By Shane McGinley
As Barack Obama seeks to rebalance the bloated US economy, the EB-5 visa scheme is being used to attract overseas investment by offering a green card, US citizenship and an American passport for those with at least $500,000 to spare. Shai Zamanian and Preeya Malik, from Dubai-based STEP America, outline why it is proving popular with Gulf-based expats
For decades immigrants around the world have strived for their own piece of the fabled American dream, and for many it has been filled with a green card.
Set up in the wake of World War II, the green card system will next year celebrate 70 years in existence. Despite the global economic crisis, millions annually are still attracted to the United States of America and apply to get their hands on the coveted card.
As in most parts of the world, demand from the Middle East has been high and less than two years ago legal professionals Shai Zamanian and Preeya Malik saw a gap in the market. They realised they could help wealthy middle class expat investors get to the US with a green card - and eventually a passport – and 18 months ago set up the STEP America firm in Dubai.
Zamanian, who was raised and educated in Los Angeles and is a visiting researcher at Harvard University, was working in Miami handling commercial real estate legal matters for a large developer. Meanwhile, Toronto-born Malik owned her own law firm in the city focused on lender refinancing.
The program that united their interests was a scheme known as the EB-5 visa for Immigrant Investors, which was created by the US Immigration Act of 1990. The scheme provides a method of obtaining a green card for foreign nationals who invest $1m, or at least $500,000 in an area with high unemployment or that is mainly rural.
The main objective of the scheme - from the US government’s point of view - is jobs; each investor must create or preserve at least 10 jobs for US workers, excluding themselves and their family.
When the EB-5 scheme was first launched, the pilot was not the huge success US authorities had hoped because it required applicants to set up a new company or entity and physically operate in the US.
In 2005, the government realised the scheme had not been taken up in the numbers they had forecast and decided to amend it to include passive investors who could simply invest a minimum of $500,000 in a real estate or investment project, create US-based jobs and then apply for a green card.
With the easier access, by the end of the 2011 fiscal year more than 3,800 EB-5 applications had been filed, compared to fewer than 800 applications in 2007. With demand so high, for the first time, in August, 2014 the State Department suspended the issuance of EB-5 visas until the beginning of the next fiscal year in October, 2014.
This is where Zamanian and Malik enter the picture.
“I was doing a lot of the EB-5 investor work and there was so much demand from [the Gulf] region I made the decision to come out here permanently. Customers want you to be here and it was a good decision to come here,” says Malik.
“We wanted to go abroad and see how it works on the investor side,” adds Zamanian.
The company they set up was called STEP, which stands for Strategies to EB-5 Planning, and they say it was founded “with the simple belief that the long and arduous path to United States citizenship need not be so”.
The introduction of the slimmed down EB-5 has made it much more attractive for investors from the Middle East to apply and it has also helped cash-strapped US developers access much-needed funding.
“So now there are investment vehicles where they can become passive investors, where before they had to start their own business, invest a million and launch the business, so it is a lot easier now,” explains Malik.
“The developers know it is a cheap form of capital. If they were to go and get some regular institutional debt it would be at a higher level. EB-5 investors get a very low rate of return on investment, it is about half a percent to one percent, but the real return is for people who want the green card. It is not for people who want a high rate of return but those who really want the green card and that is their reward,” she adds.
The company also represents around five projects and developers in the US chasing potential EB-5 investors. The main draw at present is the $430m SkyRise Miami project, which is forecast to create approximately 7,100 jobs during its development phase and 17,000 jobs after its opening.
Situated on the shore of Biscayne Bay in Miami, Florida, it is an entertainment and observation tower which will be approximately 300 metres tall and is being developed by well-known US developer Jeff Berkowitz.
Some of the main attractions of the skyscraper will be its observation deck, exclusive restaurants and clubs and the Sky Plunge, which is a bungee-jump-style base thrill ride off the side of the tower. In its bid to become the fifth most visited attraction in Florida, the tower will also include the SkyRise Drop, which will see riders freefall down the spine of the building while strapped into a rollercoaster-style harness and the SkyRise Flying Theatre, which will be a motion-based simulator for 72 riders offering views out over the Florida skyline from the top of the tower.
