EB-5 Faces Population Problems: Too Many Middlemen, Too Few Visas

This article was last updated on May 25, 2022

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It is ironic that the Department of Homeland Security — an outfit that apparently believes that there never can be too many people under any circumstance — finds itself with a highly specialized population problem of its own making.

Although the department has yet to admit it, there is clearly a population challenge in the EB-5 (immigrant investor) program: There are too many DHS-licensed regional centers for more than a handful of them to make money. This all relates to the Obama administration's active promotion of the scheme in recent years.

This is the program that provides an alien, and his or her family, a set of green cards in return for a half-million dollar investment in a development approved, but not guaranteed by, the government. Such investments (at the half-million level) can only be made through a DHS-approved regional center — and suddenly there are too many of the centers. Simultaneously, the program is about to reach the 10,000 statutory ceiling in terms of visas issued.

Let's review the math. A visa is issued for each investor or family member, and they seem to be running about 2.5 visas per family. So 10,000 visas translates into 4,000 investments. (There is a seldom-used section of the EB-5 law that allows for $1 million investments without recourse to the regional centers, but given the lower price 99 percent of the traffic appears to go through the regional centers.)

Meanwhile, the number of centers keeps growing — there were 652 on May 4. (For the complete list, see here.) Divide 4,000 by 652 and you get 6.1 investments per center, or a little more than $3 million each. DHS does not regulate the level of fees that a center can charge, but the market shows something like $30,000 in fees per investment. That, in turn, suggests that the average annual fee income would come to about $183,000 per center.

Since Stephen Yale-Loehr, a prominent immigration lawyer and the founder of an EB-5 trade association, says that it takes at least $100,000 to start up a center, a lot of these middlemen face a grim future.

What to do? The obvious answer for the Obama administration: Let's increase the number of EB-5 visas, preferably by masking that increase by simply saying that spouses and children of investors will not be counted against the 10,000 ceiling. That is, in effect, a 15,000 (or 150 percent) increase in those visas and was written into the Senate's Gang of Eight bill (S.744), as reported here.

Another, considerably less attractive, approach for the administration is to begin to weed out some of the misbehaving and inactive regional centers. To that end, the government has recently published a list of "terminated" centers, with 28 names on it.

I put "terminated" in quotes because, like so much government verbiage about immigration, the word is misleading. It suggests (à la Arnold Schwarzenegger) muscular, decisive action. But in most of the cases — probably 19 of the 28 — "file as inactive" would be a better description. These outfits have simply gone out of business and indicated this by failing to file an annual report.

Two of the cases on the list of 28 apparently obtained the foreign money, passed it on to a developer, and then closed up the EB-5 shop with their missions accomplished. Seven cases involved scandals or trouble with the government, and the balance just threw in the towel. We had to extract those subtotals from Google descriptions of the specific centers. DHS does not report the reason for the individual terminations.

There were only one or two terminations a year for many years; but 12 of the 28 de-listings took place in the first few months of this year, so DHS is paying a little more attention to this matter.

There is always the strong possibility that the list should be longer than 28, but DHS has shown itself to be quite passive about problems in the system.

I am grateful to CIS intern Cody Donald for his research assistance.

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