Thursday, December 17, 2015

EB-5 renewed through next September with no changes; modest though significant reforms rejected; win for NY developers

So, even the relatively modest but still significant reforms in the EB-5 immigrant investor program negotiated by Sens. Patrick Leahy (D-NH) and Charles Grassley (R-IA) are for naught, with New York-based real estate developer preserving the status quo, which includes blatant gerrymandering of purportedly high-unemployment districts.

The Real Deal headline, Developers 1, Congress 0 as EB-5 is extended again — with no changes: Popular visa program will continue until Sept. 30, tells the story:
The program, which gives foreign investors a green card in exchange for a $500,000 investment in the U.S. economy, was part of the omnibus spending bill passed by Congress late Tuesday.
In the months leading up to the vote, lawmakers weighed several changes to the EB-5 program, including a higher investment threshold and stricter oversight. But after politicians failed to agree on a compromise bill, the program was extended through Sept. 30, 2016.
The vote is a coup for New York developers, who have raised more than $3.7 billion from EB-5 investors, a vast majority of them Chinese, according to an analysis this year by The Real Deal. “It will be very interesting to see the market reaction, especially in China,” Ronald Fieldstone, a lawyer at Arnstein & Lehr LLP, wrote in a blog post Wednesday. “Probably a great sigh of relief.”
Several of the proposed changes, however, stem from criticism that EB-5 lacks oversight and is rife with fraud.
I have argued that the entire program should be blown up, which, given the various interests wanting to keep/expand the gravy train, is unlikely at this point. But I was surprised that the status quo remains.

Schumer is key

The Wall Street Journal reported:
The program allocates 10,000 visas a year to investors who put up at least $500,000 in job-creating businesses. But criticism has mounted in recent years amid complaints the program has been dominated by developers of high-end projects in prosperous neighborhoods who are using a provision meant to aid areas suffering from high unemployment.
Developers, particularly in New York, have been attracted to the program because it offers low-cost financing, saving them tens to hundreds of millions of dollars in interest costs on large projects. But critics have said these developers are taking capital away from projects in rural and poor neighborhoods.
They have, indeed. That's a gentle description of some pretty appalling practices. Eliot Brown continues:
The move by congressional leaders came as a disappointment to members of Congress who had been pushing legislation designed to restrict fraud and the ability of a luxury project to qualify as a “targeted employment area,” a designation that makes it far easier to attract immigrant investors. The Republican and Democratic leaders of the Senate and House judiciary committees all endorsed a draft reform package, as did a main trade group of the EB-5 industry.
But the move met with fierce resistance from a set of influential urban developers including the Related Companies. With backing from the U.S. Chamber of Commerce and the Real Estate Roundtable, the group made their case to key lawmakers, winning allies including Sen. Charles Schumer (D., N.Y.) and Sen. John Cornyn (R., Texas), according to congressional aides and others familiar with the talks.
Stay tuned for another round of reform talks next year.

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