A cash-for-visa program that has raised more than $40 billion for U.S. real-estate projects and other enterprises, funding major developments like New York City’s Hudson Yards, is in danger of going out of business.
A key part of the so-called EB-5 program, which hands out green cards to foreigners who put at least $900,000 into U.S. entities that create jobs, is set to expire at the end of the month.
Lawmakers are racing to reach a deal for an extension. Some are looking to add stricter rules to the program to prevent fraud and steer funding to rural areas, while real-estate groups and some lawmakers from states such as New York want to make it easier for property developers in big cities to raise EB-5 money. The effort to find a compromise has picked up pace in recent days, lobbyists say.
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The program’s demise after almost 30 years would be a blow to the real-estate industry, which has come to rely on green-card applicants as a cheap source of funding. Developers of projects such as Brooklyn’s Pacific Park and Steiner Studios also relied on EB-5 funding to complete their visions. It also isn’t known whether existing investors could still receive their green cards if the program expires.
Sens. Chuck Grassley (R., Iowa.) and Patrick Leahy (D., Vt.) have made a proposal that would more tightly regulate which foreign investors and investment projects could qualify under EB-5. The bill also would include more stringent reporting requirements on the progress those investments are making.
Sen. Chuck Grassley (R., Iowa) wants changes made to EB-5 and says he will let the program expire if changes aren’t made.
They have proposed a five-year extension of regional centers, which are set to expire at the end of the month and allow U.S. businesses to pool money from many EB-5 investors. The centers have made it possible to fund big real-estate projects.
Mr. Grassley has warned colleagues that he would prefer to see the program die rather than be reauthorized without changes. “Make no mistake, this program cannot continue in its current form,” he said.
Senate Majority Leader Chuck Schumer (D., N.Y.) opposes the bipartisan bill, as do many in the real-estate and EB-5 industries. Industry representatives say they will only agree to the proposed measures if lawmakers make it easier for developers to raise money.
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Messrs. Grassley and Leahy have long pushed to change the program, which they say is prone to fraud and which they believe has allowed easy-to-get foreign capital to flow to flashy projects in urban areas rather than investments in more rural parts of the country. The Securities and Exchange Commission has opened a number of investigations into EB-5 projects for violating U.S. laws. Some people affiliated with EB-5 projects have pleaded guilty to federal fraud charges for allegedly cheating immigrant investors out of their money.
EB-5 fundraising surged during the past decade’s real-estate boom. It declined in recent years after new federal rules raised the minimum investment amount to $900,000 from $500,000 and made it harder for developments in places such as Midtown Manhattan to qualify. An annual limit on EB-5 visas has also led to a yearslong backlog in applications that slowed the program down further.
The regional-center program has come close to expiring before.
Typically, the program has been renewed as part of Congress’s annual spending process, with Congressional leadership tucking an extension into broad spending packages and daring its opponents to vote down the entire bill.
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This year, Messrs. Grassley and Leahy successfully pushed for the program to expire months ahead of Congress passing a new spending bill, forcing a fight over their proposed changes.
The new dynamic has divided the industry. Some property developers and regional centers support the Grassley-Leahy bill. They want to avoid the risk of the program expiring, and the long reauthorization period would allow them to at least manage the money of existing EB-5 investors for many more years.
Other developers say the program has been essentially unusable since a federal rule in 2019 raised the minimum investment amount to $900,000 and took away the ability of states to gerrymander designated high-unemployment areas to make favored real-estate projects eligible. They want to reverse some of the changes and raise the annual limit on the number of new EB-5 visas.
“The Grassley-Leahy bill would unfortunately create an unusable program,” said Angelique Brunner, CEO of the Bethesda, Md.-based commercial real-estate investment firm EB5 Capital. “It would be as detrimental as the current form of the regulations, if not worse.” She said she had been unable to raise EB-5 capital and hasn’t started a new project since the 2019 rule went into effect.
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Senate Majority Leader Chuck Schumer opposes a bipartisan bill that would make changes to the EB-5 program.
On Thursday, three weeks shy of the program’s expiration, Sens. Leahy and Schumer held a call with industry representatives where the groups tentatively agreed to try and find a compromise, according to two people who participated.
Some industry groups have proposed shortening the extension from five years to one year to give them an earlier chance to renegotiate the program’s rules. Mr. Schumer could allow the program to temporarily expire, resurrecting it with the next spending package in the fall.
The program’s opponents hope that a new bipartisan wariness toward China could complicate the politics of reopening the program if it were allowed to expire. In the past, EB-5 has been primarily used by Chinese investors.