EB-5 ALERT #3: California Governor's Office Announces Changes In California's TEA Procedures For EB-5 Immigrant Investor Financing

The Governor's Office of Business and Economic Development held a stakeholders conference call to announce modifications to its new procedures for designating "Targeted Employment Areas." On June 19, 2012, Brook Taylor, Deputy Director for Communications and Policy of the California Governor's Office of Business and Economic Development (known as "GoBiz") held an open conference call to discuss further changes in the procedures adopted on April 30, 2012 by the State of California for designation of "Targeted Employment Areas" or "TEAs".

TEA Designation is critical to the viability of an EB-5 project. As our readers know, the EB-5 investor visa program allows non-U.S. persons to obtain United States permanent residency (green card) if they invest $1,000,000 in a new commercial enterprise that creates at least 10 new, permanent, full-time jobs per investor. If the new commercial enterprise is located within a TEA, the required investment is reduced to the $500,000 level (while still creating 10 full-time jobs). If a project in not located in a TEA, then the project is for all purposes shut out from raising EB-5 funds because EB-5 investors will not want to invest at the $1,000,000 level when other projects are available at the reduced $500,000 threshold.

The new procedure will designate individual census tracts with qualifying high unemployment as TEAs. As modified effective yesterday, the California TEA designation procedure will now allow individual census tracts with qualifying high unemployment to be designated as TEAs, in addition to metropolitan statistical areas ("MSAs"), counties, cities with qualifying high unemployment and rural areas. In addition, California will issue individual letters to project developers certifying qualified TEA areas for specific project locations, in order to provide assurance to EB-5 investors that the projects they invest in are qualified at the $500,000 investment level.

The good news: This inclusion of individual census tracts with high unemployment is good news for many project developers who have projects located in individual qualifying census tracts, and some good news for cities, such as San Francisco, San Diego, San Jose and Anaheim, that had been completely disqualified under the prior policy since individual census tracts with high unemployment within these cities can now qualify for TEA designation. In addition, the Deputy Director reiterated the support of the Governor's Office for projects throughout California using the EB-5 immigrant investor program. We appreciate the willingness of the Governor's Office to review and further refine its policy in the future.

The bad news: While we appreciate that the Governor's Office has expanded the TEA...