When marketed to prospective foreign investors, the EB-5 Immigrant Investor Program is generally framed in terms of its benefits to foreign investors: for a one-time, largely passive EB-5 investment, a foreign national from any country can relocate to the United States and gain permanent residency for themselves and their immediate family members. But an EB5 investment doesn’t just benefit the investor—it’s also good for the U.S. economy and U.S. workers.
U.S. companies structure their projects for EB-5 investment funding, a cheaper alternative to most sources of funding. This extra funding gives them security as they develop their condominiums, hotels, restaurants, and other enterprises. New U.S. jobs are created for the construction workers to build these projects and for employees to staff them. In the case of a new hotel or restaurant, the business may have a positive economic impact on the wider community, driving more traffic to nearby businesses. In this way, the EB-5 program is a fantastic economic stimulant for in-need local U.S. economies, all at zero cost to the U.S. taxpayer.
Economic Impact of the EB-5 Program
Congress’s intention with the EB-5 program was, of course, the economic growth described above. In fact, one of the key requirements of the EB-5 investment program is that every investor must show that their investment has created at least 10 new jobs for U.S. workers. But data on the precise economic impact of this valuable program is scarce. A government study conducted in 2012 and 2013 found $5.8 billion in EB5 investment capital raised by more than 11,000 individual investors, creating an estimated 174,039 jobs for U.S. workers. A later study conducted by EB-5 stakeholder groups showed the flow of roughly $11 billion through the EB-5 program in FY2019, resulting in approximately 355,200 new jobs. Two-thirds of EB-5 investment capital has been poured into construction—real estate projects are particularly popular within the space. Hotels, restaurants, and health care facilities are other fairly common EB-5 industries.
Where the economic impact of EB5 investment strays from Congress’s original aim is in the location of investment. Most EB-5 investment capital has gone to affluent urban districts, with a liberal interpretation of targeted employment areas (TEAs) allowing these regions to qualify for the lower TEA investment amount. In November 2019, the Modernization Rule restricted the previously broad definition of a TEA, reducing the number of projects that qualified for this special status and raising the overall EB5 investment amount by 80% to account for inflation over the program’s first 30 years. In June 2021, the Modernization Rule was challenged and overturned in court, causing the TEA rules to revert back to their broader, pre-Modernization Rule state. As of July 8, 2021, the future of TEA regulations is uncertain.
Who’s Investing in the EB-5 Program?
The EB-5 program is popular for investors around the world—but that wasn’t always the case. For its first decade of existence, the EB-5 program was severely underused, with hardly any foreign nationals making an EB-5 investment. As more people caught wind of the program and it began to be marketed in China, it started to pick up—FY2005 saw 346 EB-5 visas issued, up from only 64 in FY2003. By FY2009, that figure had increased to more than 3000. The key turning point for the EB-5 program was 2008, when the financial crisis prompted project developers to turn to EB-5 for financing they couldn’t get elsewhere.
China has long dominated the EB-5 program, accounting for as many as 85% of all issued EB-5 visas in FY2014. In FY2019, this figure dropped to 47%, but China remains the largest EB-5 country by a large margin. Other key EB-5 countries include India, Vietnam, South Korea, Taiwan, and Brazil, but none have come close to China’s volumes. That’s not necessarily a bad thing—China’s thirst for EB5 investment has created a lengthy backlog for investors from the country. The backlog first surfaced in 2014, and still, in July 2021, thousands of Chinese investors face major delays because of their nationality. Vietnam has also faced a backlog since 2018, but it’s expected to clear up by September 2021.
The backlogs are a result of the country-cap system of United States Citizenship and Immigration Services (USCIS). No one country is permitted to receive more than 7% of EB-5 visas per fiscal year, although they may claim leftover visas if there are no eligible investors from non-backlogged countries. Since this system doesn’t consider the differences in population size and EB-5 demand among countries, certain nations are more susceptible to developing a backlog in the EB5 investment program than others. The fact that spouses and children of EB-5 investors are granted visas from the EB-5 visa pool rather than extra, derivative visas also clogs up the system, since each EB-5 investor, on average, has two dependents also claiming visas.