Cash-strapped developers and wealthy foreigners are flocking to a little-known visa program that allows people from other countries to obtain a U.S. green card if they invest at least $500,000 in a development project that leads to at least 10 new jobs.
As his son moved through high school, Xiaohong Mu began researching the immigration policies of Western countries where he believed his boy would get the best education.
The owner of a petroleum-engineering firm in the southwest Chinese city of Chengdu, Mu considered Australia and Canada before settling on the United States.
America, he believes, will not only prepare his son for future success, but he also thinks he can find new business opportunities here.
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Mu and his family will move to Seattle this month under a little-known but increasingly popular visa program reserved for foreigners who invest at least $500,000 in an American enterprise.
It’s a source of money that cash-starved developers across the U.S. are using to help fund any number of new projects — from ski resorts in Vermont to utility-line extensions for a new BMW plant in Moses Lake.
About $48 million in these investor funds will help finance the state of Washington’s $4.6 billion replacement of the Highway 520 floating bridge.
The relative obscurity of the so-called EB-5 visa program has allowed it to escape scrutiny at a time debate over immigration in this country has raged.
As developers struggle to get traditional sources of funding for their projects, use of EB-5 capital is expanding and expected to total $1.2 billion nationally for 2011, up from $845 million last year.
The financiers are wealthy foreigners — primarily the Chinese — who see an opportunity to gain permanent U.S. residency without the long wait and complicated processing associated with family and work-related visas — if they can qualify for those visas at all.
“There’s a kind of gold rush going on right now — developers trying to get projects going and a huge group of Chinese with money,” said James Palmer, economic-development manager at the state Department of Commerce.
While the state is not directly involved in operating the EB-5 visa program, Palmer has made himself an expert of sorts, fielding frequent calls from area developers and would-be investors around the globe seeking information about the program. “It’s a marriage made in heaven,” he said.
Mu’s investment is visible to anyone who has attended a game at Safeco Field: the second phase of a $155 million office complex going up just south of the stadium in Sodo.
“The first priority is securing the green card,” Mu said through an interpreter. “Financial return of the capital is second.”
Russian citizen Svetlana Anikeeva, along with her husband, invested $500,000 in an earlier phase of the same project. Now living in Redmond on a conditional green card she received about 16 months ago, Anikeeva can’t help but feel a sense of pride when she drives past the building that her investment helped make possible.
“I tell people that being born in the U.S. itself is worth at least $500,000,” she said.
Capped at just 10,000 visas a year nationwide, the EB-5 visa program is relatively small, but offers one of the quickest paths to legal residency.
Overseen by the U.S. Citizenship and Immigration Services, it is one of several visa-for-cash programs worldwide, including one in Canada.
Congress established the U.S. program 20 years ago to allow foreign investors from any country who could prove the lawful source of their money to obtain conditional green cards for themselves and immediate family members. For the green cards to become permanent, each investment must have created at least 10 new, full-time jobs for legal U.S. residents by the end of two years.
Typically, foreigners invest $500,000 through entities known as regional centers — usually development companies such as American Life, which owns the Sodo office complex that Mu and Anikeeva invested in.
These centers may also operate as investment companies, like the Washington Regional Center, which used EB-5 funds from 95 Chinese investors to purchase state bonds for the 520 bridge project.
The investors have virtually no direct management involvement in the centers, which are authorized by Citizen and Immigration Services. The investors may live wherever they want in the U.S., regardless of the location of the project.
In 2007, there were just under 800 visa applicants and 11 regional centers nationwide. By the end of fiscal 2011, nearly five times that many foreigners had applied and 179 centers were operating — 11 in Washington state.
And new regional centers are coming onboard every day.
A virtual cottage industry has sprung up among marketing agents overseas who promote the centers while peddling U.S. residency to the wealthy.
The marketing frenzy is particularly prolific in China, where Mu said he is bombarded daily with sales pitches.
“There’s no privacy protection here,” he said. “If people know you have money, they’ll contact you. Every day I still get calls, emails and text messages.”
