New Litigation and AAO Decisions (“invest” requirements)

Appeals and litigation give a rare public glimpse into how the Investor Program Office is adjudicating I-526 petitions. It appears that IPO may be in the midst of a campaign to re-interpret/enforce the EB-5 “invest” requirements as described in 6 USCIS Policy Manual G.2  There have been a spate of denials that turn on language in the securities and transaction documents. Recent examples:

  • Guaranteed returns and debt arrangements, call option issue: CHANG et al v. DEPARTMENT OF HOMELAND SECURITY et al (Case Number: 1:18-cv-00659) is a civil action filed on March 22, 2018 by ten investors who put money into senior living project in Florida. (Here’s a summary and the full complaint.) These investors filed I-526 in 2014 and 2015 and heard nothing back from USCIS, finally making a mandamus complaint in October 2017 to compel agency adjudication. USCIS responded in February 2018, denying all investor petitions based on finding that “a call option reflected in the Partnership Agreement and the offering documents demonstrated the existence of an impermissible debt arrangement.” The investors have responded with a complaint pointing out that this issue was previously addressed by federal judges who found that a call option does not of itself constitute a debt arrangement. In previous cases, the US District Court in DC ruled that the USCIS denials could not survive review because they conflict with the plain language of the regulations, are not compelled by statutory or regulatory purpose, unreasonably stretch the rationale of precedent decisions, and run counter to evidence. Call options (buyout options) have been quite common in EB-5, and I wonder if many I-526 are being held up now behind the scenes while USCIS figures out how to deal with them (balancing newfound intent to deny such cases with the fact that the court has shredded the reasoning behind several denials so far). I’ve seen recent NOIDs based on call options, so USCIS hasn’t given in yet. I can’t see what legs the court (not to mention policy and reality) have left to the case against call options per se, and I hope USCIS accepts that soon to avoid further needless delays, disruption, and lawsuits. (UPDATE: FYI here are my notes for an ILW call on 4/17 to discuss the “invest” requirement, and new USCIS challenges to equity with debt-like features. The notes link to the relevant AAO and district court decisions, and summarize the fact patterns and arguments for each case.)
  •  “Made available” and bridge financing issues: JAN262018_05B7203, JAN302018_01B7203, FEB072018_02B7203, and MAR152018_01B7203 are decisions on the same regional center offering to invest in construction of a distribution center in Washington. After having approved 10 investors in the project, USCIS denied petitions for the last 10 investors. USCIS’s main excuses for this treatment: (1) the project having completed construction constitutes a material change of fact that prevents the last investors from relying on favorable decisions for previous investors, (2) USCIS belatedly identified a legal deficiency: that the PPM and loan agreement language don’t unambiguously obligate the NCE to make the entire amount of the petitioners’ funds available to the JCE, and (3) the reality that the investors chose a project that successfully developed and created jobs does not overcome paperwork problems. The petitioners were judged ineligible not based on reality, necessarily, but based on wording: they submitted documents that had leaky language in the loan agreement, didn’t paper up a bridge financing arrangement the way it’s supposed to be papered, and left sloppy inconsistencies in the business plan and economic impact report. Several morals from this case: People who draft transaction documents need to be mindful of the “made available” and bridge financing features of the EB-5 “invest” requirement, and write that into documents — taking particular care when it’s likely that (as often happens now considering long processing times) the project will have been completed by the time USCIS finally gets around to adjudicating I-526 petitions for investors. Prepare for the fact that an adjudicator may ask two years later: “why the JCE would still need this capital and to what use it would be put by the JCE in light of the completion of the project.” Document preparers must be very attentive to detail and careful about language, because compliant documents are apparently more determinative than compliant reality in whether or not investor petitions get approved. I keep this burden in mind as I write EB-5 business plans.
  • “Chance for gain” issue: FEB282018_02B7203,  MAR092018_02B7203, MAR162018_01B7203 are decisions on the same offering to invest in a regional center NCE to make a loan to a JCE to construct, finance, and operate an hotel. The denials rest on a finding that the LP agreement and loan agreement “do not provide the Petitioner with any rights to the NCE’s profits, whether derived from the loan interest or otherwise, and the sole opportunity for the Petitioner to generate a return on the investment is if the general partner elects to pay a 0.05% interest payment upon the NCE’s loan repayment.” USCIS will deny cases that guarantee a return, but – as we see here – can also deny cases that appear to make a return too discretionary. USCIS found in these cases that “discretionary chance for return which is unrelated to the investment does not satisfy the regulatory requirement for capital at risk under 8 C.F.R. § 204.60)(2).” Again, people drafting documents must walk a very fine line. USCIS wants to see (1) that investors have a chance for gain, (2) that the income sources to pay a return are directly related to the purpose of the underlying investment, (3) that the return is not guaranteed, (4) that the NCE general partner does not have absolute discretion to make or withhold the return. And furthermore, the documents have to be right the first time, at I-526 filing. The petitioners in FEB282018_02B7203 and MAR092018_02B7203 provided amended documents in response to NOID, but USCIS judged this an impermissible material change and refused to consider such post-filing clarifications.
  • “Business activity” at-risk issue and identified location: To meet the at-risk requirement for EB-5 investment, a petitioner must present evidence of actual undertaking of business activity, not just an idea for future activity. The precedent decision Matter of Ho cited entering a lease as an example of de minimus activity that doesn’t  itself qualify as sufficient business activity to put funds at risk. So if a petitioner hasn’t even secured a business location before filing I-526, he can expect to be challenged as having even less than de minimus activity. That happened to the petitioner in MAR162018_02B7203, a regional center case. “The Chief concluded that without a specific property, the Petitioner could not demonstrate that his funds were at risk, that the business plan was comprehensive rather than hypothetical, or that certain inputs to the economic model were valid.” (This decision also shows the importance of a quality business plan with real market analysis and financials, as it rips apart the placeholder content in the petitioner’s plan. And it shows confusion about the job creation timing requirement in the USCIS Policy Manual Vol. 6 Chapter 2(D)5. The decision seems to assume that job creation must occur within two years of filing I-526, while the PM states that the two-year job creation window is deemed to begin 6 months after adjudication of Form I-526.)

Other recent AAO decisions of note:

  • FEB072018_01B7203 is one of the rare cases where AAO decides to withdraw USCIS’s decision – in this case involving source of funds derived from loan proceeds received as a gift from the petitioner’s husband.
  • FEB152018_01K1610 upholds USCIS’s decision to terminate a regional center for this fatal error: filing Form I-924A to the wrong address.
  • FEB282018_01B7203 is yet another reminder that the new owner of a pre-existing business cannot expect that the enterprise and its new employees automatically qualify as “new” for EB-5 purposes.

Minor Investors:

Long processing times and the visa backlog have motivated families to make a teenage child to be the principal EB-5 applicant. USCIS has questioned but started approving such petitions, as reported by Wolfsdorf Rosenthal in this post and Miller Mayer in this webinar (35 minutes into the recording).

Washington Updates:

I continue to update my Washington Updates page, most recently with post-March analysis and a link to a letter from several senators to USCIS urging that regulations be finalized. Senator Grassley has made this plea multiple times since 2016; we’ll see what happens now.

Personal Update:

As EB-5 reporting and analysis become increasingly time-consuming, and less linked to my selfish purpose of encouraging demand for my business plan-writing service, I’ve decided to put up a donate option. If you can support the effort behind the blog and help keep it in business, please visit my About page and scroll down to the Paypal button, which can facilitate making a contribution through Paypal. I want to avoid a subscription model because publicly-available EB-5 information is important to my clients and the health of the EB-5 program.

Regional Center List Changes:

Additions to the USCIS Regional Center List, 03/19/2018 to 04/10/2018

  • American Capital Regional Center, LLC (Texas)
  • Borrego Development, LLC (California, Nevada)
  • Colorado Rocky Mountain High Regional Center, LLC (Colorado): www.coloradorockymountainhighrc.com
  • M5 Venture Silicon Valley RC LLC (California): www.m5venture.com
  • Mile High Regional Center (Colorado)
  • National Regional Center, LLC (California)
  • Protogroup, Inc. (Florida)
  • Texas Tilegend Regional Center (Texas)
  • Y & L Enterprises LLC (Iowa, Nebraska)

New Terminations

  • Encore Raleigh/Durham Regional Center (North Carolina)
  • Encore Alabama/Florida Regional Center (Alabama, Florida)
  • G.R.E.E.N. Regional Center (New Jersey)
  • BLMP Florida Healthcare Regional Center, LLC (Florida)
  • Michigan-Indiana EB-5 Regional Center (Indiana, Michigan)
  • Queensfort Capital Massachusetts Regional Center, LLC (Massachusetts)
  • South Pacific Regional Center, LLC (Hawaii)
  • Queens Fort New York Regional Center, LLC (New Jersey, New York, Pennsylvania)
  • Central Texas Properties Regional Center (Texas)
  • South Texas EB-5 Regional Center, LLC (Texas)
  • Pacific Viniculture (Washington)
  • California Investment Immigration Fund, LLC (CIIF) (California)
  • USA ODI Regional Center, LLC (Maryland, Virginia, West Virginia)
  • Manchester Pacific Regional Center (California)
  • Regency Regional Center, LLC (California)

EB-5 Visa Waiting Line and Visa Allocation

People who use EB-5 face some tough facts:

  • Demand for EB-5 visas (annual I-526 filings) has been three to four times higher than EB-5 visa availability since 2011, resulting in a backlog now about a decade long. (For those not already familiar with the situation, here’s a simplified explanation.)
  • New investors from most countries today can still expect to receive a conditional green card fairly promptly after I-526 approval, but only due to exceptions that will allow their applications to skip ahead of (push back) other people stuck in the backlog. (Or the overall wait could be shortened if the visa quota changes, or many people drop out of line.)

We respond to these facts by (1) advocating for backlog relief (AILA’s White Paper: Solutions to the EB-5 Visa Waiting Line gives suggestions), and (2) figuring out how the exceptions work, because investors and projects want to avoid a decade-long wait if possible.

