A big drop in Chinese applications for a US investor immigration program is causing pain in sizeable American real estate projects, as a source of funding dries up.
US developers feel pinch as visa-seeking Chinese pull back on investments
The EB-5 Immigrant Investor Visa Program was created by Congress in 1990 to stimulate the economy through job creation and capital investment. It invited foreigners to invest large sums in the country, in return for green cards.
Chinese investors have in recent years been the predominant source of capital, supplying as much as 85 to 90% of the US$50 billion put up by global applicants each year.
Historically, most of the EB-5 funding has gone to the construction of commercial and residential properties in the US. Developers favored this type of capital because it was more affordable and has a longer maturity than other available options.
But the heyday for the Chinese EB-5 market seems to be ending as new applicants appear wary of heightened uncertainties surrounding the program, as well as immigration laws in general under President Donald Trump. A growing backlog of Chinese applicants has further dampened interest in the program and led to a significant dip in available capital.
“The $400 million deals we were doing regularly a couple of years ago have now become $10 million,” Clem Turner, an EB-5 immigration lawyer for New York-based Barst Mukamel & Kliener, said at the 2018 NYC Real Estate Expo last week. “Now a $20 million deal is considered big as a result of China’s retrogression.”
Under the program, each applicant is required to invest a minimum of $500,000 in US business. In return, investors receive permanent US resident status as long as each investment creates at least 10 American jobs.
In the 2012-13 fiscal year, the program created about 174,000 jobs with a total investment of US$16.7 billion, according to a 2017 report by the US Department of Commerce.
For Chinese applicants, the program’s main attraction is not in the investment returns, but the green card.
But the US Citizenship and Immigration Services has an annual quota of 10,000 green cards available under the program each year. This creates a unique problem for China, because it is the only country where the number of applicants significantly surpasses the number of cards available.
The backlog of applications has made the wait for the status exceptionally long – up to 10 years in length. Before the current backlog, the wait time from completing the paperwork to becoming a green card holder was typically two years.
“This is bad that fewer Chinese are applying because of the backlog. It is hurting the industry, which means it is also hurting US workers,“ said Steve Yale-Loehr, professor of immigration law at Cornell University and an immigration lawyer at the firm Miller Mayer in Ithaca, New York.
In the spotlight
The program was put in the spotlight last summer when Kushner Companies, the real estate firm owned by the family of Jared Kushner, Trump’s son-in-law and senior adviser, marketed one of its New Jersey projects to a group of Chinese investors while promoting its connection to the president.
US prosecutors are investigating the company and its tactics. Although the focus of the inquiry is unclear, it has caused alarm among investors.
Success (and schools)
In some ways, China is the victim of its own success. As the country becomes wealthier, more people can afford the investor immigration program that previously had been out of financial reach. A culture that values Western – especially American – education has also fueled interest in Chinese children attending US schools.
For parents with younger children, the longer wait could turn out to be a plus. Some applicants are trying to time it so their children will reach the right school age when the 10-year wait is over.
Outside China, Vietnam and India have added to the uptick in applications, with both countries approaching their own longer waiting periods, people in the industry said.
These bright spots, however, don't quite make up for the lost capital from China. Drastic changes aimed at easing the backlog and lending more certainty to the program are needed to revive the market.
But because of the US political climate, industry participants don’t expect such changes any time soon.
“I don’t think there will be any comprehensive immigration reform this year. We will expect to see more dialogue especially when more conservative parts of the country flip to be more liberal leaning,” said Sam Newbold, an immigration lawyer at Barst Mukamel & Kliener.
For now, the industry is adjusting to a shift to smaller development projects, which in turn means fewer US jobs.
Without meaningful changes in the program, said immigration lawyer Yale-Loehr, “it's never going to be the heyday that we saw.”
Until then, it’s a ten-year wait for Chinese in search of a new home.