Major changes to a federal immigration program that has fueled South Florida real estate development for almost three decades will come into effect Thursday.
The EB-5 investor visa program, which gives wealthy immigrants a chance to invest in U.S. real estate projects in exchange for a permanent U.S. residency, also known as a green card, will now be more expensive for foreign investors.
The price tag changes? $900,000 from the previous $500,000 for “targeted employment areas” — projects located in government-approved rural areas or locations that have high unemployment, according to a statement from U.S. Citizenship and Immigration Services. The investment requirements for projects located outside those areas will rise from $1 million to $1.8 million “to account for inflation.”
The changes to the program, which has brought in billions of dollars to South Florida in foreign investment over the years, had some investors scrambling to apply before the cost nearly doubled. João Costa from Curitiba, Brazil is one of them.
“When my wife and I saw that they were increasing the amount, we applied,” said Costa, whose investment will go toward a hotel in Orlando near Seaworld. “The $500,000 will pay for 100 jobs through the hotel that I invested in. ”
Now that the changes are final, local developers are worried about how it will affect development as well as immigration.
“For years, EB-5 has provided a cheap source of capital for projects…. Real estate financing is going to undoubtedly become more expensive,” said Scott Bettridge, chair of Cozen O’Connor’s Immigration Practice. “The EB-5 program is especially important to Miami, given the number of wealthy foreign nationals who are looking to reside permanently in South Florida without the need to be sponsored by an employer for a work visa, or a green card.”
Once the federal government approves a development that meets its criteria, developers can recruit foreign investors through the EB-5 program. The foreign investor will lend the minimum threshold amount, receive a pathway to citizenship and, once the project is completed, receive the money back with interest. Every year, the government issues 10,000 EB-5 visas to foreign nationals and their spouses as well as their unmarried children under 21.
Advocates of the program believe that the system has helped develop some of America’s biggest building projects, as well as help enrich thousands of U.S. businesses and employ tens of thousands of workers. Now, Bettridge says, the cost increase will limit the investor pool and affect industries tied to the EB-5 program.
“With a reduction of potential investors, it would stand to reason that anyone related to EB-5 — be it attorneys, projects, regional centers, capital raisers, economists — will find their industry cut in half,” he said. “The EB-5 industry as a whole is going to change dramatically.”
Sonia Oliveri, a South Florida attorney for Kelly Kronenberg specializing in EB-5 visas, said the regulation has been critical for real estate development in Miami.
“Over the last few years, we have seen a constant increase in Miami-based EB-5 projects,” Oliveri said. “The tri-county area is booming with new real estate developments offering EB-5 positions to international investors. Investors from Central and South America are heavily investing in real estate, due to the political and economic challenges that several Latin American countries are currently facing.”
South Florida developer Daniel Kodsi said the “EB-5 money has helped ignite South Florida’s spectacular surge in skyscraper construction.”
“When the real estate market in South Florida started to rebuild after the 2008 crash, EB-5 became a major source of funding that contributed to the flow of foreign investment pouring into Miami,” he said.
Kodsi is CEO of Paramount Miami Worldcenter, a 60-story, 700-foot, $600 million skyscraper in downtown Miami.
“Without EB-5 investment, many business ventures would have been thwarted, because they were unable to secure funding from institutional and private sources of investment but they were able to raise investment from EB-5,” he said.
So far, Kodsi says, the company has raised $99.5 million from EB-5 investors from 25 countries to help build what he says is the “world’s most heavily amenitized luxury residential tower, which features America’s first flying cars skyport.”
Since its inception in 1990, the controversial program been riddled with fraud, waste and mismanagement, resulting in indictments, arrests, convictions and litigation in several states. Rebecca Shi, executive director of the American Business Immigration Coalition, acknowledged that the changes “will have a positive effect in the sense of making this green card category more transparent and less susceptible to fraud.”
“However, the government is still continuing to raise the bar to obtain a green card by making it more expensive and stringent,” Shi said.
Some disagree. Foreign investors able to pay the higher threshold will only benefit from the change, said Diamela del Castillo Payet, a South Florida attorney specializing in foreign investment with Shutts & Bowen.
“A higher level of investment means a higher return on investment,” she said.
Joseph Kavana of KGH International Development did not use EB-5 capital for his project Metropica – a 263-unit mixed-use development in Sunrise — but says he knows other developers in South Florida that rely on the funding.
“These changes are going to hurt the real estate industry because there are many projects that have used EB-5 — and we were considering using it for our future projects — but now it’s going to be extremely difficult,” Kavana said.
Russell Galbut, developer of Crescent Heights, won’t be affected by the changes. EB-5 funding isn’t critical to his projects, such as 72nd and Park in North Beach. But for those projects that do rely on EB-5 funding, he predicts fewer of those will be built in the future.
However, some leaders are excited for what’s to come. Before Thursday, the government focused primarily on EB-5 applicants meeting the threshold amount and developments creating jobs instead of where the developments are happening.
“Miami is poised to be one of the beneficiaries of this change because of the demographics of our downtown and unemployment near downtown areas,” said Julian Montero, a Miami corporate attorney and partner at Saul Ewing Arnstein & Lehr, adding that areas like Wynwood, Overtown and downtown Miami can now be a bigger focus.