By Anayat Durrani
Florida Governor Ron DeSantis signed controversial Senate Bill 264 back in May to “crackdown on Communist China.” The law went into effect in July and raised concern in the EB-5 industry over its potential impact on investment as foreign investors who invest in EB-5-funded developments own an interest in the land.
Under the new Florida law, Chinese nationals are restricted from buying property within 10 miles of military bases or critical infrastructure. Individuals selling property to Chinese immigrants could suffer penalties, such as a $1,000 fine and up to one year in prison.
The Florida law also bans individuals “domiciled” in China who do not hold U.S. citizenship or permanent residency from owning property in Florida.
However, lobbyists at The Advocacy Partners have stepped in and their efforts have pushed for a carveout in the law, and now EB-5 investors are exempt from those restrictions.
“The change happened due to lobbying to exempt the EB-5 program from the law since it was finally realized that EB-5 investors are not a threat to the State,” says Ronald R. Fieldstone, a partner at Saul Ewing LLP.
Potential impact of the Florida ban on EB-5 real estate owners
The law would have impacted EB-5 applicants who invested preferred or common equity in an EB-5 project, but not those under a loan model where there is not real estate ownership.
“The EB-5 investors have been excluded from the domiciliary restrictions. However, the law would apply to the direct purchase of real estate by certain foreign parties, including Chinese persons who are domiciled in China,” says Fieldstone. “It is noteworthy that once an EB-5 investor obtains conditional residency, then such investors could purchase real estate.”
The Florida Department of Commerce published a proposed rule to exclude investors involved in an equity model, eliminating the requirement that only a loan model be used.
The exemption is significant considering that Florida has 59 out of the 640 approved regional centers as of April 4, 2023, accounting for nearly 10% of the total, per the U.S. Citizenship and Immigration Services (USCIS).
However, the Florida law, which has been called “racist” by groups challenging it, has cast a dark shadow on the Sunshine State.
“Few projects are equity based, most are loan based,” says Tammy Fox-Isicoff, a partner at Rifkin & Fox-Isicoff. “In the end, Chinese are no longer interested in Florida projects. They are offended by DeSantis and the legislation.”
Other U.S. states also starting to limit foreign ownership of real estate
Meanwhile, the list of states passing legislation restricting Chinese nationals from purchasing property continues to grow. The states that have enacted legislation in 2023 include Alabama, Arkansas, Idaho, Indiana, Louisiana, Mississippi, Montana, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia, and Virginia, as well as 20 more states that have introduced bills that seek to regulate foreign ownership of real estate, according to the law firm of Gibson Dunn.
“Other states, including Texas and North Carolina, are considering a similar law as Florida,” says Fieldstone. “Overall, very unpopular in Florida for multiple reasons.”
The states of Iowa, Georgia, and Kansas are among the states contemplating similar legislation. Industry stakeholders have expressed hope that the EB-5 carveout for equity real estate investment in Florida will be a model to follow by other states adopting similar legislation.
The Florida law applies to countries labeled a “foreign country of concern,” including the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, Venezuela, and the Syrian Arab Republic.
“EB-5 investors are not the owners of the land or real estate development in the State of Florida,” says Ed Beshara, managing partner of Beshara P.A. “Therefore, the EB-5 Regional Center Program incorporating the loan model is still alive and well for EB-5 investors whose nationality is listed under Florida S.B. 264.”
In response to the Florida law, a preliminary injunction was filed, and the motion was denied by the U.S. District Court for the Northern District of Florida. The ruling has been appealed to the Fifth Circuit Court.
“It is noteworthy that the initial court ruling has been appealed to the Circuit Court, so it could be invalidated,” says Fieldstone.
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