The nation’s deteriorating surface transportation infrastructure cost American households and businesses $130 billion in 2010, according to the American Society of Civil Engineers. Washington state is taking advantage of one potentially lucrative source to help fix the problem by offering foreign citizens opportunities to earn green cards to live and work in the United States in exchange for an investment in public projects.
Already, 95 would-be immigrants, mostly Chinese, have invested nearly $48 million in a company set up to buy bonds funding the replacement for the aging State Route 520 floating bridge across Lake Washington. If the deal receives final approval, the 95 would be eligible to apply for green cards to live and work in America. The innovative deal is believed to be one of the first times the federal government’s Immigrant Investor Program, also known as EB-5, has been used to fund a public infrastructure project using municipal bonds anywhere in the United States.
“Purchasing bonds for the 520 bridge makes sense not only for our local community here in Western Washington, but also for our investors from all around the world,” says Mike Mattox of the Washington Regional Center, the company behind the 520 deal.
Washington has long been a hub for EB-5 investment, with 12 regional centers in the state licensed to set up projects and market them to foreigners. One local company, Seattle’s American Life Inc., has financed more than 40 real estate developments using EB-5 equity investments, including a Courtyard by Marriott hotel in Pioneer Square and a six-story LEED Gold Certified office building in SoDo. In SoDo alone, American Life owns 38 properties with some 2.2 million square feet of space. The company is responsible for about 10 per cent of all EB-5 investment nationwide.
But American Life’s founder and CEO, Henry Liebman, says deals like the 520 bond purchase threaten the future of traditional design-and-build projects. “If an investor has the chance to buy a bond backed with the full faith and credit of the state of Washington,” he asks, “why would he give a construction company $500,000?”
The EB-5 program was set up in 1990 to stimulate the United States economy through job creation and capital investment by foreign investors. Applicants are required to invest $500,000 in a business that creates or preserves 10 full-time jobs in a rural area or a region of high unemployment. If the business and jobs are still there after two years, investors become eligible for permanent residency. If the business fails, they lose both their money and their green cards.
When it started, the EB-5 program—EB-5 is short for Employment Based Immigration: Fifth Preference—required investors to set up a completely new business and run it themselves or turn around a failing enterprise that had been consistently losing money. “Initially, there wasn’t a huge amount of interest in EB-5,” says Christopher Helm, a business and immigration lawyer with Davis Wright Tremaine in Seattle. “So they thought, why not allow investors to show not just direct employment but indirect? Also, investors wouldn’t be required to have a direct role in management.”
As time went on, investors were allowed to lend their funds to, say, a construction firm instead of taking an equity position. The 520 deal brings this approach to its logical extreme: Investors buy a stake in a company whose sole purpose is to purchase local government bonds, permitting investors to live and work anywhere in the United States.
The Washington Regional Center commissioned an economic study that counted the many hundreds of indirect jobs expected to be generated during the 520 bridge’s construction and 60-year-plus lifetime. The study also helped earn the project a high-unemployment-area designation from the state.
The EB-5 program, which must be reauthorized by Congress in 2012, requires that foreign nationals’ money be at risk for the prescribed two years—often stretching to three or four in practice—before they qualify for a permanent green card. “One of the things we determined our investors wanted was security, and what’s more secure than government bonds?” says Mattox. “But we demonstrated bonds that had failed, where investors had lost their money. That met the criterion for investment risk.”
For Liebman, however, there is more to the EB-5 program than merely meeting its minimum requirements. “Why give all this money to not own something?” he asks. “We firmly believe that our investors are buying into viable businesses. Plus, our investors are the best cops that the immigration authorities have. They’re watching the business. They’re a shareholder. They’re involved.”
The truth is that there appears to be plenty of room for both models. Of the 10,000 EB-5 immigrant visas available each year, the U.S. Citizenship and Immigrations Services reserve 3,000 for EB-5 immigrants investing through regional centers. In 2010, 2,480 of the 10,000 available EB-5 visas were issued, down from 3,688 in 2009.
Some lawmakers now hope to grow that pool of wealthy immigrants by granting green cards to foreigners who simply buy a house or two. Senators Charles Schumer (D–New York) and Mike Lee (R–Utah) are pitching legislation that would allow foreigners to earn visas for themselves and their families by spending $500,000 on residential property.
Immigrants would have to pay for their houses in cash, would not be eligible for Medicaid, Medicare or Social Security benefits, and would not automatically be allowed to work in the United States. The law would have precedent, according to Matthew Gardner, a land-use economist based in Seattle. “Vancouver, B.C., did something similar and it was very successful in helping causing a surge in the housing market there,” he says. “It will favor metropolitan areas where houses are expensive, and Seattle would probably benefit as we’re close to the Asian market. But is it the shining light to put the U.S. housing market back on track? I don’t think so.”
It remains unlikely that this legislation or a long-proposed Startup Visa Act to welcome foreign high-tech entrepreneurs will ever make it into law. For the moment, the only way immigrants can buy their way into the United States (as opposed to qualifying on family status, special employment rules or as a refugee) is through the EB-5 Immigrant Investor program.
And there are few signs that demand will evaporate. “America is still seen around the world as the land of opportunity,” says Mattox. “Our investors are a small pool, but as you start to build this infrastructure, you get an economy that can be revived.”
The Washington Regional Center’s $47.7 million bond purchase accounts for around one-tenth of the recent $518 million State Route 520 bond issue, and just a tiny fraction of the project’s projected total bill of $4.65 billion. But while public infrastructure projects are not yet relying on EB-5 money from abroad, the same cannot be said for private development.
“Before the construction bust, EB-5 money was about half of our inward investment. Now it’s almost all of it,” says Liebman. American Life is currently building Homeplate Plaza, two flex-use retail and office complexes near Safeco Field in Seattle, and is seeking foreign funds for a mixed-use loft and storage project at the old Rainier Brewery site.
As for the 95 investors in the SR 520 bond purchase, they can now complete their immigration paperwork and could be moving to the United States in the near future. “These are people who have really done well, coming over to start companies, create new jobs and buy homes,” says Mattox. “It helps everybody when they bring their wealth to America. It helps the local economy, it helps the local communities and these people are getting what they want—their dreams.”