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Reforms to EB-5 Investment Program Expected Soon

Controversial U.S. immigration program, which was extended last week, has been thrown into the spotlight thanks to the Kushner family

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The final frontier in negotiations is a battle over where the program should direct the billions of dollars in development financing each year: major cities as it has for years or rural areas.

Composite: John Greim, Walter Bibikow / Getty Images
The final frontier in negotiations is a battle over where the program should direct the billions of dollars in development financing each year: major cities as it has for years or rural areas.
Composite: John Greim, Walter Bibikow / Getty Images

U.S. policy makers are expecting to overhaul EB-5 a lot sooner than its September expiration date. The controversial U.S. immigration program—a visa path for wealthy foreigners—is suddenly in the national spotlight thanks to the family of top presidential adviser Jared Kushner.

Mr. Kushner’s sister, Nicole Meyer, kicked up an ethics dilemma last week after promoting the company’s connection to President Donald Trump’s inner circle while meeting with EB-5 investors in China, where Kushner Companies is hoping to attract financing for a Jersey City housing development. The 27-year-old visa program, immensely popular among the Chinese, allows foreigners to obtain green cards by investing at least $500,000 in a U.S. project.

More:Uncertain Fate of EB-5 Program Turning Into a Quagmire For Chinese Investors

Lawmakers voted Thursday to extend EB-5 until Sept. 30 as part of a $1.2 trillion federal funding bill. But this latest short-term extension is different, insiders say, as they’re expecting to reach a deal on reforms within the next month or two.

"The reality is, unlike every other time they kicked it forward before, there are active negotiations," said Ronnie Fieldstone, a Miami lawyer who leads the EB-5 Law Group at firm Arnstein & Lehr.

The final frontier in negotiations—and a major sticking point—is a battle over where the program should direct the billions of dollars in development financing each year. Some say EB-5 should do as it was originally intended when enacted in 1990: aid rural regions and distressed urban areas, rather than helping big developers fund luxury hotels and apartment buildings.

For instance, the mega development Hudson Yards, on the West Side of Manhattan, which includes multi-million-dollar condo units, offices and upscale retail space, raised at least $600 million for its first phase through EB-5 funding, according to New York University’s Center for Real Estate Finance Research.

A new luxury condo in Miami called Panorama City raised 6% of its financing from EB-5 investors, according to the NYU research center. Other high-end projects in wealthy cities include apartment building 67 Eleventh in Manhattan; upscale, mixed-use building Hollywood Park in Los Angeles; and the Pierce Boston/Birch Point offices and condos in Boston.

It has also directly benefited President Donald Trump and his top adviser and son-in-law Jared Kushner, who reportedly used EB-5 investors to finance Trump Bay Street, a luxury apartment complex in Jersey City, New Jersey, which they jointly developed and opened in November.

More:Trump Presidency Unlikely to Stem Foreign Investment in U.S. Real Estate

One camp comprised of urban lawmakers ranging from Sen. John Cornyn, a Republican from Texas, to Sen. Chuck Schumer, a Democrat from New York, are resisting major changes to the program that would redirect money away from places like Manhattan, Dallas, Miami and Los Angeles in favor of depressed areas.

Last week, Mr. Cornyn proposed greatly reducing the incentive to invest in needier districts, dubbed "target employment areas," or TEAs. He wants to raise the minimum investment in a TEA to $800,000 (from $500,000), while lowering the minimum for non-TEAs to $925,000 (from $1 million), Mr. Fieldstone said, citing Mr. Cornyn’s draft legislation.

The program currently caps the number of visas issued each year at 10,000, including the spouses and children of applicants. The Cornyn draft bill would increase the number of investors—and thereby available financing—by excluding visas for their spouses and children from the annual cap.  

Meanwhile, lawmakers from rural areas, led by Sen. Chuck Grassley, a Republican from Iowa, and Sen. Patrick Leahy, a Democrat from Vermont, want to direct more EB-5 funding toward needy districts, where it could help with public infrastructure projects and job creation in depressed areas.

"The rural group believe the program has had unintended consequences, and that the majority of the money is going toward large urban areas," Mr. Fieldstone said. "They say, ‘Why are we funding these deals? That’s not the purpose of the program.’"

Mr. Grassley has proposed a draft bill that sets the minimum investment at $800,000 for projects in rural districts, distressed urban districts, areas with closed military bases, infrastructure projects and manufacturing, while keeping all other investments at a $1 million minimum.

The proposal would also set aside 1,500-3,000 EB-5 visas just for distressed urban and rural areas, and speed up green card processing times for infrastructure and manufacturing projects.

Incentives would likely draw foreign investors to infrastructure, as they tend to trust projects involving the U.S. government, said Mike Halloran, chairman and chief executive of NES Financial, a fintech firm based in Silicon Valley specialized in EB-5 administration.

"That’s the key: More public-private partnerships," Mr. Halloran said.

He sees a deal happening within the next month, though there is a great deal of "negotiation fatigue," he said.  

"That has made it harder to get to an agreement, there’s a high level of emotion whether it’s legislators or the industry," Mr. Halloran said.

More:U.S. Travel Ban Raises Concern Among Foreign Property Buyers

Failure to reach a deal before Sept. 30 could trigger U.S. Citizenship and Immigration Services, the agency that handles the EB-5 program, to take matters into its own hands.

The agency is also under pressure to reform the program and has floated far more drastic changes than those by either legislative camp. It has indicated it could raise the TEA minimum to $1.3 million and the non-TEA minimum to $1.8 million, Mr. Halloran said.

"Raising the minimum almost three times is certainly going to narrow the pool of investors," he said. He expects that would ground the program to a halt as investors wait for lawmakers to intervene. "They certainly would anticipate that there would be some legislative fix."

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