The past few years offered a simple exception that allowed jumping much of the queue: be born outside China, since China accounts for most of the backlog and was the only oversubscribed country. Now, people from Vietnam face getting stuck in the visa wait line behind the Chinese (the May 2018 Visa Bulletin will have a Vietnam cut-off date), other countries wonder whether the same could happen to them one day, and Congress threatens set-asides and other changes to visa availability. And so we feel the urgency to understand just how visa allocation works, and relevant numbers.

First, here’s the law related to EB-5 visa allocation, with linked citations. (Or you can download my Word doc to get the text with headings to assist navigation.)

  1. The annual worldwide level for all employment-based (EB) immigrants is effectively 140,000. INA 201(d)(1)(A)
  2. At most 7.1 percent of the employment-based worldwide level is made available to immigrants in the EB-5 category. INA 203(b)(5)(A)
  3. Available EB-5 visas are issued to eligible immigrants in the order in which the immigrant petition was filed. INA 203(e)(1)
  4. At least 3,000 EB-5 visas are reserved annually for immigrants based on investment in a Targeted Employment Area. INA 203(b)(5)(B)
  5. 3,000 EB-5 visas are set aside annually for immigrants based on investment in a Regional Center. PL 102-395 Section 610(b) as amended by PL 105-119 Section 116(a)
  6. The EB-5 visas made available to natives of any one country may not exceed 7 percent of the available worldwide total. But if one or more countries gets held back by this rule, resulting in available visas with no one else to take them, then those remaining visas can be made available again without regard to per-country numerical limits for that year. INA 202(a)(2) and INA 202(a)(3) and INA 202(e) and PL 106-313 Section 104
  7. EB-5 visa numbers available to China annually under the per-country limit are reduced by 700 to compensate for cases processed under the Chinese Student Protection Act of 1992. PL 102-404 Section 2(d)(B) [Comment: It’s not obvious when this compensation is/was already complete; if the CSPA off-set does still remain in effect now, then Chinese start the year with (9,940*0.07) – 700 = -4 EB-5 visa numbers available to them.]

I imagine Charlie Oppenheim at the Department of State, sitting at his desk on October 1, 2017 with 30,000 EB-5 visa applications before him and tens of thousands more to come as USCIS approves pending I-526. How does he apply the above rules to decide who gets a visa in FY2018, and in what order? I hope he addresses this question during his keynote speech at the IIUSA EB-5 Advocacy Conference on April 23. In the meantime, here’s my understanding of how the rules get applied in practice.

  • #1 and #2 above give the target quota for EB-5 visa numbers in one year: 140,000*0.071=9,940.
  • #3 specifies the basic rule of order: first-in-first-out by priority date (applicants with oldest I-526 priority dates are first in line for a visa)
  • #4 to #6 are factors that can override the basic FIFO order principle. The applicant with oldest priority date gets the first visa number unless she’s held back by:
    • #4) being the 6,941st+ applicant that year (9,940-3,000) who invested outside of a TEA, in which case she’s held back for any TEA-based applications to go ahead (thus far, non-TEA applications have been too few to trigger this set-aside)
    • #5) being the 6,941st + applicant that year who invested outside of a regional center, in which case she’s held back for any regional center-based applications to go ahead (thus far, direct EB-5 applications have been too few to trigger this set-aside)
    • #6) being the 696th+ applicant that year (9,940*0.07) from a single country, in which case she’s held back for any applicants from not-oversubscribed countries to go ahead (China has been oversubscribed and triggered the per-country cap since 2015, and Vietnam will as of May 2018)
  • #6 does not mean that 7% of visas get set aside annually for each country in the world. It does not mean that any one country gets only 7% of visas annually. #6 just means that any one country’s allocation gets capped at 7% so long as other countries are also competing to use up available visas. When other countries aren’t competing, then any visas still on the table get allocated to the waiting line in FIFO order without regard to per-country limits. So in 2017, China in fact got 75% of visas: 7% plus the 68% of visas that remained after numbers had been allocated to qualified applicants from other countries. (Or maybe only the remainders, if the Chinese Student Protection Act in fact took the first cut.)
  • When more than one country exceeds the 7% cap, then both/all the oversubscribed countries get held back with cut-off dates designed to let applications from not-oversubscribed countries proceed first. Once qualified rest-of-the-world applications have been accommodated, then simple FIFO order reigns again: oldest priority dates get the first visas until all visas for the year are taken. (In practice that puts China at the head of the line for leftover visas, since it’s been held back for years and thus has the oldest applications on file. Vietnam will start being held back in 2018, and its more recent held-back applicants will find themselves behind many longer-pending Chinese applicants. If India or Brazil get held back next, their still-more-recent applicants will find themselves behind both China and Vietnam in the competition for leftover visas. Triggering the 7% cap is scary because it puts a country in the same line as China for leftover visas, and near the back of that line based on priority dates and the FIFO process. The saving grace for small countries like Vietnam is that they at least get 7% a year when they need it and probably won’t exceed that cap by very much. If I’m a Vietnamese applicant held back this year, I’ll be one of the older Vietnamese applications next year and thus well-placed to get one of 700 new visas available to Vietnam then. What I can’t expect is to get a visa left over from the rest of the world, since tens of thousands of Chinese have earlier claim on any leftover visas. But small excess = small backlog = small need to compete for leftover visas, thus relatively short wait time. As an Indian, I’d be a bit more concerned/vigilant. India hasn’t had high EB-5 numbers before, but the companies that helped create the China backlog with giant EB-5 raises have turned to India. If Indians flock to big raises seeking 100s of investors, they could end up well beyond the 7% cap,  thus creating a significant India backlog that needs leftover visas but won’t get them for ages because behind the earlier China/Vietnam backlog plus squeezed by any new rest-of-the-world applications.)
  • Visas can only be issued to people with complete visa applications ready, not to people with I-526 investor petitions still pending at USCIS. But it’s important to keep an eye on I-526 petitions – on number of receipts, petitioner origin, adjudication speed, approval rates – to estimate how many of those petitions will become visa applications, and when. New visa applications from not-oversubscribed countries immediately reduce the number of leftover visas available to pending applicants from oversubscribed countries. New applicants from a country near the 7% cap could tip the balance into cut-off dates and backlogs for fellow-countrymen already in line. A major decrease in I-526 filings or increase in denials or withdrawals would reduce incoming pressure on the visa backlog, and shorten wait time projections. Estimates are tough with all these moving parts and limited data, but we must try. The China backlog ballooned quickly and came to many investors (and their projects) as a nasty surprise. They didn’t realize how many other Chinese investors were already in the system or entering at the same time, and what that would imply for future visa wait times. A cautionary tale.

To facilitate analyzing numbers relevant to country-specific visa availability, I’ve added a tab titled “Country Focus” to my ongoing Backlog Calc Excel file. (The numbers aren’t new, but highlight significant previously-reported I-526 and pending visa data. I even made a cartoon to assist in visualizing the numbers. The thumbnail image here gives a teaser of the new Excel tab.) I don’t offer conclusions, but information to assist your conclusions.

Additional reading:

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RC Authorization to 9/30/2018, Processing Times, New RCs

Regional Center Program Authorization

The last time Congress voted a significant regional center program extension was 2012. Since then, the program has been extended a few months at a time, in connection with government funding. This is now happening again with H.R.1625, the vehicle for the Consolidated Appropriations Act 2018, which was signed by the President today.  The text includes regional center program authorization to 9/30/2018 on PDF page 1759, as follows:

SEC. 204. Section 610(b) of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993 (8 U.S.C. 1153 note) shall be applied by substituting “September 30, 2018” for “September 30, 2015”

This language refers back to Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993 (Public Law 102-395) Section 610 (PDF page 47), which established the regional center program. The 2018 Appropriations Act does not include the EB-5 Reform Act, or other EB-5 changes. It just extends the borrowed time until we get a good piece of EB-5 legislation.

Processing Times

USCIS has attempted to clarify reporting for processing times, and succeeded in confusing me, at least, even more than before. Unfortunately I missed a webinar on this topic yesterday because even the emails were confusing, but here’s what I think I understand, having read the new pages at egov.uscis.gov/processing-times/ and egov.uscis.gov/processing-times/more-info, and used my spreadsheet to fiddle with the EB-5 form numbers in comparison with numbers in the old-style report.

USCIS has changed its method for calculating processing times for four forms: N-400, I-90, I-485, and I-751. The underlying method for calculating (and underlying reality behind) times for I-526, I-829, and I-924 has not changed. What’s different for the EB-5 forms is that USCIS now reports three pieces of information: a high and low month in an “estimated time range” and a “case inquiry date.” The low month in the time range corresponds to the date USCIS previously reported for “processing cases as of…” in the old-style report, while the high month multiplies that duration by 1.3, and the case inquiry date more-or-less corresponds to the high month. Apparently IPO doesn’t want people complaining that they’re outside of normal processing times until their cases are taking 130% longer than average. If you took part in the webinar and have additional insights or corrections, please share.

See also the OIG Report: USCIS Has Unclear Website Information and Unrealistic Time Goals for Adjudicating Green Card Applications

Visa Availability

The Visa Bulletin for April 2018 confirms that Vietnam is definitely up next month for a cut-off date based on oversubscription. With visa availability being the major political and practical factor for EB-5 today, I’ll be writing more about this soon.