“From this region we have been getting a lot of traction and interest in the project as it is very high-profile,” says Malik, who points out that the glamorous nature of the skyscraper makes it a good fit for investors in the UAE. “It is a very relatable project for investors here. It is based in Miami, which has a profile as a glamorous city… In the past 10 days or so we have had seven to nine clients [interested],” she adds.
In addition to the green card, investing in the project eventually leads Gulf investors to be eligible to apply for full citizenship and a US passport. “It is the fastest and easiest way to get a green card right now,” says Malik.
“From this region we are seeing a nine to 11-month wait for the conditional green card. The conditional green card has all the same benefits of the normal green card but it has a two years conditional period or expiration date. When it is about to expire you make another application and show you didn’t pull your money out [of the EB-5 project] and the project went through and then they give you a permanent green card and that one is forever.
“Once you hold the green card for five years, which starts from the conditional green card, then you are eligible to apply for citizenship and a passport, so it is a quick system.”
Zamanian points out that the approval rate is also generally quite high: “Based on the last quarter’s numbers we are seeing about 80 percent approval. In terms of rejections, the biggest reason is, if you cannot prove a clean source of funding. As long you can prove a clean source of funds you should get approval. If the government has any questions and feel it is insufficient, they don’t reject you - they ask for more information.”
While acceptance among investors is high, Malik point out that not all projects are given the green light by the US government to be part of the EB-5 visa scheme and not all automatically apply.
“Most projects don’t pre-apply for it. There is a pre-application process but less than 5 percent of projects would go through that process as it is a two-year process and you have to submit all your documentation ahead of time. A lot of developers don’t have that time to waste and it is possible for them to go to China and gather investors the normal way.
“The first application that goes in is the first time the government is looking at the document so there is a slight chance it will be rejected and goes back and forth until they are satisfied and the jobs are secure. For something like SkyRise Miami they did take the time so they have their stamp of approval.”
Malik says the chance to earn a green card and eventually qualify for full American citizenship is a strong endorsement for expats in the region and the firm expects demand to be high.
“For this project we are looking to get the minimum $30m [with]$500,000 per investor…I am expecting it to sell out in the next eight or nine months.”
While STEP America is not seeing interest from Gulf locals, Zamanian says Indian and Pakistani expats living in the region are the main target audience.
“There is one common thread among 90 percent of our clients in that there is always an element [related to] their children and an education component,” Zamanian says.
“Many of them are doing it so that in a year from now their son or daughter will have access to US colleges or jobs in Fortune 500 companies.
“It is rare for a young adult to come to us and say ‘get me to the US and get me there quickly’. There is always a family plan with children involved,” he adds, pointing out that the visa extends to an investor’s spouse and all children under 21 years of age.
That said, Zamanian says it is not just Dubai which has shown interest from investors in the region.
“They won’t all be from Dubai but also Iran, where there is a greater demand to get out immediately.”
Other projects on the firm’s portfolio that can avail of EB-5 visas range from schools to hotels. The Charter School projects are being developed by Education Fund of America in partnership with American Charter Development.
“Investors who aren’t necessarily looking for a flashy project, but feel more comfortable with a smaller project which they view as manageable, will usually go for a Charter School,” Malik says.
Alternatively, they are working on a Le Meridien Project to renovate a historical building in downtown Cleveland, Ohio. The building will be transformed from a commercial space to a five-star hotel. The $75m project has seen interest from China, Malik says.
But, as the most recent economic cycle has shown, projects don't always go to plan, and some potential investors would be forgiven for asking, what happens to the green card if the project is delayed or scrapped?
“If the project is delayed it’s not so much of a problem because, first of all, the initial application is based on projection that this project will go forward and will create this [predicted number] of jobs,” Malik says.
“The second application after two years is to prove that the project did go forward, will create the jobs and will invest the money. However, if there is a delay, the law says you can state that the jobs will be created in a reasonable time… So if the delay is not too crazy and they can still show that then it will still be approved.
“There is a lot of leeway involved in that. USCIS [United States Citizen and Immigration Services], which is the government body that administers the green cards, also provide reports on a quarterly basis as to what the approval ratings are…the last report which came out showed that there was a 94 percent approval,” Zamanian adds.
With President Barack Obama struggling to get the US economy back on track, coupled with the prospect of an expensive war with ISIL, investment vehicles such as the EB-5 visa scheme are likely to become commonplace.
Those lining up to become American citizens certainly seem happy to take advantage of that.