EB-5 Investors Create TEAs with Adjacent Census Tracts

Every foreign national with dreams of immigrating permanently to the United States and the means to invest should consider tapping into the EB-5 Immigrant Investor Program. This residency-by-investment program provides permanent resident status for EB-5 investment participation after successfully satisfying all program requirements through a qualified EB-5 project. Qualifications for EB-5 visas include job creation (at least 10 full-time jobs for U.S. workers), proof of lawfully sourced capital, and maintaining the capital an “at risk” status throughout the investment period.

Another requirement that has the ability to stop a prospective EB5 investment participant’s journey before it even begins is the minimum required capital amount. Right now, that’s $1.8 million. Due to the recent implementation of the Modernization Rule (November 2019), the minimum required investment nearly doubled. Any investor unable to meet that investment amount is disqualified from participating in the EB-5 program—except when investing in a targeted employment area (TEA). Then, only $900,000 is required.

So, what is a TEA, and how are investors finding the right one? Let’s take a closer look…

The Targeted Employment Area: What Is It?

Congress created the EB-5 program specifically to address unemployment issues in high-need locations around the United States. Of course, federal-level programs carry their own set of challenges when attempting to target hyper-local economic stimulation. This is why the concept of “targeted employment areas,” or TEAs, was developed. The idea is to offer a lower minimum investment requirement to entice investors to deploy their capital in critical geographic areas. There are two ways a TEA may be designated: by high unemployment rate (at least 50% higher than the national average) or low population (20,000 residents or fewer).

Somewhat counterintuitively, TEA designation does not come from United States Citizenship and Immigration Services (USCIS). It is derived from justification through an EB-5 investment participant’s I-526 petition.

That’s right! The investor must designate their own targeted employment area. The obstacle is the extra work it takes to develop sound justification, along with unbridled uncertainty in TEA investments today. The advantage is that every investor has the ability to construct their own TEAs.

Constructing a TEA through Census Tracts

The first step is opening up the EB-5 TEA map from EB5 Affiliate Network (EB5AN). There, any prospective EB5 investment participant is able to scan the country, coast to coast, for eligible TEA regions and narrow their scope to suitable projects. This map provides census tracts with easy-to-see orange highlights on already qualified TEAs. However, USCIS does allow investors to pull in adjacent census tracts to create entirely new TEAs.

Veteran program investors remember that the prior aggregation of census tracts was more flexible than what exists under the enactment of the Modernization Rule in November 2019. Before then, investors could simply journey out a tract or two when their selected project wasn’t eligible for TEA status and pull those tracts in to fulfill the TEA designation requirements. There were no bordering requirements, so it was relatively easy to attain TEA status and thus qualify for the lower minimum investment amount.

Today, however, TEA customization has become slightly more challenging, with the Modernization Rule guideline stating that any additional census tracts must be directly adjacent to the target tract. While the intention may have been to prevent gerrymandering, there is no doubt the legislative change has stifled the inflow of foreign EB5 investment capital to high-needs areas. We know this because census tracts are fairly small. A project facilitated in one tract is highly likely to benefit census tracts beyond those directly adjacent to them. That said, strategic planning in the creation of new TEAs is possible. Prospective EB-5 investment participants can still benefit by conducting the proper research to ensure USCIS approval. Otherwise, investors should expect to invest a minimum of $1.8 million in their new commercial enterprise (NCE).

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