Regional Center List Updates

Additions to the USCIS Regional Center List, 03/09/2018 to 03/19/2018:

  • 888 American Dream Projects Regional Center (California, Nevada)
  • American National Regional Center d.b.a. EB5 Financial Regional Center (California): www.anrcs.com
  • Dayton Regional Center, LLC (Ohio)
  • Delvelyn Regional Center, LLC (California)
  • Hudson Funds New York Regional Center, LLC (New Jersey, New York, Pennsylvania): hudson-funds.com
  • MGV NYC Regional Center LLC (New Jersey, New York, Pennsylvania)
  • Monterey Massachusetts Regional Center, LLC (Massachusetts)
  • Monterey Northern California Regional Center, LLC (California)
  • Monterey Southern California Regional Center, LLC (California)
  • New York/New Jersey Real Estate and Infrastructure Regional Center LLC (Connecticut, New Jersey, New York)
  • PacNW Regional Center, LLC (Oregon, Washington)
  • Propet American Dream, LLC (Washington): www.propetamericandream.com
  • RSR EB-5 Regional Center, LLC (North Carolina, South Carolina)
  • Smith Mountain Regional Center, LLC (Colorado, Oklahoma, Texas)
  • U.S. Green Capital Regional Center, LLC D/B/A Playa Vista Regional Center (California): pvcapitalmanagement.com
  • Washington American Investments, LLC (District of Columbia, Maryland, Pennsylvania, Virginia)

New Terminations:

  • Chen Roberts Regional Center (Oklahoma)
  • Regency Regional Center LLC (California)

EB-5 Reform: Missed Opportunity

It’s easy to blame big-moneyed New York City real estate interests, as Senator Grassley likes to call them. I had assumed their lobbying was to blame for the draft EB-5 Reform Act, which seemed designed to protect investment in prosperous areas and privilege well-heeled regional centers. But now Senator Grassley blames them for blocking the bill. He says “For the last year, my staff, along with Chairman Goodlatte, Senator Cornyn, and Senator Flake’s teams, has worked around the clock to produce an EB-5 reform package… But, these reforms weren’t acceptable to the big moneyed New York industry stakeholders who currently dominate the program. And because big money interests aren’t happy with these reforms, we’ve been told they won’t become law.” Could this really be what doomed the bill? The EB-5 Reform Act didn’t look like reform to many stakeholders, but apparently Senator Grassley and NYC both believed in its potency, enough to support it and block it respectively. I’ll respond more later to Senator Grassley’s speech, which shows his good faith and fundamental misunderstanding of several aspects of EB-5. Pro tip: don’t have your staffers work around the clock on legislation for a year before calling in organizations like IIUSA to give input and education to help keep the content on track with your laudable objectives. A broad base of people in EB-5 agree with you in wanting legislation that helps support the program’s good purpose with respect to investment in underserved areas and job creation. Include them in the process. (The benefits of such inclusion are already evident in the Revised EB-5 Reform Act of 2018 posted by IIUSA.) As Klasko Law puts it in their client alert: “The EB-5 industry was largely shut out of the process or brought in too late to be able to provide meaningful guidance and input. So it should come as no surprise that the proposed bill died the same way it began: in a secret, back-room agreement without the participation or input of the vast majority of the EB-5 industry.”

Excerpt from the IUSA Statement on Missed Opportunity for Long-Term EB-5 Authorization:

…In early March, IIUSA was pleased to join a group of industry organizations to review and discuss a bicameral compromise draft proposed by Senate and House Judiciary Committee Chairmen and key members of House and Senate leadership. After additional revisions were made to the compromise draft, IIUSA’s Board of Directors voted overwhelmingly to support the bicameral compromise that would have offered a six-year reauthorization and much-needed reforms.

Unfortunately, the compromise reform and reauthorization legislation failed to garner the support of all industry organizations and failed to be included in the omnibus appropriations legislation. We are extremely disappointed in this missed opportunity but are most appreciative of the House and Senate Judiciary Committee leaders and members of Leadership who worked tirelessly to delicately craft the compromise package. The omnibus legislation, however, does include an extension of the current EB5 Regional Center Program through September 30, 2018. We plan to continue to work diligently with Congress and our membership to build on the compromise draft legislation.

Other reactions:

EB-5 Reform Act: the Good

This post summarizes points in favor of the proposed EB-5 Reform Act. Its details and compromises won’t please everyone, as discussed in my previous post, but it is a piece of EB-5 legislation currently without a better alternative.  Here are some reasons for stakeholders be happy if it gets included in the spending bill due by March 23.

  • People who already invested and waiting for a green card: Although they would bear downside of this bill’s most painful compromise – visa set-asides – they will suffer more if the regional center program loses authorization. At least under current policy, the process will simply be over for RC investors awaiting conditional permanent residence if the RC program is deauthorized long-term. The RC program will sunset on March 23 unless something is done, and this EB-5 Reform Act appears to be the only thing that can be done. I’d love to see another short-term extension to give time for Congress to draft more fully-baked and inclusive legislation, but after three years of short-term extensions that’s a lot to hope for. (Update: another short-term extension has now emerged as a possibility.)
  • All EB-5 investors: The bill gives desperately-needed protections and options for investors in case of change with projects and regional centers, and improves and compresses the process for removing conditions.
  • Future investors: The new investment amounts are high, but much lower than they could’ve been, or will be if the regulations are finalized instead. Visa set-asides offer hope (if no more) to potential investors from backlogged countries. Future investors will benefit from new process improvements, investor protections, and integrity measures.
  • Regional Centers: A more difficult and expensive life under the EB-5 Reform Act is better than death from loss of RC program authorization. The five-year program extension will provide much-needed stability. The moratorium and transition period will be rocky at first, but should result in a more-clearly-defined program eventually. The visa set-asides will help with marketing, at least for awhile, and the new incentive categories broaden the kinds of projects that may be viable to market. The new investment amounts are not so high as to kill demand entirely, unlike in the regulations. And the bill opens up a new category of potential demand: investors who already filed with someone else but now want to switch projects and/or regional centers — something not previously allowed.
  • People who want program integrity: This bill proposes integrity measures that mostly appear possible to implement (unlike previous drafts that would have made good-faith compliance near-impossible in practice, and thus not been effective in weeding out bad players either). And it offers funding, personnel, and official authorization for effective compliance initiatives already started by USCIS.
  • People who want to tighten TEA incentives: This bill puts responsibility for incentive-area designation with USCIS, which will be more narrow, rigorous, and consistent than states. It’s naturally difficult to incentivize investment in significantly distressed and remote areas, and such areas would be at least as competitive under the EB-5 Reform Act as they are now.
  • Investor Program Office: Although this bill gives them more work, it also exempts most some of their decisions from judicial review. (I oversimplified — see MF’s comment.)

It’s too late for major changes and amendments if the EB-5 Reform Act is to get into the omnibus at all, but if I could propose one amendment it would be this: a period of at least weeks before the provisions take effect and the filing moratorium begins. Most stakeholders haven’t even seen the bill text yet, and it will be very hard to comply instantly if it goes into effect instantly.

Other commentary on this bill:

EB-5 No-Reform Act, RC List Changes

On Friday, IIUSA reported that “Yesterday IIUSA met with Republican negotiators and received draft legislative text that is being proposed for inclusion on the March 23rd Congressional omnibus package… We expect the House to vote the omnibus out of the chamber as early as March 16, allowing the Senate the entire week of March 19 to pass the measure before government funding expires on Friday, March 23…. the current debate over what policy provisions to include in the FY18 omnibus spending package provides one of the few, if not the only, opportunity to secure a long-term EB-5 reauthorization.”

With three years to work on drafting EB-5 legislation, why did Congressional negotiators keep this most recent EB-5 bill hidden until the very last minute, and provide even IIUSA only a few hours to read it and respond? Possibly because this “Immigrant Investor Visa and Regional Center Program Comprehensive Reform Act” is a tissue of minority hand-outs, declawed reforms, poison pills, and half-baked good ideas. We’re to conclude “This is our last chance to get significant regional center program authorization, and it’s too late to make changes now, so we have to support this, no matter the details.”  I understand, but oh those details. I am ashamed of this bill, and on behalf of the people behind it. How did years of negotiation produce this document? The media, pro-reform lawmakers, and the good proportion of EB-5 stakeholders left out of compromises will not be kind to those who drafted this bill, if it passes as-is.

The EB-5 Reform Act has a few generally-favorable provisions:

  • It would reauthorize the regional center program to 2023
  • It would add some flexibility for material change, and some protection for investors in projects that don’t work out
  • It would make some process improvements

The EB-5 Reform Act is lobbying money well-spent for a few:

    • The TEA reform in this bill is calculated to avoid unduly incentivizing investment in distressed areas. In three years of EB-5 legislative proposals, each version has had a softer TEA proposal than the last. This one reduces the monetary incentive to a hair, compensates with incentives that will either be impotent/unrealizable in practice (visa set-asides, premium processing) or positively counterproductive (lower jobs requirement for needy areas?), broadens the definitions of what qualifies as an urban distressed or rural area (e.g. switching from the NMTC “severe distress” criteria in previous proposals to just the NMTC low-income criteria, and no specified limit on gerrymandering), and adds new incentivized areas for a special few (closed military bases, U.S. territories, infrastructure, franchise investment funds). Congress was originally energized for EB-5 reform because they didn’t like seeing most EB-5 dollars flowing to already well-capitalized projects in already well-capitalized areas. That status quo has little to fear from this legislation. Luxury real estate will keep its top spot if this passes, and we’ll still have Chuck Grassley and the media shaking their fists.
    • The bill offers real estate projects an extra gift for good measure: construction jobs can be aggregated and counted as qualifying direct permanent jobs regardless of duration.
    • The integrity provisions in this bill are calculated to avoid making life difficult. Gone are the suggestions in past bills about involving third parties in oversight or reporting or requiring account transparency or fund administration. Here, integrity measures focus on internal certifications of compliance to the best of the certifier’s knowledge. That’s good for honest players who can do without burdensome and intrusive regulation, but also little limit on bad players happy to self-report compliance. Such teeth as the bill has — site visits, audits, background checks, termination threat — are largely things IPO is doing already, though I’m sure they’d appreciate the official authorization and extra funding. But generally, I’m not sure this bill will satisfy lawmakers who wanted EB-5 reform to combat fraud.
    • The bill retains integrity measures that conveniently double as anti-competitive measures. The bill keeps a previously proposed annual regional center fee – lowering the amount for the largest regional centers and keeping it high for the smallest. It is more severe than previous proposals on involvement by anyone with foreign government connection at any level, even in providing non-EB-5 capital to a job-creating entity.
    • UPDATE: Re-reading more carefully, I see that I’m wrong about this one. The bill says that for four months after enactment, no one can file I-526 except for new investors in in-progress raises with an approved examplar. The bill even attempts to set aside 7,000 visas for these privileged investors, forgetting that the numerical limit for 2018 visas was already exceeded back in 2014.

