Executive Summary: Administered by the United States Citizenship and Immigration Service (USCIS), the EB-5 program (Employment-Based Immigration, Fifth Preference) allows foreign nationals to invest as little as $500,000 or as much as $1 million in a U.S. enterprise, in consideration of potentially receiving permanent residency in the United States. In recent years, EB-5 financing has grown exponentially and has become a highly utilized funding source for hotel development projects.[1] Congress created the program in 1990 to stimulate the U.S. economy through foreign direct investment to create jobs. Despite the growth of the program, the EB-5 market is opaque and inefficient, and availability of EB-5 financing may encourage development of speculative (and potentially economically marginal) hotel investments. This report explains the mechanics of conducting an EB-5 transaction, examines the motivations of investors and hotel developers to participate in the program, outlines potential for fraud in EB-5 capital raisings, and demonstrates the potential for bringing marginal projects through an economic simulation of a hotel financed with EB-5 capital.

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Peter Glanville
Electronic Communications Specialist
CHR

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