The program isn’t without risk, and the U.S. government makes no guarantee to investors they’ll get their money back and prohibits regional centers from making upfront promises about return of capital.
In the past, projects have failed and investors have lost their money. What’s more, foreigners who’ve been allowed into the country through the program on a conditional green card face deportation if a project they invested in fails to meet the job-creation requirement after two years.
“Despite its many benefits and increasing popularity, the EB-5 program still presents serious risks,” said Elizabeth Peng, a Mercer Island immigration attorney.
“I tell investors this is money they should be willing to lose, that if they can’t afford the risk they shouldn’t do it.”
Doesn’t mind risk
Svetlana Anikeeva understood the risks when she and her husband plunked down much of their savings two years ago in exchange for the chance to live in the U.S.
Since her first visit to America as an exchange student in 1995, Anikeeva said she knew this is where she wanted to live. Other types of visas were not available to her and her husband, who owns a car business in Japan. The EB-5, she said, was the perfect solution for the couple and their 11-year-old daughter.
She receives a monthly statement from American Life on the progress of the project and distributions of about $200.
“For us this was not a business opportunity, it’s an immigration opportunity,” Anikeeva said.
Immigration attorney-turned-developer Henry Liebman, chief executive of American Life, has raised about $700 million from more than 1,000 EB-5 investors and created about 15,000 jobs over the last dozen years.
In Sodo and across the U.S., his company — one of the country’s oldest regional centers — has developed about 40 commercial projects by pooling foreign investments with other funding.
“It’s not a huge source of capital, but it’s still significant,” Liebman said. “It’s money that wouldn’t otherwise be available in a time of limited liquidity.”
Test ahead in Congress
The regional center EB-5 program, which has always operated as a pilot, is set to expire in September unless Congress renews it, as it has in the past.
At least two bills have been introduced to make it permanent, including one by U.S. Rep. Rick Larsen, D-Lake Stevens.
David North, a fellow at the Center for Immigration Studies, a Washington, D.C.-based think tank that advocates immigration enforcement, called it a “silly little program” with “extremely little effect” on the nation’s economy.
Compared to total foreign investment in the U.S., he said, “it’s pennies. If you talk to serious venture capitalists, they’ll laugh at the idea of getting money in half-million chunks.”
Seattle attorney Steve Miller said he steers clients away from the EB-5 program — both the regional-center track or a much smaller one that allows investors to set up and directly operate their own companies in the U.S. He says there are enough concerns to raise a “significant red flag.”
Miller, for example, is working to remove conditions from the green card of a client who first obtained it more than 10 years ago.
That case dates back to the late 1990s, when uncertainty plagued the program. During that time, the then-Immigration and Naturalization Service discovered fraud, some of it resulting from ambiguity over the agency’s own policies.
Some developers were taking investors’ money without delivering projects and the jobs they promised, and some investors got green cards without making their full investments. As a result, hundreds of foreigners and their family members from that period still do not have permanent green cards.
Between the late 1990s and mid-2000s, participation in the program slowed. While the government has since clarified its policies regarding the program, Miller said he tries to explore other avenues for high-income clients willing to operate businesses in the U.S.
Wave of Chinese
As the number of wealthy Chinese has increased, so has their participation in the visa program. More than 40 percent of program investors are from China — far higher on the West Coast.
A recent study by China Merchants Bank and Bain & Co., a consulting firm, found almost 60 percent of China’s “high net-worth individuals” — those with at least $1.5 million in assets — are either considering or completing emigration through investment programs.
Five years ago, it was Koreans, Taiwanese or people from across Europe, said Kim Foster, with the Aero-Space Port International Group, which established Washington’s first regional center in Grant County.
Mercer Island immigration attorney Cletus Weber said his firm’s Chinese clients tend to fall mostly into one of two categories: parents like Mu who want to move to the U.S. so their children can get a better education, or college students whose parents hand them $500,000 so they can set themselves up in the U.S.
Said his partner, attorney Peng: “As U.S. permanent residents, they have more doors open to them than if they came as foreign students.”
Lornet Turnbull: 206-464-2420 or firstname.lastname@example.org. On Twitter: @turnbull