Here’s who will be most upset, if the EB-5 Reform Act passes:

  • The approximately 92,000 people in line for an EB-5 visa. These people are already in for a long wait with an annual quota of about 10,000 visas, and the EB-5 reform act has set-asides that would reduce generally-available visa numbers to about 6,900 per year. The situation will be especially bad for people from China, Vietnam, and possibly India. Those people already in line didn’t plan to wait 17 years or so for conditional green cards — and neither did the projects accepting their investment. The bill does not include on-purpose retroactivity (it doesn’t make TEA, investment amount, or job creation changes apply to people who already filed I-526), but past investors will be severely affected by the visa set-asides, and potentially by new restrictions that affect regional centers and investment projects.
  • Those hoping to raise EB-5 funds to benefit projects in rural or distressed urban areas. The new incentives are not better designed to benefit them than the current incentive structure. The new regional center fees and requirements are well-designed to put anyone out of business who isn’t raising funds from hundreds of investors for prosperous urban projects.
  • Entrepreneurs planning to file EB-5 petitions in the near future for their own enterprises, and any regional centers planning to raise funds for a project without a pre-approved exemplar. The bill has a 120-day moratorium on filing new I-526 and I-924, followed by a transition period from day 121 to day 365 that limits the petitions that can be processed.
  • The Investor Program Office. This legislation will be tough to interpret and implement. USCIS will have to figure out provisions that the bill hardly explains: the franchise investment fund idea, the provision that I-829 petitions based on investment in unrealized/failed projects are to remain valid, the new amendment and re-petition processes, the provisions that imply retroactive new requirements for past projects, and the effects on direct EB-5. The bill stipulates a 120-day transition period, during which USCIS can come up with new regulations and policy, new forms and supporting processes, a new TEA designation process, and a new premium processing option. Hahahahaha. 120 months would be more plausible, considering past experience.
  • Regional centers with fewer than 20 investors annually. They’ll face a $10,000 annual fee and a list of new compliance certifications that will be hard work if taken seriously.
  • EB-5 projects with any foreign-government-entity-related funds in the capital stack, or personnel at any level.

End of rant. If I wake up tomorrow to find that this has been attached to the House version of the new omnibus spending bill, then I shall transition to learning to live with it. And polish my resume, perhaps.

In the meantime, USCIS approved a bunch of new regional centers. Probably most of these applicants filed I-924 back in 2015, little thinking what they’d be up against today!

Additions to the USCIS Regional Center List, 02/02/2018 to 03/05/2018.

47 regional centers have been added.

  • AHRC GA, LLC (Georgia)
  • All American Investment Holdings, LLC (California)
  • Ameri-Link Northeast Regional Center, LLC (California, New Jersey, New York)
  • American Citizen Regional Center – Southern California LLC (California)
  • American Equity Fund California, LLC (California)
  • American Equity Fund, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • Avista Regional Center, LLC (Florida, Georgia)
  • BC Southeast Regional Center, LLC (Florida)
  • BC West Coast Regional Center, LLC (California)
  • Bay Area Community Regional Center, LLC (California)
  • CMB Hawaii Regional Center, LLC (Hawaii): www.cmbeb5visa.com
  • Carolina EB-5 Regional Center, LLC (North Carolina)
  • Chicago Golden Pacific, LLC (Illinois): www.usgoldenpacific.com
  • EB-5 Inc Regional Center, LLC (Florida)
  • EB5 Texas Investment Group LLC (Texas)
  • East Coast Prime Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • Education Fund SC Regional Center, LLC (Louisiana, New Mexico, Texas): edufundamerica.com
  • Gateway America Regional Center (New York, Ohio, Pennsylvania)
  • Green Mountains Regional Center, LLC (New Hampshire, Vermont)
  • Happy Family USA Regional Center (California, Nevada): www.hfeb5.net
  • Hawaii Investor Regional Center Corp. (Hawaii)
  • LJHB Perpetual, LLC (District of Columbia, Maryland, Virginia, West Virginia)
  • Landmark Regional Center, LLC (Connecticut, New Jersey, New York)
  • Manhattan CBD Development Regional Center, LLC (New York)
  • Mid-America Renaissance Regional Center, LLC (Kansas, Missouri)
  • NYC Liberty Green Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • New York City EB-5, LLC (New Jersey, New York, Pennsylvania): www.americaneconomicgrowthfund.com/nyceb5
  • New York City Transportation Regional Center LLC (Connecticut, New Jersey, New York)
  • OMS Group, LLC (North Carolina, South Carolina)
  • Omaha Old Market Regional Center LLC (Iowa, Nebraska)
  • Pacific West Economic and Development Center LLLP (California, Nevada)
  • Phoenix & Dragon LLC (Connecticut, Massachusetts, New Hampshire, Rhode Island)
  • Phoenix Pacific LLC (Washington)
  • Prime Capital, LLC (California)
  • RW EB-5 Regional Center, LLC (Nevada)
  • Real Estate Development Center of America LLC (Florida, Georgia, South Carolina, Tennessee): redcoaregionalcenter.com
  • Redwood Regional Center, LLC (Oregon, Washington)
  • Roundhay Partners Regional Center, LLC (California)
  • Serendipity Regional Center, LLC (California)
  • Smith Delta Regional Center, LLC (Alabama, Arkansas, Louisiana, Mississippi, Tennessee)
  • SoCal Global Regional Center, LLC (California)
  • South Florida Real Estate and Infrastructure Regional Center LLC (Florida)
  • SunCapital Texas Regional Center (Texas)
  • The Harbor Bank Community Development Capital RC (District of Columbia, Maryland, Pennsylvania, Virginia, West Virginia)
  • WRCI California Regional Center, Inc. (California, Nevada)
  • Zephyrus Regional Center LLC (Arizona, California, Nevada, Oregon, Washington)

Renamed:

  • EB5 Affiliate Network State of Texas Regional Center, LLC (Texas) into EB5 Affiliate Network States of Texas and Louisiana Regional Center, LLC (Louisiana, Texas

Finally restored to the approved list, after AAO sustained its termination appeal:

  • Path America Sonoco, LLC (Washington)

New Terminations:

  • Omega Puerto Rico Regional Center, LLC (Puerto Rico)
  • Southwest Kansas Regional Center (Kansas)
  • EB5 Memphis Regional Center, LLC (Tennessee)
  • New Orleans’ Mayor’s Office RC (Louisiana)
  • Diversified Global Investment, LLC (Georgia)

 

No-change February

My Washington Updates page started the month of February full of anticipation.

I thought we’d see final action for EB-5 regulations, because the Fall 2017 Unified Agenda said we would (having advanced the anticipated action date from April to February), Congressmen who might’ve been behind alternative legislative action (Grassley, Goodlatte) instead sent a letter in April 2017 urging DHS to finalize the regulations, USCIS Director Cissna committed in his confirmation hearings in May 2017 to finalize the regulations, and the few White House statements on EB-5 sounded warm to the proposed changes. So I was willing to bet that the February Final Action date would be met. But nothing happened in February, and now I wonder whether we’ll ever see action on these regulations. I’ll keep my eye out for an update in the Spring 2018 Unified Agenda just in case, but now that the initial impetus for action was quelled, I don’t know what’s left to counteract the overwhelming power of administrative inertia. The person responsible for drafting the regulations has left IPO (and Lori Mackenzie’s Policy Chief position was still vacant as of November 2017), the EB-5 industry has many problems with the regs as proposed, DHS would surely prefer to avoid policy-revising headaches associated implementing new regs, Chairmen Grassley and Goodlatte have bigger fish to fry, and who has incentive and energy left to push EB-5 program modernization? The proposed regulations could’ve had a devastating effect on my client base, particularly for direct EB-5, so I’m selfishly glad they weren’t finalized. But the process is still frustrating. UPDATE: A contact suggests that the proposed regs may have been put on hold just to give Congress a chance to pass EB-5 legislation in connection with the funding bill due by March 23. In that case, the regs could return as a live possibility in April if Congress fails to do more than a clean RC program reauthorization at the end of March.

I also started February with hope that Congress might manage immigration legislation, and that EB-5 could benefit from the expressed intent to redistribute some visa numbers in a way that privileges immigration by economically-successful people. But now here we are in March with no immigration legislation and no indication that there will ever be any. The last word I heard is that Congress may handle DACA – the primary impetus for new legislation — with its favorite cop-out: a short term extension attached to the next omnibus funding bill. Negotiations over immigration legislation apparently failed because Democrats really wanted DACA while Republicans didn’t want a border wall or to redefine the nuclear family as much as they wanted Democrats to fail with DACA. Now I see no prospect on the horizon for the two things EB-5 needs from legislation: more visa numbers to relieve the backlog and keep up with on-going demand, and a long-term extension of the regional center program. Would public relations allow Congress to achieve a long-term extension to the little-considered EB-5 regional center program benefiting wealthy foreigners if they simultaneously manage only a short-term extension for the high-profile DACA program benefiting US-raised kids? With DACA and border security having failed to sustain bipartisan immigration negotiations, what remains to bring people back to the table for a successful negotiation involving visa numbers? How likely is it that Grassley & co. will stop demanding genuine TEA reform as a condition for stabilizing the RC program, or that industry lobbyists will suddenly agree to make painful-to-their-backers TEA concessions? Who is there even to seriously advocate for the overall health and long-term stability of the EB-5 program, when most major users just need it a few more months unchanged to finish their own capital raises?

I’m just sitting in my armchair in Utah reading the news, not on the ground in Washington D.C., but at any rate it’s tough to theorize change at this point. Here’s what I currently expect for 2018/2019: several more last-minute months-long content-free extensions to the regional center program, no visa backlog relief, and no change to the EB-5 investment amount or TEA definitions or other targets for EB-5 reform. But I’ll keep updating my Washington Updates page as I hear anything, and maybe I’ll be surprised by action. UPDATE 1: I might after all put some money on a Final Rule on EB-5 regulations in April, with an effective date to delay implementation past September. (This bets against Congress’ ability to do anything with EB-5 by March 23, and for the assumption that the administration might still want the regs but amenable to influence on timing.) UPDATE 2: I’ve just seen some draft EB-5 legislation that’s so shameless I believe it might get passed, if quietly tucked into the omnibus spending bill. The Washington Updates page continues to evolve.

