The EB-5 foreign investor program was created by the U.S. government in 1990 as a way to spur economic growth through the awarding of resident visas.
But it was seldom used for two decades. In 2004, just 247 foreign investors applied for visas under the program and there were still fewer than 2,000 applicants in 2010.
But with a flood of Chinese nationals now looking for ways to spend their accumulated wealth and take advantage of China’s recently relaxed foreign investment regulations, the program has exploded.
For the first time in the program’s 25 years, all 10,000 visas available annually were granted through the fiscal year ending Sept. 30, 2014 – and U.S. Citizenship and Immigration Services was tapped out by August.
Though a number of countries have access to the program and each is allotted 7 percent of the available visas each year, other participating countries can scoop up a nation’s unused visas. That allowed investors from China to take about 85 percent of the visas awarded last year.
“It takes a long time and it’s risky and you could lose your money, so if there’s another way that’s what I try to do for my clients,” said Johanna Keamy-Tavares, a San Diego attorney who for the past 17 years has specialized in business immigration law with a focus on foreign investors. “With the Chinese there aren’t a lot of options so they usually go through the EB-5 program.”
There are at least four confirmed EB-5 projects either underway or being funded on the Grand Strand, including three involving the Myrtle Beach company America EB-5 Group.
“EB-5 is economic development,” said Tom Morrison, one of four partners and CEO of America EB-5 Group as well as owner and CEO of the Grand Strand Tee-Offs golf package company. “It’s better than most people’s perception of it. I think it means good things for the area. In our market it’s going to be great for us for long-term sustainability.”
The program’s name is derived from the visa category for which immigrant investors apply – the Employment-Based Fifth Visa. USCIS says from 1990 through 2013, the program was responsible for at least 57,300 jobs created and more than $8.6 billion invested.
To qualify as an EB-5 project, a foreign national must invest at least $1 million and create 10 jobs for a minimum period of two years. The reward is temporary U.S. resident visas for the investor, a spouse and their unmarried children under 21. The visas can be converted to permanent resident visas after two years and U.S. citizenship after five. Any child born in the U.S. to the visa holders is automatically a U.S. citizen.
Only a $500,000 investment is needed in what are deemed high-unemployment or rural areas known as Targeted Employment Areas, and the vast majority of projects qualify for the lesser requirement. Jobs created directly or indirectly can be counted among the 10 in TEAs.
If there are multiple partners in an EB-5 project, the family of another partner can gain visas for every $500,000 or $1 million invested and 10 jobs created.
In the largest EB-5 investment into one project to date, the Related Companies is using $600 million from Chinese EB-5 investors to help fund its massive $20 billion Hudson Yards skyscrapers project in Manhattan, and plans to use more. Another company has raised more than $475 million through the program to construct its project near the Barclays Center in Brooklyn.
“I believe EB-5 funding will be building stadium projects, which takes a load off the taxpayer burden,” Morrison said.
None of the 13 golf courses that have been purchased on the Strand by Chinese nationals in the past 20 months involve the EB-5 program, nor does the $7.5 million purchase in late 2011 of Waccamaw Pottery.
New York City immigration attorney Xian “Nick” Dou, a partner in the Chinese investment company that has purchased nine Strand courses since June, said his group has had no interest in the program.
“We don’t need EB-5,” Dou said. “For us, it’s just for investment. … We’re just running a golf business.”
But with a full year to apply for the program after purchase, the three courses at Sea Trail Resort, which were purchased at a bankruptcy auction in June 2013 by a Chinese businessman known as Mr. Pan, are the only courses for which the filing date has passed.
Dou said his group might have interest in the EB-5 benefits if it adds additional investors for future purchases. “Up to now we haven’t,” Dou said. “We might think about that. We might have one.”
Sea Trail would have qualified for the EB-5 program because it was purchased out of bankruptcy so all the related jobs were saved, and the purchase of struggling businesses can also be credited with saving jobs. Morrison and Keamy-Tavares said a documented loss of 20 percent of net value over a one- or two-year period qualifies, or a 40 percent loss to net value over a five-year stretch. Morrison said land depreciation contributes to losses for golf courses.
“A struggling golf course, which is not hard to find these days, if you’re purchasing it and saving those jobs, then those jobs count,” Morrison said.
Morrison said his company is involved primarily with three EB-5 investment groups based in London and China cities Beijing and Macau. They have nine EB-5 projects encompassing golf courses, residential developments, assisted living centers and hotels in Georgia, Florida, Texas and the Carolinas, including three projects in Horry and Brunswick counties, which involve residential and commercial projects and recreational space – two may be completed within a month.
Morrison said his company has had 40 foreign investor groups visit Myrtle Beach over three years to see the market or look at specific projects, and has taken many of them to other markets as well.
“Our focus is finding good projects and going back to our investment groups to see if there is an interest,” Morrison said. “We look at projects that are already planned or laid out. There are enough projects in the country that have all that planning done and got stuck in bad markets.”
Some EB-5 investors pool money into one of 640 USCIS-approved public or private Immigrant Investor Regional Centers that help them find projects and assist with compliance. Morrison’s company also uses some of the seven Regional Centers that do business in South Carolina.
Sid Bhatt, who operates the Carolina Global Regional Center in Charlotte with partner Shashin Patel, said Friday that he is working to fund an EB-5 project for a hotel in Myrtle Beach.
Being involved in a U.S. business is a motivation to apply for the EB-5 program, but residents of China have other reasons for their investment.
“It’s usually because they want their children to study in the United States,” Keamy-Tavares said. “Many foreign nationals want a better life for their kids.”
The wait for EB-5 approval has increased to seven months to a year with the increase in applications, according to Morrison and Keamy-Tavares.
Corruption and fraud have also plagued the program. A report released Feb. 26 by the Congress-appointed U.S.-China Economic and Security Review Commission questioned if regulators’ could adequately keep pace with the program’s growth.
In a grievous case, Anshoo Sethi, the promoter of a hotel and convention center project in Chicago, was indicted last year on fraud charges after taking $160 million of Chinese investors’ money for the complex, which was never built. The government returned $147 million to the investors but allege Sethi misappropriated much of the rest.
It is difficult to track EB-5 projects, as USCIS doesn’t make information on specific projects available to the public, a spokeswoman said.
Attorneys representing EB-5 companies and counsel have asked Congress to increase the program visa limit to 20,000 in 2015 to accommodate the Chinese demand – investors from Canada, South Korea, Mexico and India are primarily the others taking part in the program – and Morrison believes the increase may occur.
“The one negative side to EB-5 is people think China is buying up America, but the good thing is these jobs would go away. It helps job growth and economic growth,” Morrison said. “The foreign investment people have a long-term strategy. It’s not as short-sided as us in the stock market. It has a better upside to keep these jobs in position for a longer period of time.”