In our previous blog post, we discussed the two most noted economic benefits of the EB-5 program—it stimulates foreign investment and job creation in the U.S. In this post, we will discuss several unanticipated economic benefits that have resulted from the EB-5 program, particularly in the last seven years during the economic downturn. We base our conclusions on economic analyses produced by reputable organizations and research firms, including the recently published EB-5IC report.
Economic Benefit # 3: The EB-5 Program makes capital available during economic recessions and banking crises.
The EB-5 Program proved itself to be a form of financing that is accessible even during banking crises and economic downturns. Indeed, during the recent recession, the number of EB-5 Regional Centers surged, as did the quantity of EB-5 visas issued and EB-5 projects commenced. For American business owners and developers, tapping into global capital has helped to diversify sources of financing during a time of scarcer resources.[1] This is because, unlike banks, private foreign investors are willing to loan out capital for a modest rate of return in exchange for securing their ultimate goal of a Green Card and a reasonable expectation that they will receive their money back. Thus, as stated by the 2015 EB-5IC report, EB-5 capital is “very promising for [its] durability…”—it withstands even the harshest economic climates.
Given that the Regional Center program is not permanent and faces expiration at the end of September, it is important to note the crucial role specifically played by Regional Centers in making capital available during the banking crisis. According to the EB-5 Investment Coalition’s report, Regional Centers have played a central role in the EB-5 Program’s implementation, facilitating a majority of the total visas issued since its inception. IIUSA—the national trade association representing EB-5 Regional Centers—claims that Regional Centers account for 95 percent of the capital flowing through the EB-5 program.[2] The Regional Center Program is so popular because it simplifies the investment process for applicants and contains job creation requirements that can be easier to fulfill.
Before the onset of the banking crisis, in 2007, only a handful of Regional Centers existed and the EB-5 program was largely underused. However, as the banking crisis set in, the number of designated regional centers rose quickly: from 16 in 2007, to 74 in 2009, to over 400 in 2013, according to the Brookings Institute.[3] Thus, the economic benefits that have stemmed from the EB-5 program have in large part been made possible by investments through Regional Centers.
Economic Benefit # 4: The EB-5 program can be used to address common urban challenges.
Urban areas throughout the United States continue to deal with challenges such as shortages of quality housing, poverty, and a dearth of affordable housing. Cities must also find ways to continuously boost economic growth and development. EB-5 investment is a source of capital that can play a significant role on the regional and local level, and not only because of its capacity to create jobs. For instance, EB-5 funds have helped to launch large-scale, landscape-altering, and beautifying development projects in urban settings (we’ve reported on many such projects here), address the dearth of affordable housing (read here), and create senior living facilities that address the specific needs of the aging (more here).
According to Chad Wold, managing partner of Forza Partners in Southlake, TX and a member of the EB-5IC, “Part of the beauty of EB-5 financing is the fact that it’s accessible to everyone, not just big developers in major metro areas with deep pockets and endless credit lines. I’ve seen this firsthand in one of our projects in Allen, Texas, where proactive efforts on the part of the local business community and city government have allowed us to attract enough EB-5 capital to build a new convention center and hotel-projects that might not otherwise have moved forward without EB-5 financing.”[4]
As reported by the Brookings Institute, “From the vantage point of state and local leaders, EB-5 investment is viewed as a potentially valuable contribution to local economic development projects.”[5] American cities both large and small have benefitted from EB-5 funded projects.
Economic Benefit # 5: The EB-5 Program is a budget-neutral means of stimulating economic growth.
Like other countries, the United States needs policies that will increase investment to sustain economic growth through short-term crises and long-term challenges. At no cost to the taxpayer, the EB-5 program is an efficient means of attracting private investment proven to generate U.S. job growth. Whereas the 2009 American Recovery and Reinvestment Act, i.e. the “stimulus” bill, created one job for every $100,000 to $400,000 in public spending, the EB-5 program has created tens of thousands of jobs at no cost to taxpayers.[6]
As stated by Steve McMillin, a partner at U.S. Policy Metrics (a public policy research firm) and former deputy director of the White House Office of Management and Budget under President George W. Bush, “The economic turmoil of recent years, paired with looming demographic changes [an aging, retiring population that prefers to save rather than spend its cash] and their potential impact on private investment, have underscored the need for smart policies that can sustain growth not only during times of crisis but over the long-haul. The EB-5 program does exactly that, providing the kind of ‘patient capital’ that persists during times of stress and the private investment that will be necessary to sustaining growth once the next wave of baby boomers starts retiring.”
In sum, in addition to producing jobs and injecting capital into the U.S. economy—the stated dual purpose of the EB-5 Program—the Program has produced many other society-wide benefits, particularly during a time when the American economy took a turn for the worse. The Program has had other benefits as well, including driving innovation and the expansion of “greener,” environmentally-friendly technology (see our report on this subject here).
While the EB-5 industry anxiously waits to see if the Program will be reauthorized, and in what form, foreign investors looking to apply for an EB-5 visa should continue to submit their documentation in a timely fashion. According to the Leahy-Grassley bill, pending investor applications should not be impacted if it is enacted into law.[7] Given the current processing times of over a year, interested investors should proceed with their applications as planned.
To inquire about our turnkey customized EB-5 services, such as our best-in-class Matter of Ho-compliant business plans, project assessment and ancillary services, please contact us at info@ecouncilinc.com.
e-Council Inc.’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from an attorney or other professional legal services provider. For specific questions about any legal matter please consult with an attorney or other professional services provider.
[1] http://www.brookings.edu/~/media/research/files/reports/2014/02/05-eb5/eb5_report.pdf
[2] http://www.foxnews.com/us/2014/02/12/peer-reviewed-study-finds-dramatic-increase-in-economic-impact-us-eb-5/
[3] ibid
[4] EB-5IC, http://eb5coalition.org/press-room/eb-5-report/
[5] http://www.brookings.edu/~/media/research/files/reports/2014/02/05-eb5/eb5_report.pdf
[6] ibid
[7] https://iiusa.org/blog/wp-content/uploads/2015/06/American-Job-Creation-and-Investment-Promotion-Reform-Act-of-2015.pdf, page 48.