How long does I-526 take? (Part II)

This post considers factors behind the wide variation in individual I-526 processing times. In my previous I-526 post, I discussed processing time on average as a function of volume and capacity. Given historical data on number of I-526 receipts, approvals, and pending petitions, we can calculate an average I-526 processing time of about two years — an estimate corroborated by IPO Processing Time reports. But we know that in fact, some petitions get approved relatively quickly, and not in order by filing date.

  • The USCIS Processing Time Information page is updated monthly with a report on IPO’s progress with EB-5 petitions, and I log the reports (here for all petitions and in my I-526 master file).  If we take the reports literally, IPO processed only a few weeks of I-526 filings in all of 2017 (from January 2017 working on petitions filed 9/27/2015 to December 2017 working on petitions filed 10/18/2015). But processing volume data tells us that IPO processed around 12,000 I-526 in 2017 — at least double and probably triple the number of petitions filed in September/October 2015. And the monthly processing time reports themselves jump around — briefly reporting progress to December 2015 before falling back again to October in the latest report. Whatever’s really happening at IPO, it’s not well captured in processing time reports. [UPDATE: the Office of Inspector General looked into processing times reports and didn’t like what they found. OIG Report: USCIS Has Unclear Website Information and Unrealistic Time Goals for Adjudicating Green Card Applications]
  • In October 2017 when IPO claimed to be working on I-526 filed in 2015, Department of State reported having over 1,500 pending visa applications based on I-526 petitions filed in 2016 and 2017. That reflects at least 500 I-526 petitions adjudicated out of date order — and that’s only for pending applications and only for five countries, not counting all applications for the year.
  • Investors who track their own petitions plus a group of petitions filed at the same time report wide variation in completion rates within those cohorts.  (Adding to and subtracting from the number at the end of one’s receipt number yields receipt numbers for concurrently-filed petitions that can be tracked individually using the USCIS case status system.) The EB5 Forum I set up includes reports from people tracking groups of I-526 petitions.
  • I’ve started collecting anecdotal evidence from investors, and those who’ve responded so far report recent I-526 processing times ranging from 3 months to 30 months. If you’ve been through the I-526 process recently, please help the community by entering your processing dates in this form, and share the form link (https://goo.gl/forms/uIdXGYMYVBc4bVHo1). The form results can be reviewed on this spreadsheet.  If we collect more individual experience, we can get a better sense of what IPO is actually doing, and which factors (Exemplar approval, project size, regional center sponsorship, investor origin, etc.) best explain variation in actual processing times.

Here is a summary of what IPO has said about I-526 time variation (summarized from communications copied in my log of IPO communications on processing times).

  • DHS estimates that the average Form I-526 gets 6.5 hours of touch time.  That means an adjudicator spends less than a day handling the case —  the remaining (and most variable) processing time is queue time and time spent waiting for additional evidence or supervisory approval.
  • IPO has at least three queues going for I-526 petitions: (1) a queue for direct EB-5 petitions; (2) a queue for regional center petitions based on investment in projects that haven’t yet been reviewed; (3) a queue for regional center petitions based on investment in projects that have Exemplar I-526 approval or previous I-526 approvals.  The following chart illustrates my understanding of IPO Deputy Chief Julia Harrison’s description of the process.IPO indicates that each queue has dedicated staff working on it. Petitions within each queue are ordered by earliest filing date. A regional center petition for a project not previously reviewed must wait in Queue 2 (for project-specific adjudication) and then again in Queue 3 (for investor-specific adjudication). RC petitions for previously-approved projects advance straight to Queue 3. IPO encourages communication between team leaders on the Queue 1 and Queue 2/3 side to ensure that direct and RC petitions filed at the same time move forward concurrently. [My commentary: With these various queues, how close can IPO possibly get to First-Come-First-Served service by filing date, and to which queue do the IPO processing times reports refer?  My working hypothesis is that “we’re working on petitions filed October 2015” reflects mainly the status of Queue 2 (the major bottleneck, I suspect), that Queue 1 is constrained by IPO’s attempt to keep it consistent with the Queue 2, and that petitions assigned straight to Queue 3 get relatively quick processing.  Please use my form to share your experience and help disprove or not my hypothesis!]
  • Factors that can speed I-526 processing per IPO:
    • Investing in a project with an approved Exemplar and/or previously-approved I-526
    • Having a clear, high-quality petition (this is important when evidence requests and supervisory approval are the major variables — besides queue time — in overall processing time)
    • Having an approved expedite request (this shortens the queue time, not the adjudicator touch time)
  • Factors that can slow I-526 processing per IPO:
    • Having a petition that’s poor-quality, unclear, problematic, or otherwise inspires IPO to request additional evidence
    • Filing with/after a surge of other people who filed poor-quality petitions
  • Factors that don’t affect I-526 processing time per IPO:
    • The investor’s nationality. (IPO does not currently sort petitions by nationality. There is no hold-up for China-born petitioners at the I-526 stage, as there is at the visa stage. However, IPO asks whether they should change that — considering that fast I-526 approval doesn’t help China-born investors facing a long visa wait regardless. Stats show that I-526 denial rates are much higher for some countries than others, which makes me suspect that IPO finds some countries’ source of funds and background checks more challenging than others – which could naturally be associated with longer processing times. So even if the process is FCFS for all nationalities, it’s probably not FIFO for all nationalities.)
    • Whether the petition is for a direct or regional center investment. (IPO claims that they try to move direct and RC petitions forward concurrently. However there may be some regional center advantage in practice since direct petitions are often the first in a project and cannot take advantage of Exemplar approval.)
    • Project size. (IPO reports that they do not privilege petitions for big projects with many investors. But some anecdotal evidence suggests otherwise.)
    • TEA status. (Some legislative reform proposals have suggested offering quicker processing to petitions based on investment in a Targeted Employment Area, but IPO does not report having any such policy now.)

—–
In other news, note that I updated my at-risk post with a link to Chiayu Chang, et. al., v USCIS, a recent court decision that pulverizes the argument that a call option necessarily constitutes an impermissible debt arrangement. Judge John D. Bates points out that “Unlike a sell option—or a note, bond, or similar arrangement—a buy option provides the investor with no security that she will ever see her money again,” and concludes that “In the end, USCIS has acted in a manner that conflicts with the plain language of its regulations, that is not compelled by statutory or regulatory purpose, that unreasonably stretches the rationale of Matter of Izummi, and that runs counter to the evidence in the record.”

Benefit from this blog? Please consider supporting the effort behind it. As the EB-5 industry changes, your contribution can help preserve this space for conscientious and freely-available EB-5 reporting. Donations go to Lucid Professional Writing (a for-profit business) to fund work on this blog. Thank you!

Updates (CR to 3/23, AAO sustained appeals, RC List)

EB-5 Legislation and Regulations
I’ve started a Washington Updates page off the Resources tab to keep track of what’s going on with legislation and regulations, and will revise it regularly as I hear about changes, in lieu of endless update posts. The page has details of regional center authorization (currently extended through March 23, 2018) and the immigration debate and new bills as they relate (or mostly do not relate) to EB-5.

AAO decisions: troubled RCs/projects

Do investor petitions fail when the project and/or regional center runs into trouble? Not necessarily, according to recent AAO decisions on EB-5 appeals.

  • In August 2015, the SEC filed a complaint against Path America companies including Path America Kingco LLC and Path America Snoco LLC. The case was settled in August 2017, with the former Path America principal receiving four years in prison. In the meantime, USCIS terminated Path America Kingco in March 2016, denied and revoked a bunch of Path America Kingco I-526 petitions starting in April 2016, and terminated Path America Snoco LLC in November 2016. Path America Kingco appealed its termination and was dismissed (JUN092017_01K2610), the PAK investors appealed their denials and were dismissed (e.g. DEC052016_01B7203, MAY112017_01B7203, JUL192017_01B7203), but Path America Snoco appealed its termination and was sustained (DEC212017_01K1610). PAK and PAS were terminated for malfeasance by the same former principal, but in the PAK case “he diverted proportionally more of the investors’ funds and the comparatively new management has only recently begun the process of renewing the project after its time in receivership.” AAO decided that PAS deserved to keep its designation because “the near completion of the project as proposed and the existence of a new owner committed to promoting future economic growth in the aggregate warrant maintenance of the regional center.” PAK has the same new owner, and the PAK and PAS situations appear to differ in degree more than substance, but at least AAO shows that it can give positive factors some weight. The PAS decision states that “There may be cases where, to maintain program integrity, the nature or degree of bad acts cannot be ameliorated or counter-balanced by positive factors of job creation and economic growth. For the foregoing reasons, this is not such a case.” Path America Snoco has been restored to the USCIS list of approved regional centers.
  • The PhoenixMart project by Central Arizona Regional Center has seen considerable drama and lengthy project delays. In 2017, USCIS denied a bunch of I-526 in the project, finding that “the business plan was not credible because construction did not substantively commence until years after the initially-forecasted completion date.” However, AAO just posted several decisions in the 2018 folder (JAN172018_02B7203, JAN172018_05B7203, JAN172018_06B7203, JAN172018_07B7203) that withdraw those denials, remanding the matter for further proceedings. AAO was impressed by evidence that the project has recently made substantial progress, and “Therefore, we withdraw the Chiefs finding that the business plan was not credible with regard to the construction portion of the plan.” (Reflecting its new sensitivity to return provisions, however, AAO takes the opportunity to bring up an issue not included in the USCIS denial: “whether the granting of first right of refusal to EB-5 investors for the purchase of up to 1,500 shops in ___ constitutes an impermissible redemption agreement.”)
  • The Palm House Hotel project has been the subject of numerous lawsuits and went into receivership in 2015. In 2016, EB-5 investors sued sponsor South Atlantic Regional Center and associated entities, alleging that the project was, in reality, nothing more than a façade pursuant to which their funds were stolen and distributed among the conspirators. However, the project has made some progress under the receiver, and at least two investors appealed their I-526 denials to the AAO (JUN132017_01B7203, JAN172018_03B7203). AAO denied the motions, but in a way that leaves open the possibility that the outcome might have been different had the petitioners presented better documentation regarding availability of funds to complete the project.

LucidText in the news
Suzanne Lazicki is featured in the latest EB5 Investors Magazine as one of the Top 5 Business Plan Writers of 2017, and in a podcast with Mona Shah discussing business plans and the current EB-5 landscape.

