In recent years, the standards for identifying targeted employment areas (TEAs) for the purpose of EB-5 investments have been under review. Many regional centers have taken advantage of the lower investment requirement of $500,000 for projects developed in TEAs to obtain funds from multiple investors. In most cases, EB-5 investors are required to produce $1 million in capital, but the Immigration Act of 1990 offers an exception for TEA projects.
The standard of measurement selected by Congress to identify TEAs is unemployment, rather than income or another measurement associated with poverty. To be qualified as a TEA, an area must have an unemployment rate that is 150% of the national unemployment rate average. Using unemployment as the measurement excludes areas that are considered low income as long as the employment rate is high. It also allows for areas with high incomes to qualify as TEAs if they have low rates of employment. While this may seem counterproductive in efforts to improve the overall economy and standard of living, one of the stated goals of the EB-5 Immigrant Investor Program is to create job opportunities. Thus, focusing on areas where jobs are needed (regardless of wage) allows the program to better meet this goal.
Due to the high number of regional center investments made in TEA projects; thus, TEAs are vital to the EB-5 Program’s continued success.
How is an area classified as a TEA?
While the Immigration Act of 1990 provides an overview of the criteria for classification as a TEA, individual states designate state TEAs based on current data. This is done to allow states to customize the requirements to enable them to meet their respective needs. Adjudicators from United States Citizenship and Immigration Services (USCIS) have the final authority to approve or deny EB-5 petitions after reviewing the data and process used to designate a TEA.
With the current criteria set in place by the Immigration Act of 1990, a TEA can cover a large area that has varying levels of income and employment as long as the average unemployment rate for the whole area meets is at least 150% of the national average. As an example, if eight neighborhoods in a metropolitan area are all within a TEA because the overall unemployment rate is high, even if the project is located in a neighborhood where employment and income are high within that region, it would still be classified as being in a TEA. This allows project developers to implement projects such as high-scale restaurants and luxury condos in wealthier areas, where they will bring in greater income due to tourists. It is expected that even if the project is in a neighborhood with high employment and income, it will still benefit unemployed workers in the neighboring areas.
Critics of the established criteria argue that it would be better to combine several factors when identifying areas that are struggling economically and that could benefit the most from EB-5 investment projects. For example, employment rates, income level, education level, and crime rates could all be taken into consideration. The existing criteria is effective in meeting the understood goal of the EB-5 Program, however, which is to create jobs in areas where they are needed.
What does this mean for investors?
Investing their hard-earned capital in an EB-5 project located in a TEA is highly advantageous to investors, as they need a significantly smaller amount of capital. Thus, investors should take precautions to ensure that the area where the project is located has been granted current TEA status, as status can change as unemployment rates change. While a regional center may be granted TEA status upon receiving USCIS designation, that status can be modified as new data is received. Investors should ask for a current letter affirming TEA status before proceeding with their investment. Retaining the services of an experienced attorney can be helpful as well in ensuring TEA status of a project location.