an exclusive geographic territory. A Regional Center is any economic unit, public or private, that is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation or increased domestic capital investment. Regional Centers are designated by the U.S. Citizenship and Immigration Services department through an application process in which the proposed center documents its business plans, showing how it will have an economic impact on the designated region and how it will prove that it has created at least ten jobs per investor. Regional Centers can participate in a large range of projects, and Center real estate investments include the development of commercial and professional office buildings, hotel development, shopping centers and retail space.

For a developer, the EB-5 program provides at least two avenues: soliciting investments though existing Regional Centers that have attracted investors, or setting up a new Regional Center to fund its own projects. Either way, it is important to recognize that the EB-5 program has numerous technical requirements, and that despite recent improvements, the program is subject to legal and regulatory uncertainties in addition to typical market factors. Moreover, most Regional Centers are new entities with plans and aspirations but no track record on which they can be judged, so caution and due diligence are important in dealing with the EB-5 program.

Please This e-mail address is being protected from spambots. You need JavaScript enabled to view it. to discuss any questions you have regarding this topic.