Regional Center List Changes
Additions to the USCIS Regional Center List, 12/05/2017 to 02/02/2018

  • Awesome American Regional Center LLC (California, Nevada)
  • Commuter Center Regional Center, LLC (Washington)
  • Florida Capital Group Regional Center (Florida)
  • Grand Commonwealth Regional Center, LLC (California)
  • Hawaii Investment Funds, LLC (Hawaii): www.hawaiieb5.com
  • Live in America – Louisiana Regional Center, LLC (Louisiana): www.liveinamerica.us
  • Midtown NYC Regional Center, LLC (Connecticut, New Jersey, New York)
  • Mugo Regional Center LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • North American Asset Management Regional Center, LLC (Washington)
  • Polaris Regional Center (Guam)
  • Stonehenge Regional Center, LLC (Texas)
  • TS Pacific Regional Center (California)
  • Texo Capital, LLC (Ohio, Pennsylvania): www.texoeb5.com

Additions to the Regional Center Terminations page, 12/05/2017 to 02/02/2018

  • Greater Houston Investment Center, LLC (Texas)
  • Lansing Economic Development Corporation (LEDC) Regional Center (Michigan)
  • Maryland Area Regional Center, LLC (Maryland)
  • Liberty South Regional Center (Arkansas, Mississippi)
  • Southeastern Higher Education Regional Center (South Carolina)
  • EB-5 Fund CA, Inc. (California)
  • EB-5 Regional Center Florida, LLC (Florida)
  • America Development Investment Center Regional Center (Alabama, Georgia)
  • Florida East Coast Regional Center, LLC (Florida)
  • Lakewood Regional Center a/k/a American Life, Inc. – Lakewood Regional Center (Washington)
  • American Logistics [International] Regional Center (California)
  • South East Los Angeles RC (SELARC) California (California)
  • Southwest Florida Regional Center, LLC (Florida) (terminated 5/25/2017 but not listed until 1/30/2018)

Previously listed as terminated, but now restored to the list of approved regional centers:

  • ON Regional Center, LLC (California)

At-risk with call option and preferred return? — updated

—UPDATE 4/17/2018—

FYI here are my notes for an ILW call on 4/17 to discuss the “invest” requirement, and new USCIS challenges to equity with debt-like features. The notes link to the relevant decisions and cases, and summarize the fact pattern and arguments for each case.

—UPDATE 4/6/2018—
Other petitioners continue to fight call option denials.

  • Another lawsuit: CHANG et al v. DEPARTMENT OF HOMELAND SECURITY et al (Case Number: 1:18-cv-00659). Here’s a summary and the full complaint.
    (Attorney representing the plaintiffs: Jason D. Wright, Wright Law Firm)

— UPDATE 2/9/2018 —
I’ve been alerted to a couple district court decisions that rule against USCIS in favor of EB-5 petitioners in cases involving call options.

Chiayu Chang, et. al., v USCIS 1:16-cv-01740 (Filed 02/07/2018)
…The question in this case is whether United States Citizenship and Immigration Services (USCIS) acted in an arbitrary and capricious manner when it declared plaintiffs ineligible for visas because their investments came with a “call option,” which gave the company in which they invested the choice to buy plaintiffs out. Because the call option at issue here does not provide the investors with any right to repayment, the Court answers this question in the affirmative and grants partial summary judgment to plaintiffs… Unlike a sell option—or a note, bond, or similar arrangement—a buy option provides the investor with no security that she will ever see her money again. …A call option alone does not a debt arrangement make….
(Attorney representing the plaintiffs: Ira J. Kurzban of Kurzban Kurzban Weinger Tatzeli & Pratt, PA)

DOES 1-72 v. UNITED STATES CITIZENSHIP & IMMIGRATION SERVICES et al 1:15-cv-00273 Filed 2/24/2015, decided 03/10/2017
…Importantly, the Call Option was a right exercisable by Quartzburg Gold or its general partner, not the Plaintiff-investors, and the Quartzburg Gold documents made clear that there was no guarantee that it would be exercised. Despite statements that the general partner would strive to be able to exercise this option and buy out the Plaintiff-investors, both the LPA and the Offering Memorandum made clear that “[t]here [was] no guarantee regarding when the Partnership shall exercise such call option, or if such call option shall ever be exercised at all.” …. The Call Option accordingly did not guarantee Plaintiff-investors anything, nor did it have any effect on the risk that the Plaintiff-investors faced that they might lose their capital contributions if the underlying mining projects were not successful…
(Attorneys representing the plaintiffs: Robert C. Divine & J. David Folds of Baker Donelson)

— ORIGINAL POST 1/26/2018 —
Every EB-5 offering is a balance between natural investor desire for a return and exit strategy, and EB-5 policy prohibiting debt arrangements between the immigrant investor and new commercial enterprise. (As a reminder, there’s no problem with debt between the NCE and job-creating entities in regional center offerings. The restriction is between the EB-5 investor and NCE.) People who prepare offering documents have to walk a fine line, and should note recent cases that help define where USCIS thinks that line lies.

A number of recently-posted cases in the 2017 and 2018 folders I-526 appeals deal with investors in a regional center project who were denied due to a provision in their Limited Partnership Agreement.  (See DEC222017_03B7203 as a representative example. Other decisions for the same offering: DEC192017_01B7203, DEC192017_02B7203, DEC222017_01B7203, DEC222017_02B7203, JAN172018_01B7203, JAN172018_04B7203, JAN172018_08B7203, JAN172018_09B7203, JAN172018_10B7203.) Here’s the targeted provision:

Article 9.1 of the partnership agreement provides that at any time on or after the date that a foreign investor’s Form I-829 has been adjudicated, the NCE’s general partner may, in its sole discretion, notify the investor of its desire to purchase (i.e. redeem) his or her interest. The purchase price will include 100 percent of his or her capital contribution ($500.000) plus all accrued and unpaid preferred returns. ….Preferred return is one half of one percent (0.5%) per annum on the total unreturned Capital Contributions [$500.000] of an investor.

Considering the USCIS Policy Manual policy on guaranteed returns and Matter of Izummi, one might think this provision would be acceptable because (1) this provision doesn’t give the investor a right to demand the return (since only the general partner can initiate the buyout), (2) the NCE general partner is not guaranteed to be a willing buyer (since the purchase “may” happen at its sole discretion), and (3) a certain price is not assured (since the purchase itself is not assured). But one would be wrong, according to the analysis by USCIS and the AAO.  They found that,

The fact that the general partner has the right to purchase or redeem, which the partnership agreement references as a “buyout right,” rather than the Petitioner having a right to sell his interest is not determinative. We previously found that a sell option was an impermissible debt arrangement regardless of whether it was enforceable.

AAO admits that Matter of Izummi treated a different kind of redemption agreement that gave the Petitioner a sell right, but “the language of the decision goes beyond those facts, explaining not only that the enforceability of the arrangement is immaterial but that an investor may not be assured of receiving a certain price.”

The “certain price” issue is the main leg to stand on for the December 2017 denials. (One wonders about the difference a profit-contingent preferred return would’ve made. Also, the leg still looks pretty weak, considering that the offering apparently lacks the defining feature of debt: fixed obligation to pay.)  But the AAO appears to question debt-like elements generally.

A review of the record as a whole reveals an arrangement where once the conditions on the Petitioner’s resident status have been removed, the NCE would likely redeem the Petitioner’s original capital contribution and pay him or her a modest “preferred return,” similar to an interest payment. Such an arrangement, though not characterized as a loan in the offering documents, contains the same elements (principal, interest, repayment period) that one would find in a debt agreement.

AAO concludes,

Considering the partnership agreement and offering memorandum together, we find that the Petitioner did enter into an impermissible debt arrangement with an understanding that the general partner intended to repay the full investment plus preferred returns. This arrangement is not permitted under the broad language at 8 C.F.R. § 204.6(e) (definition of “invest”).

As another example, consider APR182017_01B7203, a 2017 decision that challenges a “Priority Return” in a direct EB-5 offering.

Page 4 of the business plan states that “the NCE will pay the limited partners, if funds are available, a preferred return on their investment, beginning after the EB-5 funds are invested in the project.” As we discussed in our second NOID, Izummi, 22 I&N Dec. at 183-88, provides that if an investor is guaranteed a specific rate of return or the return of his or her investment, then the capital is not at risk, because in essence, the investor has loaned funds to, rather than invested in, the business. See 6 USCIS Policy Manual, supra, at G.2(A)(2).”

Preferred returns on equity investment and buyout provisions are common in EB-5 offerings, and have mostly passed without challenge. I’d be happy to hear analysis of the above non-precedent decisions by someone who can help define (or criticize) the line that USCIS and AAO took in these particular cases. (Thank you, commenters.)

Quotes for reference:

6 USCIS Policy Manual G.2(A)(2)

An arrangement under which funds have been contributed in exchange for an equity interest subject to a redemption agreement which provides that the investor may demand a return of some portion of his or her investment funds, including after obtaining conditional permanent resident status, is an impermissible debt arrangement, no different from the risk any business creditor incurs.

Matter of Izummi

For the alien’s money truly to be at risk, the alien cannot enter into a partnership knowing that he already has a willing buyer in a certain number of years, nor can he be assured that he will receive a certain price. Otherwise, the arrangement is nothing more than a loan, albeit an unsecured one.

