Follow up to NYTimes article on EB-5 TEA's & Gerrymandering: Part I

Posted by Michael Gibson on Thu, Dec 29, 2011 @ 02:34 AM

The article Rules Stretched as Green Cards Go to Investors by Patrick McGeehan and Kirk Semple of the New York Times has caused a significant amount of commentary by EB-5 industry insiders, Federal and State government officials, advocates of the EB-5 visa program as well as critics but interestingly enough, much of the feedback obtained by EB5Info was in agreement on one essential point:

• There is lack of consistency and clarity on the subject of what constitutes a TEA and how some States might use a certain methodology that would designate a project as qualifying while other States might deny to designate a project as being within a TEA with the same employment data and similar census tracts

Which raised the questions:

• Are the majority of projects that are being funded today those that Congress envisioned when they enacted the laws that created the EB-5 Regional Center “Pilot” program? That is, are developers “gaming” the system by including census tracts in their TEA request that will allow them to build projects which don’t actually employ (to any large degree) the residents who live in rural or areas of high-unemployment that should benefit from this development?

• How can the results of this capital invested be measured to show an improvement in lowering unemployment for that TEA (and counter critics claims that little actual job creation results from the EB-5 investor visa program)?

I was in New York at the time visiting with clients, EB-5 visa attorneys and Regional Centers and was asked to come and speak with Patrick and Kirk at the brand new NY Times building just off of 8th Avenue. I spent nearly two hours with Pat (Kirk had to leave at 5 pm to take his call with Director Mayorkas) discussing the benefits and issues with the program and I was extremely impressed by the body of knowledge and amount of research they conducted in putting this piece together.

They managed to interview a large number of attorneys, economists, Regional Center operators and government officials in compiling the story and trying to paint as accurate a portrait as possible with the TEA “gerrymandering” issue. Pat later explained that they had tried to get the full story to come out on Sunday, which would have given them more print real estate to describe all of the issues that the States face in trying to balance the need for economic development with the vague constraints imposed by USCIS regulations, but their Editors decided to print a shortened A-1 story for the front page on Monday's edition.

The principal question which they asked was that even if the TEA designations are inconsistent and the regulations are vague, who does it hurt if capital is raised to promote economic activity, even if it does not benefit, as Congress might have intended, true rural or areas of high unemployment?

I said that one might argue that it hurts the ability of those in rural and impoverished urban areas which cannot compete with the resources of the large MSA developers to raise funds overseas. The developers in large cities like New York, Miami or Los Angeles have significant advantages to raise capital that might not be available to their cousins in the farm, mountain, rural States or the impoverished inner cities with collapsing industrial infrastructures.

I argued that if those large developments which were being built in the MSA’s with very low rates of unemployment hired people from the surrounding qualifying areas, then I felt that would meet Congresses intent. What we are seeing, however, is that many large coastal developers are simply using EB-5 to lower their existing, in place, cost of capital, and that in some cases, relatively few new jobs are created as the EB-5 is simply being used to replace other forms of credit, debt or equity.

This would not be a problem if the supply of EB-5 investors was elastic, but unfortunately it is not and the competition for these high net worth foreign clients is growing increasingly steep and as a result the projects that are getting funded are those who are in the highest profile markets and those away from the coastal regions who are newer and with fewer resources to compete, are having an increasingly difficult time raising any capital at all.

Conversely, I pointed out, one might argue that projects in urban areas of low unemployment may more efficiently utilize the capital raised and create a much larger number of jobs than could smaller enterprises without the support of a well developed transit and commercial support system to bring in workers from low income housing units which could gain the most benefit from a large scale commercial enterprise being built within a relatively close proximity. A skyscraper may have the potential to employ hundreds of laborers from depressed urban areas whereas the farm, recreational resort or hotel, using the same amount of EB-5 capital in it's capital stack, may be able to only employ a fraction of the same labor force in it's TEA.

This was the question that Director Mayorkas was making when he asked “The question is, are the state authorities adhering to the spirit of the law? Where is the project being developed, and where are the jobs being created? Are the people from the areas of high unemployment being employed? Because that’s really the purpose. If they’re not being hired from those areas, then the question is justified.”

We will examine in our next article the definition of what constitutes a TEA as defined in the regulations and how different States interpret that meaning, as well as guidance on how the USCIS and AAO have ruled on prior petitions and include commentary from those who work with developers, State and USCIS officials to try and determine if their projects qualify for raising capital through the EB-5 immigrant investor visa program.

Source:

http://info.eb5info.com/bid/114980/Follow-up-to-NYTimes-article-on-EB-5-TEA-s-Gerrymandering-Part-I