US developers feel pinch as Chinese investors pull back from EB-5 programme that offers green card as a reward

A big drop in Chinese applications for a US investor immigration programme is causing pain in sizeable American real estate projects as a source of affordable funding dries up. 

The EB-5 Immigrant Investment Programme was created by the US Congress in 1990 to stimulate the economy through job creation and capital investment. Chinese investors have in recent years been the predominant source of capital, supplying as much as 85 to 90 per cent of the US$50 billion put up by global applicants each year. 

But the heyday for the Chinese EB-5 market seems to be ending as new applicants appear wary of heightened uncertainties surrounding the programme as well as immigration laws in general under US President Donald Trump. A growing backlog of Chinese applicants has further dampened interest in the programme and led to a significant dip in available capital. 

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“The US$400 million deals we were doing regularly a couple of years ago now become US$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 US$20 million deal is considered big as a result of China’s retrogression.” 

For Chinese applicants, the programme’s main attraction is not in the investment returns, but the green card. The backlog, which now can take up to 10 years, has made the wait for the status exceptionally long. 

Under the programme, a total of 10,000 green cards are available each year, with each applicant required to invest a minimum of US$500,000. This creates a unique problem for China because it is the only country where the number of applicants significantly surpasses the US Citizenship and Immigration Services’ annual green card quota. 

The programme 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.

Historically, most of the EB-5 funding has gone to the construction of commercial and residential properties in the US. Developers favoured this type of capital because it’s more affordable and has a longer maturity than other available options. 

In return, investors receive permanent US resident status as long as each investment creates at least 10 American jobs. Before the current backlog, the wait time from completing the paperwork to becoming a green card holder was typically two years. 

In the 2012-13 fiscal year, the programme 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.  

“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. 

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In some ways, China is the victim of its own success. As the country becomes wealthier, more people can afford the investor immigration programme that previously had been out of financial reach. A culture that values Western – especially American – education has also fuelled 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.

“That’s been quite a change in market in China. For wealthy Chinese nationals that put their kids’ education first, they are starting early,” said Michael Fitzpatrick, partner at Chicago-based accounting firm Baker Tilly Virchow Krause. 

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 the lost capital from China. Drastic changes aimed at easing the backlog and lending more certainty to the programme are needed to revive the market. 

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But because of the US political climate, industry participants don’t expect such changes any time soon. 

“My best educated prediction is, September 30 (the annual deadline for the program) will come and go with an extension because similar things happened two years ago in an election year,” said Sam Newbold, an immigration lawyer at Barst Mukamel & Kliener. 

“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,” Newbold said. 

Even without widespread changes, there are short-term measures that could alleviate the China backlog. Some industry participants said one change would be to count each family as one unit. 

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 Yale-Loehr, the immigration lawyer and professor, “it's never going to be the heyday that we saw”.