FY2017 EB-5 Visas by Country

The US Department of State has published Table V Part 3 of the Report of the Visa Office 2017, which gives a tally of visas issued by country for the Employment Fifth preference (EB-5) in FY2017. If we believe USCIS processing times reports, these should be visas based on investments/petitions from 2015 or earlier. A few points to note:

  • Having issued slightly fewer than the annual EB-5 visa quota last year, DOS compensated by going slightly over the quota this year.
  • Vietnam and Brazil are the countries with greatest increase in EB-5 visas issued between 2016 and 2017. South Korea showed the largest drop.
  • South America is the region with the greatest increase in number of EB-5 visas issued in 2017, and Europe the region with the greatest increase in number of nationalities receiving EB-5 visas.
  • Compared with 2016, the 2017 report has more countries taking at least one visa, but fewer countries taking over 20 visas. Kudos to the brave lone souls from Angola, Cameroon, Bolivia, Bulgaria, Tajikistan, and Suriname who immigrated last year though EB-5.
  • Countries besides China claimed 25% of the 2017 EB-5 visas (compared with 24% in 2016).
  • There were 160 fewer visas based on direct EB-5 investments in 2017 than 2016.
  • In addition to the Visa Office Report data on EB-5 visas issued during FY2017, we also have data on applications pending at the National Visa Center at the end of FY2017. (I’ve copied a couple charts below, and you can consult the Visas tab in my master visa/backlog spreadsheet for additional detail and source links.) It’s puzzling to look at the different reports together. For example, one wonders why the drop in visas issued to South Koreans in 2017, when there were 278 visa applications for South Koreans left pending at the end of the year. Or why people from Hong Kong got only 81 EB-5 visas in 2017, when there were 447 Hong Kong applications pending in November 2016 and 423 still pending in November 2017. Vietnamese received a hefty 335 EB-5 visas in 2017, just behind China, but 649 Vietnamese applications were still left pending. In total, DOS issued 2,523 visas in 2017 to applicants from countries other than China, but that still left 3,524 applications from countries other than China pending at NVC as of November 2017. Anyone know the story behind the non-China backlogs at NVC?

For reference, here are my posts on the Visa Office Reports from 2016, 2015, and 2014.

RC Reauthorization to 2/8/2018

February 2
See my Washington Updates page for ongoing updates.

January 23
The President has signed H.R. 195: Extension of Continuing Appropriations Act, 2018, which puts the federal government generally, and the regional center program, back in business through February 8, 2018. The bill text was amended over the weekend, but no additions that would decouple RC program authorization from government funding. However, this extension just gives a couple weeks to breathe before the same issues need to be re-fought. Congressional leaders have vowed to use the time to come up with their long-promised immigration legislation. I hope that this will happen and include EB-5 (though EB-5 is still absent from all debate). Ideally legislation should precede and preempt the EB-5 regulations threatened in February.

IIUSA has posted a helpful EB-5 Advocacy Announcement that includes this information: “While Republican negotiators on EB-5 are closer than ever to finding agreement internally, there are still bipartisan negotiations that need to occur. With pending regulations that could raise investment levels by over 100% and a current potential posted final action date in February, Congressional leaders would likely be left with only 60 days after that final action date to produce a legislative solution in place of the regulations.”

January 22

Update: Congress has cleared legislation to extend government funding to February 8, 2018. The vehicle is “Senate amendment to the House amendment to the Senate amendment to H.R. 195,” and I’ll link the text here when available.

As we wait for Washington to reach an agreement that would fund the government and reauthorize programs including the regional center program, here’s a post from Carolyn Lee on what the shutdown does and does not mean for EB-5.

January 20
The USCIS website announces:

The current lapse in annual appropriated funding for the U.S. government does not affect USCIS’ fee-funded activities. Our offices will remain open, and all applicants should attend interviews and appointments as scheduled. However, several USCIS programs will either expire or suspend operations, or be otherwise affected, until they receive appropriated funds or are reauthorized by Congress.

The list of programs to be affected until reauthorized by Congress includes the regional center program.

January 19
Congress lost its bet and failed to pass a new funding bill by midnight. But “lawmakers are believed to be negotiating a days-long extension that could be approved quickly.” In the meantime, the regional center program is on hold, and regional center-associated petitions and applications won’t advance until Congress takes action.

January 18-19
The Hill has a new article every few minutes on the likelihood that Congress will or won’t agree on time to the CR extending current funding and associated authorities (including RC program authorization) into February. So much drama. I expect that the CR will pass by 11:59 pm on Friday, assuming that our lawmakers have much to gain from speaking out against the CR, and more lose from the shutdown that would result from not voting for it in the end. But we shall see. Just in case, Klasko Law comments on effects of a potential government shutdown on immigration processing and programs and IIUSA explains Possible Government Shutdown: What it Means for the EB-5 Regional Center Program.

January 16
House Appropriations Chairman Rodney Frelinghuysen today introduced legislation (H.J.Res 125) to maintain current funding for federal operations and prevent a government shutdown. The Continuing Resolution (CR) is a stop-gap measure that will extend government funding through February 16, 2018.
There’s nothing in the text of H.J.Res 125 to prevent regional center program authorization from being extended with other authorities tied to current funding. But we’ll see whether Congress can manage to agree long enough to pass the CR and avoid a shutdown. The White House supports the CR, at least.

January 15
No indication yet that Washington is near compromise on new immigration legislation. A Continuing Resolution of current funding and authorities to February 16 continues to look likely. In honor of Dr. Martin Luther King Jr. Day today, I quote President Trump making an important point:

Today, we celebrate Dr. King for standing up for the self-evident truth Americans hold so dear, that no matter what the color of our skin or the place of our birth, we are all created equal by God.

This is not the belief evident in the current immigration reform discussion, which looks more like this:

We hold these truths to be self-evident, that all men are not created equal, that they are endowed by their nationalities with certain inalienable characteristics, that among these are propensity to violence, noxious ideology, inability to assimilate, and failure in the pursuit of property. — That to secure against such characteristics inherent in certain nations and their nationals, immigration policy is instituted among Us, to effect Our Safety and Happiness by erecting barriers against threats embodied in Them, and screening Them by the color of their passports in lieu of the content of their character.

Dr. King’s genealogy of racial segregation from his How Long Not Long speech in 1965 could also be recast to explain how and why our current populist movement has been co-opted into an anti-immigrant movement with such violent sentiment against DACA. It may be said of the new economy that the donor class took the world and gave the poor white man legal status. And when his wrinkled stomach cried out for the food that his empty pockets could not provide, he ate legal status, a psychological bird that told him that no matter how bad off he was, at least he was a citizen, better than the Illegals.

We miss you, Dr. King!

January 11 post
Some dates to keep in mind as we wonder what will happen next with EB-5:

  • January 19, 2018: The next regional center program sunset date (and the deadline for a new funding bill that some hoped to make a vehicle for sweeping new immigration legislation). It’s looking likely that this deadline will be pushed back a few weeks, however, with another continuing resolution.
  • February 2018: The date indicated for final action on new EB-5 regulations (with provisions including drastic increase to the EB-5 investment amount)
  • February 16, 2018: Possible next regional center program sunset date, if Congress fails to pass a new funding bill in January, and instead defers the funding and immigration fight with a continuing resolution  (or some speculate the CR could go into March)
  • March 5, 2018: The date DACA protections are slated to end, and thus the date Congress is pushing to beat in passing a big immigration bill
  • April 2018: The possible effective date for new EB-5 regulations, assuming that the rule is finalized in February with an effective date after 60 days (as ILW rumors)

The race is on for EB-5 legislation, with pressure from sunset dates and the need to forestall unwelcome regulations. Washington is actually talking about comprehensive immigration reform, including reshuffling visa numbers. But I haven’t heard EB-5 mentioned once, for good or ill, anywhere, by anyone, in recent immigration discussion. The left is for DACA; the right is for border security and against diversity visas and chain migration. Immigrant investment doesn’t fit with any side’s talking points. I hope that Congress privately remembers EB-5, because we really need action from them: to give the regional center program a longer-term authorization, to enact program changes better than what would come with new regulations, and to realize program potential by freeing up more visas for EB-5.

If broad-based immigration legislation happens soon, what will it include and how will it affect EB-5? We have a few hints, but nothing definitive yet. This week President Trump hosted a bipartisan and bicameral meeting on immigration reform that concluded (reportedly) with “an agreement to negotiate legislation that accomplishes critically needed reforms in four high-priority areas: border security, chain migration, the visa lottery, and the Deferred Action for Childhood Arrivals policy.”  (As an aside, I recommend the White House transcript of the meeting. It’s not especially informative, but an amazing artifact. If Aristophanes or Alexievich set out to write Washington today, I doubt they could beat this straight record of the January 9 Cabinet Room scene.)  Yesterday House Judiciary Chairman Bob Goodlatte introduced H.R. 4760 Securing America’s Future Act, which proposes sweeping changes in line with President Trump’s immigration priorities. The bill includes nothing that would directly affect EB-5, so far as I can tell. (The Immigrant Investor Pilot Program gets a name check, but only in context of a technical amendment that renumbers a subsection. No mention of program authorization or any EB-5 changes. H.R. 4760 proposes to increase employment-based visa numbers, but EB-5 wouldn’t benefit because the bill would change its allocation from 7.1% of the total to a flat 9,940 visas annually, regardless of the worldwide level. The bill fiddles with per-country limits for family-based visas, but not for employment-based visas.)  Meanwhile, the Senate is still trying to come up with a competitive immigration deal that’s more passable by Congress while still signable by the President. I’ll report on details when available, and also hope that advocacy people will eventually share what’s happening with EB-5 on the ground. (Update: IIUSA has published an Industry Special Report, and Senator Graham has posted summary provisions of the Senate’s Immigration Reform Act of 2018. The summary mentions nothing that would affect EB-5.)

 

I-526 processing time (Part I)

Update: See also my followup post How long does I-526 take? (Part II)

Every month USCIS publishes Processing Time Information for the Immigrant Investor Program Office. The update just published indicates that as of October 31, 2017, IPO was processing I-526 filed on  November 21, 2015, I-829 filed on September 2, 2015, and I-924 filed on October 18, 2015. This is bad news, considering that previous reports indicated that IPO had progressed passed those dates months ago.  USCIS only publishes one month at a time, but I log the reports to track trends. Here’s a clip from my IPO Times Log showing the current report compared with recent reports.

I think the bouncing dates reflect two facts: (1) that the IPO processing report dates are never very exact, because IPO has a complex multi-step multi-track process that prevents keeping petitions in strict FIFO order; (2) that the Q4 2015 filing surge has been difficult to process (due to quantity and quality problems). I’ll guess that IPO issued a lot of RFEs earlier in the year on October/November 2015 petitions, moved on to December 2015 petitions while waiting for responses, and has now updated the processing report to reflect the fact that they’re again occupied with earlier petitions that received RFE responses. Or maybe the report update just means “oops, we recalculated our mysterious processing times report formula and concluded that we aren’t actually as far along as we said before.” This has happened several times before, according my report log.

