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By Kenneth Rapoza, forbes.com Contributor
It's been called a pay-for-play citizenship program for rich Chinese. It's been lambasted as a fraudulent program where local real estate developers hoodwink innocent foreigners. And it's been blamed for converting precious urban space into luxury apartments instead of more affordable housing in cities like New York. It's the EB-5 investor visa. And it might have the misfortune of being tied to an omnibus spending bill everyone suspects will die on the vine on March 23.
As of late Wednesday, real estate developers in the EB-5 market say they will get a clean extension to the end of the fiscal year, September 30.
That's the best case scenario. The worst case is that the EB-5 Reform Act gets thrown into an omnibus bill that includes funding for border security, opioid abuse programs, and supposedly deals on DACA immigrants. That bill is such a cumbersome beast, that to pass it in one fell swoop would be akin to launching a rocket ship from your backyard, landing it on Mars, and returning it to your backyard by the end of the weekend.
"It's not going to get approved in its current form. It'll just get pushed out to be fixed later," says Ronnie Fieldstone, an attorney with Saul Ewing Arnstein & Lehr in Miami. Much of the city's skyline has been remade thanks to the EB-5 and rich foreigners who invested at least $500,000 in real estate projects in exchange for a green card. "I am pretty certain now that it will be extended for the 12th time and not be part of the omnibus bill."
Kicking the can down the road. When it comes to anything related to immigration reform, this is what Washington does best.
The EB-5 has been extended since 2015. It was last extended in September and then again in December.
Iowa Senator Chuck Grassley, the chairman of the Senate Judiciary Committee, is a staunch critic of the program. He said the so-called Regional Centers, which act as offices for real estate developers and lawyers who come up with building projects funded by foreign money, should be shut down.
"I’m calling on the Majority Leader, the Minority Leader Senator Chuck Schumer, and all my colleagues who value the integrity of our lawful immigration system to stand with me and end the regional center program," Grassley said this week.
Peggy Fucci is the CEO of OneWorld Properties in downtown Miami. They sell luxury south Florida real estate to the world. She sells EB-5 real estate projects like the sexy Paramount Miami World Center. One World just opened an office in Shanghai. When she was there recently, she drummed up around $70 million in business from Chinese looking to buy into Florida; EB-5 or not EB-5.
The U.S. issues 10,000 EB-5 visas annually. Around 90% go to Chinese investors.
"If Grassley closes down the Regional Centers and EB-5, I'm not closing my office in Shanghai," she says. "Plus we know the people who are coming in here on these visas. This is not about people crossing the border illegally, or coming here and surviving on public assistance. The source of funds that come into the country in EB-5 are heavily scrutinized and need proof from where it came from. It is not a simple case of, 'Oh you have a million dollars to build a building, okay, here is your green card, welcome to Miami,'" she says.
Like the H-1B visa used by the employers of high tech immigrant workers, the EB-5 is heralded by its users, and often trashed by politicians. There have been only a handful of abuse cases in EB-5, making it more sound than the H-1B. That visa has been the source of lawsuits against numerous Indian IT companies. It's also been the source of a 60 Minutes segment that was an embarrassing look for companies like Disney.
The draft EB-5 Reform Act will dramatically change a visa program that has launched dozens of big real estate projects up and down the east coast. For starters, it increases the minimum investment from $500,000 to $925,000 for set-aside projects, and from $1,000,000 to $1,025,000 for non-set-aside projects. There are also anticipated changes from the current requirement of 10 full-time jobs per EB-5 petitioner to 12 jobs instead.
Rodrigo Azpurua is President & CEO of Riviera Point Development Group in Miami. He has five EB-5 developments in South Florida and, like Fucci, has traveled abroad to tout his wares.
Given the program's volatility, Azpurua says he is coming up with other ways to bring in capital from Latin American investors who are not looking to become EB-5 visa holders.
"The uncertainty over the renewal of the program has made it more difficult to raise EB-5 funds and it has forced us to change our capital raising strategy," he says. "We will not use an EB-5 component until we have either a longer extension or an approved bill."
The greencard component has made for an enticing sell for developers who, over the last several years, were in dire need of funding. Many banks were closed after the housing crisis in 2008 and 2009. For years after that, lenders were less interested in lending to mid-sized developers in particular. EB-5 became a popular way for developers to get a loan. The greencard component made it easier to convince foreigners to put money to work in the States.
But even if the government scrapped the program, wealthy foreigners will still be buying apartments here.
In South Florida, that has been true for years. Miami was always known as a hot spot for money laundering into real estate. Today, a whole different group of people from Venezuela, Colombia, Mexico, Brazil and Argentina are interested in investing in real estate as a way to protect and grow their capital, regardless of whether they relocate.
"The idea that we are selling citizenship is off base," says Fucci. "They get greencards, not an American passport," she says, meaning EB-5 visa holders are not allowed to vote. "It takes the average Chinese investor seven years to get their paper's approved. They're buying for their children, to go to college here. I don't think they are buying citizenship. Maybe they are just investing in their children."
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