Texas should target ‘new generation’ of overseas investors

A federal immigration program has poured $1.8 billion into U.S. businesses this year, and Texas deserves its piece of the action. With cheap foreign capital up for grabs in the process, the private sector should be gearing up to attract more of the funds to the state.

Under the EB-5 visa program — which was created by Congress in 1990 — an immigrant investor receives the visa in exchange for a $1 million investment in a U.S. business. The investment, which can be reduced to $500,000 if the business is located in a rural area or area of high unemployment, must be placed at risk and must create a minimum of 10 U.S. jobs. The program is administered through the United States Citizenship and Immigration Services.

The program wasn’t used much until the financial crisis of 2008, when traditional sources of financing dried up, leaving a void that has been filled by alternative sources such as EB-5 capital.

The number of visas issued through the program have risen by more than 600 percent since the crisis, with more than 7,600 being issued in 2013, according toDandan Zou, CEO of consulting firm Mainstay Global and chairman of the Invest in Texas Initiative, a nonprofit promoting foreign investment in the state.

Investors from five countries — China, South Korea, Taiwan, the U.K., and Hong Kong — make up some 80 percent of those visas, with the vast majority from China, according to a report on the program released this week by the Brookings Institution.

Most of the visas are granted through federally designated regional centers — there are 38 in Texas — that allow investors to include indirect jobs created by their investments, thereby allowing more jobs to be counted toward the visa’s minimum requirement. Investors using a regional center typically take a hands-off approach and leave the day-to-day management of the investment to the regional center’s staff.

Still, some regional centers are finding that it’s getting more difficult to raise EB-5 funds. After news broke earlier this year of a Chicago Regional Center allegedly defrauding investors, investors are scrutinizing projects much more than in prior years. And with the explosion of U.S. regional centers in the past year — there are now 413 nationwide — there are now many more projects on the market competing for EB-5 investors.

Some of the centers find success by partnering with emigration brokers and consultants who are well-versed in the EB-5 program and have established networks of high-net-worth individuals.

Meanwhile, a recent study by Bank of China and Hurun reported that more than half of China’s estimated 1.1 million millionaires are considering emigrating overseas.

Most are seeking a better education and a cleaner environment for their children. The wealthy are also concerned with political uncertainty and would like to move where they and their money can be out of the reach of the Chinese government. Many are moving to countries with similar immigrant investor programs such as Australia, the U.K., and until recently Canada.

In the U.S., Texas regional centers are stepping up efforts to woo EB-5 investors that have traditionally been attracted to the East and West Coasts. The Invest in Texas Initiative recently reserved a “Texas Block” of exhibition booths for its members at an EB-5 trade conference in Shanghai to showcase the Texas investment landscape in March.

And last year, a task force reporting to Austin Mayor Lee Leffingwell recommended that the city pursue closer ties with the EB-5 program.

“With the world’s 14th largest economy, it’s time for Texas to claim its fair share of this cost-effective capital,” said Nathan Guo of the Texas Investment Regional Center in Austin.

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