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How to Create an EB-5 TEA with Adjacent Census Tracts

How to Create an EB-5 TEA with Adjacent Census Tracts

Any foreign investor hoping to immigrate permanently to the United States should consider the EB-5 Immigrant Investor Program, which offers permanent resident status in exchange for a successful EB-5 investment in a qualifying EB-5 project. For an EB5 investment to be considered successful, it must satisfy a myriad of requirements that make it beneficial for the U.S. economy and its people, including the creation of at least 10 full-time jobs for U.S. workers. An EB-5 investor’s capital must also be demonstrated to originate from lawful sources, ensuring the flow of legal foreign EB-5 investment capital into the United States.

One requirement that can halt a prospective investor’s journey into the EB-5 program is the minimum required investment amount, which stands at $1.8 million. Having risen 80% from $1 in November 2019, when the Modernization Rule came into effect, the minimum required investment amount filters out numerous interested investors who simply don’t possess the means to participate in the EB-5 program.

But there is a solution, at least for some prospective investors. There is a way to halve the minimum required investment amount to just $900,000, and in fact, it is the pathway most EB-5 investors opt for. It’s simple: just invest in a targeted employment area (TEA).

What Is a TEA?

The EB-5 program was created to address unemployment and in-need regions in the United States, but as a federal program, the targeted stimulation of in-need areas is challenging. Thus, TEAs were born, offering a lowered minimum EB-5 investment amount for deployment in these critical areas. A TEA can be designated either as a high-employment TEA, with an unemployment rate 50% higher than the national average, or as a rural TEA, with a population of fewer than 20,000 people.

The problem with TEA EB5 investment is that TEA designation is not awarded by United States Citizenship and Immigration Services (USCIS)—instead, the investor must provide justification on their I-526 petition that TEA designation is warranted for the area of their project. While this introduces extra work and rampant uncertainty in TEA investments, it does simultaneously offer an advantage: the ability to construct one’s own TEAs.

Creating TEAs with Census Tracts

Using the EB-5 TEA map from EB5 Affiliate Network (EB5AN), a prospective investor can scan the entire United States for TEA-eligible regions and home in on more suitable EB5 investment projects. The map consists of census tracts, with those that qualify for TEA status highlighted in orange. But TEA designation is more fluid than rigid census tracts may imply—USCIS allows investors to combine multiple adjacent census tracts to create a TEA.

Prior to the enactment of the Modernization Rule in November 2019, census tract aggregation was more flexible, with investors able to combine a number of nearby census tracts to reach a TEA. Even if the census tract of the EB-5 project itself was not eligible for TEA status, by journeying one or two census tracts out, an investor could attain TEA designation for their project and qualify for the lower minimum EB-5 investment amount. The TEA census tract did not have to border the project census tract, allowing for the creation of various TEAs.

When the Modernization Rule was enacted, it altered the nature of TEA customization, requiring any additional census tract to be directly adjacent to the target census tract. This new rule dramatically restricts TEA creation, effectively starving EB-5 projects that would previously have qualified for TEA status of precious EB-5 investment capital. While these rules may have helped prevent some instances of gerrymandering, they have also likely hurt the inflow of foreign EB5 investment capital into in-need areas, given that census tracts are relatively small and a successful new enterprise in a nearby census tract is likely to benefit a high-unemployment census tract, even if the census tracts are not directly adjacent.

Prospective EB-5 investors can still take advantage of census tracts to create new TEAs, but they must conduct their research carefully to ensure USCIS approval. Should an I-526 petition fail to garner TEA designation for its EB-5 project, the investor will be required to invest at least $1.8 million in the new commercial enterprise.