Trump Takes Aim at Program That Pumped Millions of Dollars Into Texas
WASHINGTON — The luster has come off the “golden visa,” the immigrant investor program that’s injected hundreds of millions of dollars into Texas development projects in recent years.
President Donald Trump is reining in the program — typically called EB-5, in reference to its visa classification — in the wake of long-standing complaints that it’s ripe for fraud and riddled with loopholes large enough to distort its original purpose.
Starting in November, foreign investors will have to pony up more cash to get on the fast track to a green card, while developers will have a harder time gaming the system to get cut-rate deals.
Those changes, hailed in many quarters, come as the economic development tool is already lumbering amid visa backlogs that have become almost prohibitive — and uncertainty over whether Congress will even continue to authorize the program.
So even though many developers in Texas and beyond agree on the need for a revamp, some worry that the forthcoming overhaul is too heavy-handed.
“We are going to lose investment dollars and job creation,” said Dan Healy, CEO of Dallas-based Civitas Capital, which has used EB-5 to fuel high-profile projects in the Cedars, the Bishop Arts District and other North Texas locales. “That’s the unfortunate part for the country.”
Trump’s action, announced last month, forms another front in his wide-ranging battle to curtail legal and illegal immigration. But the EB-5 push is somewhat unusual.
The clampdown effort actually started under President Barack Obama. Trump, a real estate titan, is typically simpatico with the kind of developers who use the program. Jared Kushner, Trump’s son in law and senior adviser, even relied on EB-5 when he ran his own family’s company.
Nevertheless, Trump administration officials cast the crackdown as a needed course correction.
“Since its inception, the EB-5 program has drifted away from Congress’ intent,” said Ken Cuccinelli, acting director of U.S. Citizenship and Immigration Services.
Congress created the program in the early 1990s, setting aside a yearly quota of 10,000 visas for foreigners who could put up $500,000 or $1 million, depending on the type of development.
Not until the aftermath of the 2008 financial crisis did the program really take off as developers looked for any and all ways to fund their projects.
Billions of dollars in EB-5 investment has surged into the U.S. since then, with Texas accounting for scores of such projects. Civatas alone has used EB-5 for the likes of the NYLO Hotel south of downtown Dallas, KPMG Plaza in the city center, and apartments near the Trinity River.
“The rest of the western world has noted that billions of dollars have been flowing to the U.S. economy,” said Healy, calling the program a rare “win-win-win.”
But that kind of success has often been eclipsed by notoriety.
There has been some outright fraud, with sketchy developers ripping off investors. More often, there has been a lack of transparency, along with the brazen, albeit legal, gaming of the program to take advantage of a break that comes for projects done in what are supposed to be needy areas.
Under the existing setup, the standard EB-5 investment level is $1 million.
But that buy-in drops to $500,000 if the project occurs in a rural area or in a zone with unemployment of at least 150% of the national average rate. Significantly, the federal rules don’t place any real limits on how those “targeted employment areas,” known as TEAs, can be crafted.
Developers can stitch together Census tracts to create a zone that qualifies, no matter if the project itself is really in a distressed area. The task is even easier in Texas, which is unusual in having mayors and county judges, rather than state officials, approve the zones.
More than 90% of all EB-5 projects in the U.S. end up classified as TEAs, many of them gerrymandered just so. Among the North Texas areas to receive the designation: Dallas’ Uptown neighborhood, the luxe suburb of Westlake and booming parts of Collin County.
“All of a sudden, investment dollars intended for communities in need were being sucked up for glitzy projects in America’s most well-to-do neighborhoods,” Sen. Chuck Grassley, an Iowa Republican and leading EB-5 critic, wrote in a recent op-ed.
Developers like Healy have acknowledged those criticisms, backing legislation to clean up those kind of issues while also providing the program long-term viability. But not all industry stakeholders got on board, effectively punting the matter to the Trump administration.
The new rules from U.S. Citizenship and Immigration Services tackle EB-5 in a few key ways.
Investment levels will be $1.8 million for a standard project and $900,000 for one in a targeted employment area. The feds, not states or municipalities, will sign off on TEA designations. Those zones, if eligible, will be restricted to the project site and adjacent Census tracts.
“The new rules suggest that more money may actually go to more deserving areas than now, and that’s a big step forward,” said David North, an EB-5 critic at the Center for Immigration Studies, which advocates for more restrictive immigration policies.
But the industry is now grappling with the likelihood that the investment level for many EB-5 projects is going to more than triple.
Yuseff Howard, managing partner of Progressive Funding Solutions in Fort Worth, complained that the new treatment of targeted employment areas will limit projects and that the raised investment levels will discourage participation in the EB-5 program at all.
“We definitely have concerns,” said the developer, whose EB-5 work has focused mainly on the Carolinas.
There are also broader worries that the pinch is particularly ill-timed.
New EB-5 investment has started to plummet after years of explosive growth, according to data analyzed by Invest in the U.S., an industry trade group. Fueling the drop is a visa backlog that is forcing some investors to wait more than a decade to get the prized immigration credentials.
One overarching problem is that some two-thirds of the annual 10,000-visa allotment end up going to investors’ close relatives, thus limiting the investment pool.
But the issue is acute for Chinese investors, who’ve accounted for upwards of 80% of the program’s use. Foreign countries are eligible for only a certain number of visas in a given year. Demand in China has far exceeded capacity, creating waits long enough to scare off applicants.
While there is substantial EB-5 investment already in the pipeline, the backlog and the new changes mean investment is likely to keep decreasing, said Stephen Yale-Loehr, an immigration law expert at Cornell University in New York.
That’s the rub for developers like Healy.
The Texan is fine with many of the EB-5 changes, though he lamented the steep increase in investment levels. Indeed, he wishes the efforts to rein in gerrymandered targeted employment areas had gone further and that additional “integrity measures” were instituted.
But he it was a “missed opportunity” to not pair those changes with a fix for the visa backlog and a long-term program reauthorization.
“We’re in the worst-case scenario here, from a program and business perspective for Civitas,” Healy said. “We are certainly being exceedingly conservative in waiting to see how the market responds.”
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