January 12, 2016 8 Comments
I am posting a new version of my timing post from last October, with edits inspired by Robert Divine’s article The Realities and Implications of Chinese EB-5 Investors’ Wait for Visa Numbers (January 4, 2016).
Mr. Divine’s article reminds us that we need to look at backlogs, not only at posted processing times and cut-off dates, when assessing how long the EB-5 process is likely take. And we’ve recently heard shocking news about backlogs: as of December 2015 there were about 20,000 I-526 petitions pending at USCIS and about 21,000 pending EB-5 visa applications, which means about 57,000 people are currently in line for an EB-5 visa. (See Mr. Divine’s article for the sources and calculations behind these numbers, which are estimates only but with good backup.) With the annual EB-5 visa cap set at about 10,000 visas, it will take that queue about six years to advance through the system. So if you are an EB-5 investor entering the queue today, it may take you six or seven years just to reach the window where you can get conditional permanent residence (based on the number of people in front of you and the annual visa allocation, regardless of how efficient USCIS/DOS may get with processing times). And that means it may be nine to eleven years before you can expect to have conditions removed and think about exiting the investment. At least, that’s a realistic scenario if you are a China-born EB-5 visa applicant filing today. If you were born somewhere else, you’ll have opportunity to cut in front of China-born applicants, who make up about 85% of the EB-5 visa queue, when the State Department imposes a “cut-off date” for China (which happens whenever it becomes apparent both that that the annual EB-5 visa quota will likely be reached for the year and that China-born applicants are likely to exceed the technically allotted 7% of those visas). And if you filed before 2015, you have the advantage of at least being in line ahead of the over 14,000-petition surge that happened last year.
Investors and businesses using EB-5 investment should look long and hard at the timing scenarios in the chart above, and consider the implications. That T3 scenario is dire. It’s hard on investors, who are generally interested in immigrating sooner rather than later, may have children who will age out in less than six years, and who don’t want to maximize the time their capital is tied up at negligible interest. It’s hard on businesses, who’ll have to try to make predictable plans on a decade horizon, will be limited in how they can close out successful projects, and face a long period of dealing with EB-5 record-keeping and reporting. And it’s reason to lobby our leaders to adjust the visa allocation, increase protection for derivative children, and/or reconsider China demand for EB-5. For thoughts on possible responses, see Ron Klasko’s post “Winning the Numbers Game” (January 14, 2016).
This a selfless post for me, considering that my livelihood depends on US businesses being interested in EB-5 investors, and vice versa. As a business plan writer, I benefit from the popular impression (propagated largely by ill-informed criticism from journalists and politicians, but also encouraged by some promoters) that EB-5 is an easy process and a fast track to residency. It doesn’t help me to point out that the process can realistically involve a decade commitment, at least for China-born investors, and significant timing risks. And yet, as Robert Divine concludes his article: “Securities issuers need to disclose these age-out and eligibility risks to prospective EB-5 investors, who otherwise may be lulled into complacency by the Visa Bulletin that appears to reflect a two-year waiting period. And USCIS and Congress need to take action to provide more protection of the reasonable expectations of today’s and yesterday’s investors and their children.”
Notes on Timing Considerations (These notes keyed to the “EB-5 Investor Timeline Estimate” chart above have not been changed from my original post in October)
- Investment and Escrow: During Stage (A), the EB-5 investor’s full investment must be committed to the enterprise (in the enterprise account, escrowed, or otherwise contractually committed). If escrow is used, investor funds must be released to the enterprise at latest before (D) begins.
- Sustaining Investment: The investment must be sustained from (B) through (D) and must be actively deployed in job-creating activities at least during (D). USCIS is drafting new policy to address how exactly funds need to be deployed during (D). The EB-5 investor may not recoup or draw down his investment before (E) and may be wisest to wait until (F) to exit.
- Material Change: The deal needs to be planned and structured carefully during (A), as the petitioner will have limited opportunity to fix any deficiencies after filing I-526. The EB-5-funded enterprise must closely follow the I-526 business plan at least during (B) and (C), when material changes are not permissible. USCIS allows some flexibility to depart from the business plan during (D).
- Job Creation: The investor can claim job creation that occurs from (B) to (D), and following his investment in (A). Under limited circumstances, he can also claim jobs created before the date of his investment or after the date that he filed I-829. In principle, he should be able to claim jobs that no longer exist when he files I-829 provided that the jobs were created and sustained for more than two years (but USCIS has not clearly confirmed this).
- Planning Horizon: We are required to assume the T1 scenario in the Time column when giving USCIS a plan for using funds and creating jobs, but should assume the T2 or T3 scenarios when planning the investor’s exit strategy. The T1 estimate has investors reaching the I-829 stage 2.5 years after filing I-526 (imagining best-case processing times of only 6 months for (B) plus (C)). USCIS requires the I-526 business plan to show how job creation could occur during this theoretical 2.5-year window. The longer estimate looks at current processing time averages, retrogression, and backlogs, and sees that investors may not actually reach I-829 and remove conditions until 5 to 10 years after filing I-526. The difference between theory and reality means that petitioners can expect more time than officially planned to create jobs, but also a longer period of having to sustain their investments. EB-5 investment must be sustained throughout the conditional residence period (D), so premature exits must be avoided and exit strategies should consider realistic timing. Five years used to be a standard target for investor exit, but can be dangerously early for the average investor today.
- References: USCIS petition processing times, DOS visa availability, EB-5 Policy Memo (on investment, escrow, material, change, job creation), Draft Policy for sustaining investment, EB-5 investor process. Ask me if you need references to the AAO decisions that discuss eligibility at I-526 filing, investment timing, job creation timing, and material change.