The EB-5 program was established in 1990 to boost economic growth and job creation through inflow of foreign direct investment into the rural parts of the country. The Regional Center program is undergoing major reform.  The current program offers permanent residence in the USA against minimum investment of $500,000 in a targeted employment area. For other areas, the price for acquiring the US green card is $1 million. Both options require the creation of at least ten jobs in the country.

With the EB-5 program becoming a very attractive source of funding for real estate developers including senior housing projects, there are fears that introduction of new rules may affect such ventures negatively.

Over the past six years, around $12 billion FDI has entered US projects through this visa program. Nine out of every ten projects have been setup in targeted employment areas, which include rural areas or regions suffering from very high unemployment.

Senior housing projects utilized EB-5 funds primarily as bridge loans used to pre-fund the project without long delays. Developers often relied on foreign investment made by EB-5 applications to repay debt acquired to execute senior housing projects.

However, instances of misinterpretation of regulations, fraud, and even national security risks, especially in regional center investments, have led to concerns about the risks involved in continuation of the EB-5 program. With growing domestic and international focus on immigration, there has been greater and stricter scrutiny of the EB-5 program.  

The US Congress chose to approve a short extension of the project from September to December 2015 to arrive at a consensus over the proposed changes to the program. Lawmakers were focusing on rules that would correct the excessive emphasis on real estate projects among EB-5 investors and stricter oversight to minimize risks of frauds.

Recent reports have indicated that many EB-5 projects have been setup in urban areas, which runs contrary to the original intent of the project. Further, there have been concerns about lack of oversight on regional centers after the SEC initiated legal action against firms for diverting EB-5 funds for personal expenses.  

One proposed change that is expected to get approved is the hike in the minimum investment requirement for new projects in targeted areas from $500,000 to $800,000. While this will allow projects to be financed with fewer investors, the 60% rise in minimum limit is likely to hurt demand for the program, which will, consequently, harm the viability of senior housing projects.

Another proposed change seeks to alter the way a targeted employment area is defined. The existing setup where states are permitted to come up with their own benchmarks for defining a TEA has come under a lot of criticism. The revised law is expected to impose a uniform definition for TEAs.

This change, if introduced, will affect numerous existing and future real estate and senior housing projects as it may compel investors to shift to projects in rural areas.

Thirdly, lawmakers may introduce rules for stricter oversight including annual compliances and scrutiny of reports and submissions. This will probably result in more bureaucracy for EB-5 applicants choosing to invest in regional centers.

There are also fears that a revamped EB-5 program may compel developers to seek alternate sources of funding, which may lead to higher project costs and higher risk of delays or cancellations of senior housing projects.

However, some industry experts maintain that the sheer volume of investment flowing into senior housing may ensure these projects don’t suffer even if EB-5 funding comes down after the EB-5 program is revamped.

The US program remains the largest in the industry, internationally.  An overhaul is long overdue and will address the many irregularities that have plagued the program since its inception.  

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