Give us your tired, your poor, your huddled masses yearning to breathe free. But remember: We also take plastic.
That's the message that Congress registered when it passed the Immigration Act of 1990, which added a brand new category of employment-based visas for permanent legal residents—specifically, a visa tailor-made for investors. Although applications are on the rise, the program remains somewhat under the radar. Which is a shame. The EB-5 investor visa program works like a sort of global Kickstarter, one whose promise for U.S. cities is both enormous and untapped.
Before 1990, there were only four categories of employment-based preferences for immigration. The law set priorities for artists with exceptional skills, for example, or scientists with advanced degrees. The other two EB categories provided for migrants looking to work in fields with labor shortages and for government hires. The new, fifth category—EB-5—fast-tracks immigrants willing to invest at least $500,000 in an at-risk rural or urban project that creates at least 10 full-time jobs.
The program was designed to invite immigrants and capital into distressed American urban centers where they otherwise might not flow. As a new report by the Initiative for a Competitive Inner City (ICIC) shows, cities and foreign investors alike have largely overlooked the program. While that's starting to change, there are significant barriers to seeing this tool used to its full potential.
Here's how it works: A foreign investor looking for permanent resident status under the EB-5 program needs to invest at least $1 million in a development project—or $500,000, if that investment is targeted in a rural area or a place with a high unemployment rate (150 percent of the national average). The investor has no guarantee on the investment if the project fails, but so long as it creates 10 full-time jobs, the investor and the investor's immediate family can receive conditional permanent resident status. (The condition falls away after two years.)
Since 1990, the U.S. Citizenship and Immigration Services (USCIS) has approved more than 16,000 applications for permanent resident status under the EB-5 program. Almost one-quarter of those visas were approved in 2012, with the number of approvals climbing in recent years in the wake of the financial collapse and credit crunch, according to the report.
While its status is rising, EB-5 immigration accounts for just a small fraction of overall employment-based visas: less than 3 percent, according to a February 2014 study by the Brookings-Rockefeller Project on State and Metropolitan Innovation. Overall, employment-based immigration—all five categories considered—is responsible for only about 14 percent of the legal permanent residents who have come to the U.S. in recent years. That means that EB-5 visas accounted for less than half of one percent of new legal permanent residents between 2010 and 2012. Most of these investors (and their immediate family members, who are also eligible for permanent resident status under the program) have emigrated from China.
According to the Brookings-Rockefeller study, the EB-5 investor visa program has spurred at least $5 billion in foreign direct investment (and quite possibly more) while creating more than 85,000 jobs. That's nothing considered side by side with overall foreign direct investment, which runs to $204 billion annually. It's also small change compared to what the program could be doing—if it were operating at the capacity that Congress designed for the program.
After surveying nearly 200 EB-5 development projects across the nation, ICIC focused on five case studies to demonstrate the potential for EB-5 immigration to underwrite development in distressed urban centers, from a new boutique hotel in South Dallas to a cargo-trucking operation in inner-city Indianapolis.
The University of Miami Life Science and Technology Park, for example, which is owned by the University of Miami and under construction now, is being financed in part by an EB-5 investment of $20 million assembled by 40 foreign investors. The site borders Overtown, a neighborhood with a 39 percent poverty rate and 23 percent unemployment, according to the report. Beyond the direct gains associated with building infrastructure and facilities for a biotech center, the project promises a suite of services for the community, including after-school initiatives, vocational training for developmentally disabled adults, and essential services for the homeless.
Even if that kind of community investment proves aspirational, the investment has launched hundreds of jobs. "The project needed to create at least 400 jobs to satisfy USCIS employment requirements," the report reads. "The Jacob France Institute of the Merrick School of Business at the University of Baltimore estimated job creation of over 1,200 jobs at an average salary of $34,000 during the construction phase and over 1,500 jobs (including the multiplier effect) at an average salary of $50,000 after the building becomes operational."
Is there a downside to pay-to-stay immigration?
For starters, the bureaucratic structure is tough for would-be investors to navigate. "The most common complaint heard form the experts we interviewed was the uncertainty surrounding the EB-5 approval process," the ICIC report reads. "The process can take nearly two years without any guarantee of approval. There is a backlog of approximately 6,000 immigrant investor applications, resulting in significant delays."
The program operates through a series of regional centers. These can be public, privately owned, or public–private partnerships. Only a few are public, including regional centers for the state of Vermont and the city of New Orleans. The state of Michigan recently launched its own regional center. For the most part, though, it's private operators who are connecting foreign investors with EB-5 investment opportunities—and most of these regional centers are very new.
Second, there's a built-in distance that developers have to overcome in order to find immigrant investors. Like Kickstarter, EB-5 immigration is a way to assemble investors from around the world to fund a worthy project. Unlike Kickstarter, EB-5 immigration isn't itself a platform for finding investors.
"Investor relationships need to be developed and projects solicited and marketed to immigrant investors, which is often accomplished through intermediaries in foreign countries who promote EB-5 projects to investors for a significant fee ($25,000–45,000)," the ICIC report reads. "Regional centers may also use their own recruiters, who receive commissions for each investor they secure. The fees and relationships are unregulated."
Finally, there's something unseemly about immigrants buying their way into legal U.S. residence. Isn't there?
"On its face, there’s something unsettling about a law granting automatic entry to America, the country whose symbolic gatekeeper welcomes the tired and the poor from overseas, to those who can afford to cut a hefty check," writes Aaron Wiener, in a recent feature for Washington City Paper. Wiener tracked how the EB-5 program is responsible for two of the biggest developments recently completed in Washington, D.C.
Wiener cuts to the heart of the controversy over D.C.'s pursuit of Chinese investment dollars—to the extent that there is any controversy.
"[I]n a sense, everyone involved wins," he writes. "The investors get their green cards. The developers get low-cost loans from people who aren’t really in it for the money. And the middlemen who set up the projects, connecting the investors with the developers, collect a healthy fee."
In Detroit, Chinese investors are buying up distressed properties but not developing them (not yet, anyway). Tying investment opportunities to mutually beneficial outcomes—jobs for cities, visas for investors—can't hurt, especially if it results in new jobs and development that might not be possible otherwise. And jobs that draw people to cities that are losing residents are good for everyone.