Based on statistics provided by the U.S. Citizenship and Immigration Services (USCIS), over 1,200 families had immigrated to the U.S. through the "EB5" program in 2009, and the number is anticipated to increase substantially in 2010. The majority of these investor immigrants are from China, South Korea, and other Asian countries. For real estate professionals who work regularly with Asian clients, these investor immigrants present great opportunities for business and client development.

What exactly is the "EB5" program?

The Immigration and Nationality Act "INA" authorizes the issuance of 10,000 immigrant visas ("green card") per year for immigrant investors who can create jobs in the U.S. It gets the "EB5" designation because the section of the law that creates this category is found in section 203(b)(5) of the INA. In this article, we would generally refer it as the EB5 program.

The EB5 program has two key requirements: capital investment and job creation. The requisite amount of investment is $1,000,000. The investment is most common in the form of cash, but inventory, equipment, and other tangible items are permitted as well. Investment in areas designated as "Targeted Employment Area, or TEA", the requisite investment amount is reduced to $500,000. A TEA generally refers to an area that has 150% of unemployment rate than the national average, or a rural area with less than 20,000 people. For job creation, the requisite number of full time jobs to be created per investor is ten.

Four key steps of the EB5 program

Step 1 – Submit the I-526 petition to USCIS. The investor uses the I-526 petition to demonstrate to USCIS' satisfaction that he/she has a valid proposal for job creation and has taken concrete steps in transferring the funds to the U.S. for investment. The investor must also prove the legal source of his/her money as well.

Step 2 – After the I-526 is approved, the investor either goes through the "I-485 Adjustment of Status" process if they are already in the U.S. in a valid nonimmigrant status, or through the "U.S. Consular Processing" if they live outside of the U.S.

Step 3 – Receipt of "conditional" permanent residence for two years, following the approval of the I-485 application or a successful immigrant interview at a U.S. consulate.

Step 4 – Within and before 90 days of the expiration date of the investor's conditional permanent residence, he/she must submit an application to remove the condition of their permanent residence by submitting Form I-829 to USCIS. The purpose of the I-829 application is to demonstrate to USCIS that the full amount of the investment has been made, and that ten new jobs have been created according to the plan presented in the I-526 petition. The approval of the I-829 petition is the key to the immigrant investor. If the I-829 petition is approved, the immigrant investor will receive his/her "permanent" permanent residence in the U.S. and is then free to determine whether to maintain the investment that has formed the basis for the EB5 application. However, on the other hand, if the I-829 application is denied, the investor loses his/her status in the U.S. and is subject to removal or deportation.

Traditional Investment and Regional Center

For the EB5 program, an immigrant investor may start any active business, such as a restaurant or a motel, investing in the requisite amount of money and creating ten jobs. This is often referred to as "traditional investment" in EB5. The advantage of the traditional investment is that the immigrant investor retains control of the business and is able to make adjustment of the business based on economic changes. For entrepreneurs who are looking for opportunities to start a business in the U.S. and obtain U.S. permanent residence at the same time, the traditional investment presents an excellent opportunity.

The Regional Center (RC) generally refers to a business unit that spreads across one or more contiguous counties. A RC can engage in all kinds of businesses: a shopping center, a resort, or a fund. It is usually organized by private sectors who want to attract foreign investment to start projects in the U.S. However, most RCs are supported by the local government because of its potentials to create jobs in the region. RC designation must first be approved by USCIS. Organizers of RCs submit petitions to USCIS to demonstrate how the RC will benefit the local economy and create new employment both directly and indirectly. Direct job creation in an RC refers to jobs that the RC will create and put on the RC's payroll. Indirect jobs creation by an RC includes employment induced by the RC. A complete list of approved RCs is available online at http://www.uscis.gov/eb-5centers.

The most significant advantage of the RC is that both direct and indirect job creation will count. For example, an RC may create only 10 direct jobs. However, due to the economic impact and business activities that the RC will stimulate in the local economy, 100 indirect jobs may be created. Therefore, a total of 110 jobs will be created, which will potentially allow 11 immigrant investors to obtain permanent residency through their investment in the RC.

An important attribute of the RC is that the investor does not have day-to-day management responsibilities. Most RCs are formed as limited partnerships in which the investors will have authority only to make and vote on major corporate decisions. The day-to-day management responsibilities fall in the hands of the general partner, who may be the organizer of the RC. As long as the partnership is set up properly under the U.S. Uniform Partnership Act, the limited involvement of the foreign investors is sufficient for EB5 purposes. There is no requirement that the immigrant investors live in the RC area. They can live anywhere in the U.S.

On the other hand, a major disadvantage of investing in a RC is that the investors will not have direct control of the operations of the business. Their hope of obtaining U.S. permanent residency hinges on the success of the RC, in which they have little control. However, the vast majority of EB5 investment immigrants are going through the program through the RC.

How can I help my real estate clients?

If your clients are buying properties in the U.S. for personal use or investment and they are not interested in immigrating to the U.S., they are probably not going to be interested in the EB5 program. However, you may wish to review the "Maintaining Sufficient Ties" sidebar. Of course, this is not to say that your client would not be interested in buying a place for their stay in the U.S., especially in today's buyer's markets in many parts of the U.S. After all, they would still need a place to stay.

