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| Philip Seagraves, MBA, MSRE |
In 1990, the US Congress passed legislation that was part of the Immigration Act of 1990 which was aimed at increasing US jobs through foreign investment. The law created a new visa type, the EB-5 which provides an accelerated method for foreign persons to achieve permanent, legal residence in the US. The EB-5 process results in a green card for the foreign investor as well as his spouse and children making all eligible to work in the US and attend US schools. Many forms of investment in nearly every imaginable industry are eligible for consideration under this visa program as long as they result in at least 10 jobs and meet minimum dollar investment levels depending upon the location of the investment.
Many foreign investors participate in large cooperative projects through partnerships, limited liability companies, and those sponsored by Regional Centers throughout the US. The regulations require the investor to be involved in the management of the project. However, the management requirement can be somewhat minimal as the investor is permitted to be involved in “management or policy making.” By this definition, even limited partners may be considered engaged in the business so long as the partnership is properly formed and meets the definitions under the Uniform Limited Partnership Act. Structured investments through Regional Centers are a popular option for those who do not wish to be involved in the day-to-day activities of the business.
An important risk for relatively detached, remote investors in an EB-5 project is the potential for a complete loss of capital in an unsuccessful project. Investment in a service business or other enterprise with largely intellectual, non-tangible assets presents the investor with little recourse in the event of poor performance by the active management or simple business cycle downturns. One alternative that many EB-5 investors turn to is investment with a heavy real estate component which provides a tangible, hard asset element to the project. If a project does not succeed, the investor in a real estate related project will often be left with the land or building component of the investment which likely has some alternate use or liquidation value.
Some examples of real estate related projects that have been used for EB-5 investment include hotels, shopping centers, and even agricultural enterprises. These projects provide the foreign investor with some sense of comfort knowing that their capital is going, at least in part, toward real assets with a measurable market value and some future value regardless of the success of the job creating component of the project. This added element of security, combined with relatively low real estate prices in the US have served to increase interest and activity in real estate related EB-5 projects and the Regional Centers offering real estate projects.
Upon approval of an applicant’s original request on form I-529, the Petition for an Alien Entrepreneur, the individual, spouse and children receive a conditional green card for two years. During the last 90 days of the conditional period, they must document the completed investment as well as the job creation promised when applying and file form I-829, the Petition by Entrepreneur to Remove Conditions. When the conditions are removed, the investor and family are granted permanent residence status permitting free movement, work, and enrollment in US schools.
In summary, individuals seeking permanent residence in the US may leverage a relatively safe, secure investment in real estate to bypass the quotas, backlogs and sponsorship requirements of other permanent residence and citizenship approaches. Upon approval of the original form I-529, the , individuals and their families immediately are granted a conditional green card with conditions completely removed during the first two years following the investment. Utilizing real estate as the key element of the investment provides the investor with the assurance that their capital is being put to use in purchasing something of true, lasting value. Certainly, real estate can lose value like any other investment. However, land and improvements such as buildings provide a significant backstop against an entire loss of capital in a foreign land.
The Opinion Editor Philip Seagraves, MBA, MSRE is an Academic Consultant to realism.IN. He is a Visiting Lecturer at Mississippi State University. Philip helps international investors with real estate acquisition in the United States and can be reached at philip [AT] chanpart [DOT] com.
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