EB-5 Debate Tackles the TEA Designation – Part II

Many urban projects will not pass under any of the “High Unemployment”, “High Poverty” or “Median Family Income” options set in the PUIA definition. For example, in examining the most recent census data available[3], the borough of Manhattan in New York City has very few tracts which meet any of the above mentioned three requirements.[4] Based on the available census data, for the area below 96th Street in Manhattan, only 9 tracts would meet the “High Unemployment” standard and 33 would meet the “High Poverty” or “Median Family Income” standard under PUIA.[5]

The December 12 draft also provides a SIZ approach for TEA designation, which allows projects to extend the geographic boundaries beyond the project tract and review tracts with high unemployment rate to bring up the average unemployment rate of the combined area in order to meet the 150% threshold. However, the ability to extend the geographic region far beyond the project tract in order to reach high unemployment tract(s) is extremely limited based on the definitional language, which only allows extension up to 12 census tracts, all of which must be in the same county, and which must include all bordering census tracts to the Project Location. Additionally, the SIZ approach in the December 12 draft does not include areas with little residential population, such as parks, forests, or large bodies of water. Given these restrictions, a large number of projects in urban areas are unlikely to qualify as TEAs based on the SIZ approach.

As applied to Manhattan, the SIZ approach is unlikely to qualify many Project Locations in the Midtown and Downtown sections of the city, as it is likely that these Project Locations would need to extend over 12 tracts to reach a high unemployment tract. Further, with the exclusion of public parks, projects that are located along or near Central Park can no longer use the park to connect with the tracts on the other side of the park. Additionally, as all bordering tracts must be included in the total 12 census tract count, projects located in the popular development areas of Midtown, Upper East Side, or Upper West Side of Manhattan, are unlikely to extend far beyond their immediate proximity to reach a high unemployment tract. 

[1] The “High Unemployment” prong under PUIA also allows the use of census tracts contiguous to neighboring tracts to be considered in the analysis. Additionally, the PUIA approach also provides two additional avenues for granting TEA designation for EB-5 projects, in areas of “High Poverty” or areas which have a “Median Family Income” that is no more than 80 percent of the applicable area medium income. The High Poverty and Median Family Income avenues do not allow for the combination of census tracts which are contiguous to neighboring tracts to be considered in the analysis. 

[2] Previous drafts of compromise legislation did not include the “each of which” language, and based on legislative intent, it is likely that it was intended for a Project tract to qualify under PUIA if the weighted average of the combined area (including bordering tracts) meets any of the thresholds.

[3] The U.S. Census is held every ten years, with the most recent census data from 2010. It is unclear based on current guidance whether the U.S. Census data is considered the most current data available for TEA test purposes. 

[4]In Manhattan, the average unemployment rate has steadily and significantly declined over the last three years, from 7.7% in July 2013 to 4.7% in July 2015, lower than the national average. See http://www.bls.gov/regions/new-york-new-jersey/news-release/unemployment_newyorkarea.htm

[5] Calderon and Friedland, What TEA Projects Might Look Like Under EB-5 2.0: Alternatives Illustrated with Maps and Data (working draft), December 23, 2015, Center for Real Estate Finance Research, NYC Stern. Manhattan areas below 96th street are generally considered prime development areas in New York City.