By Jennifer L. Drey
A program linking foreign investors with cash-seeking U.S. developers has contributed millions of dollars of financing to Eastern Washington projects — including ones in Richland and Walla Walla — and created jobs throughout the state at venues including hotels, wineries and resorts.
And for the investors, it has created a pathway to permanent residency in the United States.
The Immigrant Investor Program, or EB-5 program as it is commonly known, provides permanent visas to foreigners who invest in a new commercial enterprise in the United States that creates at least 10 permanent full-time jobs for U.S. workers, according to U.S. Citizen and Immigration Services, or USCIS, which oversees the program. Spouses and unmarried children also receive the visa benefits under the program.
For U.S. developers, EB-5 provides a new source of capital. The minimum investment is $1 million, though that number is dropped to $500,000 in underserved geographic areas where the unemployment rate is 150 percent of the national average rate or higher.
For rural areas and other areas of high unemployment, that means jobs. In 2017, the U.S. Department of Commerce estimated there were jobs created for each immigrant investor using the program.
“When these projects get going and are done right, they create a lot of jobs in our state,” said Robert Haglund, research analyst with the state Employment Security Department.
The majority of EB-5 investments are facilitated by USCIS-approved regional centers, which are public or private entities that sponsor capital investment projects available to EB-5 investors. There are currently 908 approved regional centers in the United States, 67 of which are in Washington state. A regional center can facilitate projects anywhere in the country, not just its home state.
Regional centers tend to pool EB-5 financing from multiple investors for a project, and that EB-5 funding typically represents a small portion of the project’s overall financing package in the end, Haglund said. Investors are not required to go through a regional center, but standalone-investments are much less common.
Capped at 10,000 immigrant visas per year, the EB-5 program is popular with foreign investors and can be competitive among developers seeking to use EB-5 financing, Haglund said.
“There’s only so many investors, so the guys in New York are competing with the guys in Washington and so on,” he said. “It’s very competitive.”
On a national level, the majority of EB-5 funding goes toward various types of real estate projects, including mixed-use developments, hotels, resorts and commercial or residential developments. A smaller portion — about 25 percent — is used on infrastructure projects, such as railways and highways, restaurants, medical buildings and educational facilities, according to a 2016 report published by the U.S. Government Accountability Office and cited by USCIS spokesman Michael Bars.
Locally, four foreign investors provided a total of $2 million of EB-5 financing for Richland’s 82-room Lodge at Columbia Point, which opened in September 2017. The $14.8 million hotel was a joint project between the late Tom Drumheller of Escape Lodging and Bob Naito of Naito Development, both out of Oregon.
The decision to cover a portion of the financing with EB-5 loans was made in part because the hotel is in an EB-5 targeted employment area, Naito said.
“It’s very difficult to finance boutique hotel properties. There’s a select number of lenders who will loan on unflagged properties,” Naito said, explaining that unflagged properties are those that don’t carry a major hotel brand.
The $2 million of EB-5 financing used for the project was facilitated by American Lending Center, a California-based, USCIS-approved regional center that has facilitated EB-5 financing for more than 70 projects across the United States, according to Bruce Thompson, president of American Lending Center.
The company also facilitated $13.5 million of EB-5 financing used to pay for the creation of Eritage resort in Walla Walla, which included 27 EB-5 investors.
Combined with its other two EB-5 projects in Washington — a La Quinta Inn in Tumwater and a Hilton Garden Inn in Lynnwood — American Lending Center estimates that its projects have created about 500 new jobs in Washington.
“The EB-5 program is a win-win for America. It doesn’t cost the U.S. taxpayer anything and it provides a huge benefit to our country,” Thompson said. “It’s a good program that allows investors to come to America.”
While many regional centers promote their EB-5 projects, there is no comprehensive list of EB-5 projects available because they are private offers and considered to be a part of a company’s proprietary information, Haglund said.
Additionally, USCIS said it does not keep hard numbers on investment amounts or jobs created under EB-5, making it difficult to pinpoint exactly how much of an overall benefit the EB-5 program has had on Washington.
Haglund, who oversees the process of certifying targeted employment areas, or TEAs, for EB-5 investments in Washington, said there were 82 TEA-designations granted to projects in 2017. Government research has shown that the majority of EB-5 investments are made in areas designated as TEAs; however, approval of a TEA does not necessarily mean the project went on to be fully funded and completed.
Haglund also noted that the 82 TEA approvals granted in 2017 was down from 150 approvals in 2016 and is expected to drop slightly lower in 2018 due to China becoming more diligent at enforcing limits on the amount of money its citizens can invest outside of the country. Historically, many of the immigrants investing in the EB-5 program have come from mainland China.
New countries such as Brazil, India, Taiwan and South Korea are expected to eventually fill the gap. In the meantime, however, there are jitters among investors and lenders who are looking toward October when Congress must either renew the EB-5 program for another 12 months, make legislative reforms or let it expire.
Thompson at American Lending Center said that with thousands of investors and projects at various places in the EB-5 process, letting the program expire is not a viable option.
But while the program has been renewed each year since it was first enacted on a pilot basis in 1992, there are worries this year among those who view the current Congress as more volatile and unpredictable than in past years, Haglund said.
Additionally, many of the parties involved agree that the program could benefit from some changes — technical fixes and better enforcement, among others.
In its current form, investors are susceptible to losing money through bad investments that don’t produce the expected visas. Additionally, it can be prone to exploitation on the investor side, according to Bars at USCIS.
“While it was originally well intended, the EB-5 program has too often been prone to instances of fraud and abuse, with foreign investors exploiting our system, undermining our laws and ultimately buying their way to citizenship without fulfilling their required contributions to the American economy as required by law,” Bars said.
Haglund said he expects to see TEA applications slow down until investors have more clarity on the program in October, but he hopes to see EB-5 continue to bring jobs and money to Washington in the future.
“It’s a popular program, there’s no doubt about it,” he said. “The families are the main reason that people invest — to get their kids here.”
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