FBI agents remove boxes of documents from the California Investment Immigration Fund offices after serving search warrants in an investigation into an alleged $50 million high-end visa fraud scheme involving as many as 100 Chinese nationals in San Gabriel, Calif., on April 5, 2017. The scheme allegedly involved the EB-5 visa program, which offers foreign nationals legal residency in the United States in exchange for investments of at least $500,000 in U.S. businesses that create a minimum of 10 American jobs. (Mark Ralston/AFP/Getty Images)
Chinese investors once again can purchase green cards by investing in the U.S. real estate market under the aegis of a controversial immigration program that has been revived after lapsing last year.
The $1.5 trillion omnibus spending bill passed by Congress and signed by President Joe Biden earlier this month reauthorizes the heart of the EB-5 investor visa program, which awards green cards to wealthy aliens and their families in return for significant investments in the United States. Most immigrant investors hail from China.
Critics of the program question the wisdom of allowing immigrants to buy their way into the United States. The EB-5 program, intended to create permanent jobs in economically depressed areas, has also been wracked by scandals and abused by property developers to channel investment into luxury real estate projects in places like Manhattan and Beverly Hills.
The program allows visa-seekers to either invest in the United States directly or pool their investments with other immigrants via agencies called regional centers. Most EB-5 investments are directed to rural or high-unemployment zones known as Targeted Employment Areas (TEAs). Crafty developers have often manipulated the boundaries of these zones to place real estate projects in upscale neighborhoods.
Chinese visa-seekers in recent years have dominated the EB-5 program, helping fund an array of enterprises from restaurants to trophy real estate developments. Between 2012 and 2018, investors from China claimed about 80 percent of the 10,000 EB-5 visas available each year, exceeding all other countries combined, according to an analysis by attorney Winnie Ng.
By 2019, demand from China so outstripped the number of available visas for the country that new investors faced an estimated 16-year wait before receiving an immigration benefit for plowing money into the United States. More than 32,000 Chinese nationals were in line for an EB-5 visa in May 2019.
Immigrants await their turn for green card and citizenship interviews at the U.S. Citizenship and Immigration Services Queens office in the Long Island City neighborhood of New York City, N.Y., on May 30, 2013. (John Moore/Getty Images)
In November of that year, new regulations took effect, raising the minimum threshold for investment in TEAs from $500,000 to $900,000. Because of the price increase, combined with already swollen waiting lists, “the level of EB-5 investment from China and elsewhere fell off precipitously in 2021,” reported Robert Divine, leader of the immigration group at law firm Baker Donelson.
A magistrate judge ruled to reinstate the minimum threshold of $500,000 in June 2021. The regional center legislation expired in the same month, as the U.S. Senate failed to reach a deal to extend the program. This month’s reauthorization of the regional center scheme sets a new minimum of $800,000 for pooled investments in TEAs and $1,050,000 for investments outside the TEAs.
It also adds welcome integrity reforms designed to crack down on the program’s notorious corruption. “The package contains an impressive set of requirements for audits and investigations, reports, reviews, and on-site inspections,” noted David North, a fellow of the Center for Immigration Studies, in a blog post on the new legislation.
The Washington-based think tank provides a handy map identifying the locations of some high-profile EB-5 scandals, including criminal cases, civil suits, and corrective actions taken by the Department of Homeland Security. This cartographic representation of fraud and folly does not include an ongoing federal case involving the efforts of some 88 Chinese investors to recover $50 million owed to them by the developers of an unbuilt Chicago office tower.
While the integrity measures should go a long way toward rooting out fraud and corruption, it’s far from clear that the new EB-5 rules will end the rampant misuse of the program to supply cheap financing for lavish real estate projects. The revised program still gives “wide latitude” to regional centers to decide where EB-5 investments should be targeted, North commented.
A woman pushes a stroller past a banner at a construction site project financed by the Shanghai Commercial Bank, in San Gabriel, Calif., on May 17, 2016. A massive surge in Chinese buying of both commercial U.S. real estate and residential property last year took their five-year investment total to more than $110 billion, according to a study from the Asia Society and Rosen Consulting Group, as Chinese nationals became the largest foreign buyers of U.S. homes. (Frederic J. Brown/AFP/Getty Images)
A prime example of Chinese investment being leveraged for dubious purposes is the $25 billion Hudson Yards mega-project in Manhattan, which received at least $1.2 billion in financing through the EB-5 program. The developer, The Related Companies, solicited investments from about 3,200 foreign visa applicants for the widely mocked, troubled property, which opened in 2019.
According to an investigation by writer Kriston Capps, Related raked in EB-5 funds meant for poor areas even though Lower Manhattan, where Hudson Yards is located, doesn’t qualify as distressed. That’s because the boundaries of the TEA surrounding Hudson Yards were creatively drawn to include several census tracts in Harlem, where the overall unemployment rate is higher.
Regardless of where the funding goes, the reauthorization of the regional centers isn’t likely to have a significant impact on overall foreign investment in the U.S. commercial property market. For all the controversy it generates, the EB-5 program is relatively small.
The regional center program has enabled some $37 billion in total capital investment since 2007, according to data cited by commercial property trade group NAIOP. That includes all types of economic development projects in the United States. By contrast, cross-border investors poured $70.8 billion into U.S. commercial real estate in 2021 alone, according to a report by Real Capital Analytics (RCA).
Chinese investors have largely retreated from the market amid pandemic-related travel restrictions and tighter capital controls imposed by the Chinese Communist Party in recent years. Last year, mainland China ranked as the 18th-largest foreign source of capital for commercial real estate investment in the United States, accounting for just $534 million of property purchases, RCA reported.
Greg Isaacson spent 7 years in China and Thailand researching and reporting on business and real estate in Asia, with a focus on commercial real estate in Chinese-speaking markets as well as outbound investment from China. He has also worked as a real estate research analyst in Chicago and a real estate reporter in New York.