Because of the requirement of job creation, buying a house alone, regardless of the costs of the house, would not qualify an investor for the "green card". However, certain real estate related investment opportunities which lend to job creation may be suitable for an investor for the EB5 program, such as restaurants, motels, hotels, office buildings, mixed use buildings, etc. If your clients are interested in commercial properties, you can point out to them of the potentials of attaining U.S. permanent residence through investment.

As mentioned above, if your client invests in a RC, they may live anywhere in the U.S. and are not limited to the stay where the regional center is located. In other words, if your client wants to live in San Francisco, there is no problem at all, and you can help your client find a residence in San Francisco, even though he/she may be investing in a RC in Florida for EB5 purposes.

We strive very hard to fully understand our client's goals. While U.S. permanent residence in the U.S. ("green card") is attractive to many people, it may not be the best fit for my client's immigration goals. Also, my clients may not be aware of the full range of nonimmigrant and immigrant visa options available to them. They may want to get their "green cards" without really knowing what it means to them financially and the time required. Some of them wanted to open a company in the U.S. and thought that one had to have a "green card" to open a company. When they realize that there is a visa for individuals from certainly countries to start a business in the U.S., they opt for that, rather than the EB5 program.

In addition, we clearly communicate to our clients that there are many fine areas of the law pertaining to the EB5 program that are not fully settled. For example, the time the ten jobs must be created are not clearly defined. While the law does not appear to put a time limit on when the jobs must be created, the current USCIS' interpretation requires the ten jobs to be created within 2 ½ years after the I-526 petition has been approved. If an investor had intended to create ten jobs in a certain area, but due to changes in the business, he has created only 8 jobs in the intended area but two jobs in a new area. One may imagine that because the goal of the EB5 program is to create ten jobs, it should not matter what these jobs are. However, USCIS has denied cases under similar facts, which needless to say, has created havoc for the investor and his family. The point is that while the basic premises of the EB-5 program are fairly straight forward, the actual application and interpretation of the law is less clear.

Therefore, EB5 investors face two main risks in participating in the EB5 program: investment risk and immigration risk. Any investment has risks. The same holds true for the EB5 investors too. If the investment does not work out, the EB5 investors will lose the money in connection with the investment. Needless to say, if the investment fails before the EB5 investor receives his/her permanent residence in the U.S., the EB5 investor will most likely fail to qualify for the "green card" either. However, it is possible that even if the investment projects are panning out, the immigration risks continue to affect the EB5 investor because the CIS interpretation and changes in the law in the EB5 area.

However, having said that, the EB5 program is well received by many, especially Asian investors. Real estate professionals are in great position to sell them some houses, whether or not they go through the traditional or regional center investment tracks.

Sidebar: Keep these in mind too

  1. Source of Funds: USCIS is extremely strict in requiring investors to demonstrate the legal source of the capital invested. Every dollar must be accounted for. However, the investor does not need to account for his/her entire net worth to USCIS. Only the amount of investment ($500,000 or $1,000,000) must be clearly documented of its origins.

  2. Transferring funds to the U.S.: Many countries have currency control. While USCIS does not typically request proof that the money invested was transmitted to the U.S. legally (even though they would still want to know how it was accomplished), the logistic issues of transferring money or assets to the U.S. should be discussed early on.

  3. Be Aware of Claims of Quick Exit and Guarantee: Investors should be aware that the law prohibits any guarantee of a return on the investment capital. The investment must be "at risk" in order to qualify for EB5 investment. The timeline described above illustrates that the investment capital will be committed for quite a few years. Investors should understand that the EB5 program requires a substantial commitment of time and resources. Investors should be aware that they could lose all of the investment and still not receive their "green card."

  4. Family members: The spouse of the investor can immigrate with the investor, along with unmarried sons and daughters under 21 years old.

Sidebar: Maintaining Sufficient Ties

The U.S. law presumes everyone is an intending immigrant, unless he/she can prove otherwise. In other words, a person must prove that he/she will leave the U.S. after the intended period of short stay and that there are strong social, economic, or family ties in his/her home country that will compel his/her return. Therefore, if a visitor buys a house in the U.S., he or she must continue to demonstrate that he/she has a "home" outside of the U.S. that he/she intends to return. For some, it is an easy proposition, because they continue to have jobs and primary residence outside of the U.S. In fact, where I live in Arizona, there is a very good size population of Canadians. They often own properties in Arizona and stay here in winter months. They travel back and forth. They do not work in the U.S. and most of them are retired. Even though they come to the U.S. for months at a time, they still qualify as "visitors" because they do not work in the U.S. and they have a home in Canada that they will return to when the weather is warm again. They are perfect visitors under the law. As a real estate professional, you can help them look for a house in the US, without worrying about how it may affect their immigration status.

However, for Asia clients, this may present some additional challenges. The law for the visitor visa is the same for Canadians and Asians. However, it is less common for Asian visitors to have properties in the U.S. If your client decides to own a vacation property in the U.S., he/she must continue to demonstrate strong ties back in their home country to avoid the allegation that they are "intending immigrants."

Jared C. Leung

Mr. Leung practices in the area of immigration law at the law firm of Fennemore Craig in Phoenix, Arizona. He has extensive experience in business immigration matters, such as immigrant and non-immigrant petition processing at USCIS, visa applications at U.S. embassies and consulates, and PERM applications with the Department of Labor. Mr. Leung has also worked closely with individual clients, investors, and those with family immigration needs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.