The EB-5 program that gives foreigners their green cards for a $500,000 investment in a U.S. business has seen a Seattle company, American Life Inc., become a national model for success of the program. Now Spokane entrepreneur Peter Chase is seeking to create what he calls a "true economic development tool" with EB-5, focused on funding new businesses across Washington State rather than just real estate.
Both American Life's success, visible in the form of new buildings in Seattle's Sodo District and in other cities where it operates with a focus on real estate development, and Chase's initiative come at a time when Congress is mulling changes in the EB-5 program that could affect both.
EB-5, officially the Immigrant Investment Program, was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by up to 10,000 foreigners a year who must show their investment created or saved at least 10 jobs in order to earn permanent U.S. residence.
The law, and a key modification in 1992 to allow creation of Regional Centers to pool EB-5 capital and administer the investment projects and track results, has funneled billions of dollars into the U.S. economy though only in the past couple of years has the 10,000-investor target been reached.
EB-5 turns 25 this fall and Congress must renew, change or eliminate the program. There is virtually no chance Congress would end the program but some of the changes being discussed, and advocated, including dramatic increase in the amount of investment a foreigner would be required to make, could have a serious impact on American Life's success and Chase's aspirations.
Chase has launched Columbia International Finance, LLC, which he intends to operate as one of those Regional Centers that are government-approved firms which administer the investment projects that seek to attract the foreign capital.
But Chase, who founded and for more than a dozen years served as CEO of Spokane Valley-based Purcell Systems, a maker of outdoor telecommunications cabinets that grew to $140 million before it was sold last year, has a different model in mind.
"We plan to target projects that deliver true economic impact for communities," Chase said. "We have no intention to build hotels and we are not developers. There are just a handful of centers doing what we consider to be what the original intent of the EB-5 program was, meaning true, ongoing economic development."
Chase points to the centers operated by the City of Dallas and an industrial development entity in Philadelphia as fulfilling that original mission of creating jobs and thinks he could do that in Washington State in cooperation with economic development entities.
In fact he thinks port districts in this state could partner with his new firm as well as potential projects in Spokane's University District with the ports or organizations like the University District Development Association receiving the EB-5 funds, through Chase's firm, for projects those economic development entities need to find funding sources.
Chase's new company, for which he has spent the last eight months developing contacts in foreign countries who will help guide EB-5 investment hopefuls in his direction, will generate revenue through origination fees on the financing and a margin of the interest. Investors also will pay a fee for Columbia's guidance through the process.
Chase says the vast majority of foreign investors are from China, but Columbia International Finance will seek investors from other parts of Asia, as well as the rest of the world.
The first project for Chase's firm is expected to be construction of a new Ronald McDonald House in downtown Spokane where the $26 million facility will be constructed with roughly 60 percent of the funding coming from EB-5 investors.
He has also had discussion toward a possible involvement that would bring EB-5 money through his firm to the proposed research and development campus on the site of the old Northern State Hospital in Sedro Woolley. The proposed project would provide up to 1,000 technical jobs on what would be a revitalized campus to support Janicki Bioenergy and complementary uses.
Chase sees both projects as legitimately fitting in the Targeted Employment Area (TEA) that is the designation of a project's acceptability for the $500,000 foreign-investment rather than $1 million. The TEA designation, assigned in Washington by the State Department of Employment Security, means an EB-5 project is being located in either a rural area or a location that has high unemployment.
Chase isn't the only one thinking of using EB-5 to help finance new businesses. The day after first talking with Chase about his project, I had a breakfast meeting in San Diego with a friend there who is using a mix of EB-5 and conventional investor funding to launch a new company.
David Jacobs is a partner with a North San Diego County law firm. His new company, Stellar Innovations, has already raised $1 million of private funds with $2.5 million in EB-5 money to come for a new business that will be located in a TEA area somewhere in the job-challenged convergence of San Diego, Riverside and Orange Counties.
The business itself will be appealing to investors of both kinds, and likely grow quickly to other metropolitan markets because, as Jacobs explained to me, "its proprietary technology can eliminate billions of pounds of nylon carpet waste bound for landfills each year." After the initial facility in Southern California is completed,Stellar plans to rely heavily on EB-5 funding to help rapidly expand its services to other areas of the country.
The issue on the table relating to the congressional decision on EB-5 in September appears to be not whether it will be renewed, but what changes Congress will make to the program. Politicians from both major parties support the renewal of the program, but for some, only with changes.
Presidential hopeful Jeb Bush, for example, has publicly voiced his opinion that Targeted Employment Area designation should be eliminated entirely, leaving the EB-5 investment amount at $1 million. Part of the rational of Bush and others who want to eliminate TEAs is that many of the large-scale EB-5 Regional center projects are found in affluent urban areas like Manhattan, Los Angeles, and Miami, with census tracts are often manipulated to allow for a TEA designation.
Others want a cost-of-living adjustment to the two-decade-old $500,000 figure, which, if TEAs were eliminated and $1 million became the only factor, could make the cost to a foreign investor substantially greater, up to as much as $1.8 million, and would make similar programs in other countries more attractive to those seeking to buy citizenship.