Why a TEA?
A question often asked of EB-5 professionals is, "why should I seek to have my EB-5 regional center in a TEA (Targeted Employment Area) if it only reduces the investment requirement for EB-5 regional center investors, meaning that I will need to find more investors to raise the same amount of money?"
Simply put, the answer is the saleability of your deal. EB-5 regional center investors have to put their capital at risk for a period which is usually at least 5 years and for returns that are below market for a comparable level of risk.
For these key reasons, EB-5 regional center investors seek to invest the lowest possible amount in a given project. As a result, most EB-5 regional center projects are put into TEAs and projects that are not at a disadvantage, unless they are able to entice investors with other benefits.
New Legislation Proposed
It is worth noting that the proposed Leahy-Grassley bill could have an impact on how a TEA can be devised and its impacts on EB-5 investment. While the prevailing sentiment in the EB-5 industry is that the bill will not be passed in its current form, some or all of the proposed changes (or amended versions of them) could come into effect. These proposed changes include:
- A TEA would need to be an area consisting of a single census tract that has 150% of the national average unemployment rate (or a closed military base or a rural area).
-TEA designations would apply for two years instead of the current one.
-For TEAs based in a Metropolitan Statistical Area or Combined Statistical Area, at least 50% of a project's job creation must be within that Metropolitan Statistical Area or Combined Statistical Area to be counted.
-If a TEA is outside of a Metropolitan Statistical Area or Combined Statistical Area, then at least 50% of the jobs must be created within the county in which the TEA is located; if not, the total number of jobs will be reduced until the 50% threshold is met.
-The minimum investment amount for projects based in a TEA would increase to $800,000.
Phil Cohen is the founder and President of Strategic Element, a company that focuses on developing regional centers, EB-5 business plans, economic impact reports, feasibility studies and custom 'direct' EB-5 projects for its clients (www.strategicelementconsulting.com).