In her published remarks for the 11/7/2017 EB-5 stakeholder meeting, IPO Deputy Chief Julia Harrison discussed the wait time for I-526 petitions filed in 2015.

Q: What is USCIS’s best estimate of the wait times for form I-526 petitions filed in 2015?

Response: The posted processing time is the best indication of a petitioner’s position in the queue. The actual adjudication time for any individual petition can vary based on: its position in the queue, the quality (and hence the adjudication time required) for prior petitions in the queue, and the quality and clarity (i.e. credibility of the evidence presented) in the individual’s petition. If RFEs or NOIDs are required they can significantly add to the time required to adjudicate a petition.

Also, if the investment project is first presented to USCIS on an I-526, the adjudication may have additional due diligence needs pertaining to the investment project which may require an RFE and any additional processing time will vary depending on the facts and complexity of each case.

Ms. Harrison’s answer focuses on case-specific factors that contribute to individual processing times. For general predictions about I-526, I think it’s helpful to step away from individual detail and think about processing as a capacity question. Petition data indicates that there were an average of 19,700 I-526 petitions pending at IPO in Q4 2015, and IPO has processed an average of 2,700 petitions per quarter since then.  Dividing inventory by flow rate gives an estimate for the time to push all inventory through the system. 19,700 petitions / 2,700 petitions per quarter = 7.3 quarters. If it takes 7.3 quarters or 22 months to adjudicate all petitions that were at IPO in Q4 2015, then we’d expect petitions filed that quarter to have a processing time around 22 months on average. That’s consistent with the IPO times reports (19 to 23 months for Q4 2015 petitions so far).  You can download my I-526 Times spreadsheet (Happy Christmas dear blog readers from Suzanne) for a model that compiles relevant data and allows entering a priority date to get a rough processing time prediction. According to the model, I-526 petitions filed in 2016 and 2017 can expect to wait about 20 months for processing, on average, assuming basically first-come-first-served processing. (But note that anecdotal evidence suggests huge variation in actual times from a few weeks to many years, so IPO’s process apparently isn’t as orderly as it tries to be. I didn’t make a prediction model for I-829 because the recent volume trends have been too erratic for a simple waiting line formula, and didn’t make a model for I-924 because USCIS doesn’t publish data for I-924 pending or processed petitions. And if someone assembles a better version of the I-526 model, please share.)

In addition to the spreadsheet model, I also keep updating my IPO Times Quotes document with communications from USCIS regarding processing times. Consult this if you want to see what IPO has said recently about how they organize petition processing, and factors that affect petition processing times. If you have personal experience to share, please enter it in this Google form. You can view form responses so far in this spreadsheet: https://docs.google.com/spreadsheets/d/1xjbYYrb6taz1j6G8JSbshNTLVJ5u0zhirBdSg6K4zTY/edit#gid=1725165840

Benefit from this blog? Please consider supporting the effort behind it. As the EB-5 industry changes, your contribution can help preserve this space for conscientious and freely-available EB-5 reporting. Donations go to Lucid Professional Writing (a for-profit business) to fund work on this blog. Thank you!

EB-5 Regulations (2/2018?)

3/1/2018 Update: See my No change, no stability? post
While we have our eye on the legislation ball, the Office of Management and Budget has given us a new EB-5 deadline to think about. The Spring 2017 Unified Agenda had mentioned April 00, 2018 as a “Final Action Date” for regulations dealing with EB-5 investment amounts and TEAs (RIN 1615-AC07), but now the Fall 2017 agenda has advanced that prediction to February 00, 2018. I’d doubted the April date because so many factors seemed likely to delay regulations (the prospect of legislation instead, the fact that Congressional intent as expressed in draft legislation looks so different from what DHS put in the proposed regulations, the administration’s coolness to regulation in general, government inertia in general), but advancing the date to February looks like positive intent to really get the EB-5 regulations done.

We don’t know yet what will be in the final Rule 1615-AC07, since it may have been revised significantly since the Notice of Proposed Rulemaking. But as a reminder, here’s what the NPRM proposed:

  • Increase the standard minimum EB-5 investment amount to $1,800,000, or $1,350,000 in a TEA.
  • A TEA is based on high unemployment and incentivized with 25% reduction to the investment amount (not other factors or incentives as proposed by Congress).
  • A TEA can only be designated for a high-unemployment MSA, county, city, single census tract, or limited group of census tracts. DHS, not the states, is responsible for TEA designation.
  • Give priority date protection (an investor with an approved I-526 could choose to file a new I-526 while keeping the original priority date, subject to certain restrictions)
  • Spouse and children may be able to file I-829 even if not included on the principal investor’s petition.
  • Other technical changes.

The federal rulemaking process requires that “At the end of the process, the agency must base its reasoning and conclusions on the rulemaking record, consisting of the comments, scientific data, expert opinions, and facts accumulated during the pre‐rule and proposed rule stages.” In April 2017, the public responded to the NPRM with challenging questions and criticism, and some persuasive data and policy arguments. The agency must take these into account. If USCIS revised the proposed rule in response to public comment, they might have modified the proposed investment amount increases (nearly all commenters argued strongly for this), either narrowed or expanded the gap between TEA and non-TEA investment (there were spirited arguments on both sides), modified the restrictions on census tract TEAs, or reconsidered giving DHS the burden of issuing TEA designations. On the other hand, USCIS is not well known for changing track in response to evidence and arguments presented by the public. The Fall 2017 OMB notice reiterates USCIS thinking about the potential costs and benefits of the proposed regulations:

The proposal to raise the investment amounts and reform the targeted employment area (TEA) geography could deter some investors from participating in the EB-5 program. The increase in investment could reduce the number of investors as they may be unable or unwilling to invest at the higher proposed levels of investment. On the other hand, raising the investment amounts increases the amount invested by each investor and thereby potentially increases the total economic benefits of U.S. investment under this program. The proposed TEA provision would rule out TEA configurations that rely on a large number of census tracts indirectly linked to the actual project tract by numerous degrees of separation, and may better target investment capital to areas where unemployment rates are the highest.

If a final rule were published in the Federal Register in February 2018, it could go into effect as early as March 2018, and apply to petitions filed on or after the effective date. (See A Guide to the Rulemaking Process for an explanation of the typical process.)

On the other hand, the threat of immanent regulations may inspire Congress/industry to finalize EB-5 legislation ASAP instead.

Meanwhile, the OMB Unified Agenda has pushed back the estimated date for a Notice of Proposed Rulemaking for RIN: 1615-AC11, the EB-5 rule dealing with regional center designation, the exemplar filing process, continued regional center participation, and regional center termination. The Spring agenda had estimated April 2018; the Fall agenda has October 2018. We previously responded to this as a Advance Notice of Proposed Rulemaking. The agenda’s cost/benefit comment notes that:

DHS is still in the process of reviewing potential changes it would propose to the regional center process. DHS may propose to implement an exemplar filing requirement for all designated regional centers that would require regional centers to file exemplar project requests. An exemplar filing requirement could cause some projects to not go forward, but DHS is still in the process of assessing the impacts on the number of projects that may be affected. DHS anticipates that any proposed changes to the regional center program would increase overall program efficiency and predictability for both USCIS and EB-5 stakeholders.

RC Reauthorization to 1/19/2018, visa numbers, legal actions, RC list changes

Countdown to Regional Center Program Reauthorization

  • 12/22: President Trump has signed the continuing resolution H.R. 1370, which means that the regional center program is now extended together with other authorities to January 19, 2018. (See Congress.gov for the text of the enrolled bill H.R.1370, now Public Law No 115-96.) I also notice that the White House website has been reorganized to highlight immigration as a key issue. The new White House immigration page emphasizes these priorities for the administration: constructing a border wall, ensuring the swift removal of unlawful entrants, ending chain migration, eliminating the Visa Lottery, and moving the country to a merit-based entry system.
  • 12/21: The House and Senate have passed a Continuing Resolution that replaces the expiration date in previous legislation with “January 19, 2018,” and doesn’t include any language that would exclude regional center program authorization. See the House Appropriations Committee news release for the text of House Amendment to the Senate Amendment to H.R. 1370.
  • 12/20: The content of a Continuing Resolution through 1/19 is still under negotiation.
  • 12/18: Nothing settled yet on the next stopgap funding measure, which will have to fight with tax reform for attention this week. The Senate Appropriations Committee may come up with its own proposal to compete with the House proposal. Senator Cornyn indicates that the Senate bill would also be through January 19, but may include some different provisions.
  • 12/13: Yesterday the House Appropriations Committee introduced H.J.Res 124 – a Continuing Resolution that would temporarily extend federal funding and maintain current federal operations (currently authorized to December 22) until January 19, 2018. Basically, it’s a clean extension that just switches out expiration dates: “SEC. 101. The Continuing Appropriations Act, 2018 6 (division D of Public Law 115–56) is further amended—7 (1) by striking the date specified in section 8 106(3) and inserting ‘‘January 19, 2018.’’ The 250 pages of miscellaneous additional provisions (defense appropriations, CHIP extension, etc.) do not mention EB-5 or move to separate RC program authorization from continued government funding. This bill is just barely out of committee, not enacted yet, but I’ll add updates as I hear news ahead of the 12/22 deadline.
  • 12/8: IIUSA members will be happy to note that the association has decided to tell us its 2017 Policy Platform and comments on the draft legislative framework. Now to see if we’ll be asked for our opinion on the policy positions someone has formulated. Probably not, since the hard-won industry unity depends on a narrow base. UPDATE: IIUSA has sent an email to members with the invitation “Please contact advocacy@iiusa.org with any comments or questions” on the IIUSA policy framework.
  • 12/8: IIUSA did the right thing with a stern statement on Marketing Hypothetical EB-5 Reform Outcomes as Certainties. Prospective investors take note: do not rest your current EB-5 decision on the possibility of visa set-asides in hypothetical future legislation. We have no assurance that a set-aside proposal will ever be enacted, or to whom/what a set-aside proposal would apply, if enacted. Even if set-asides became available, the size of the visa backlog and volume of I-526 filings mean that they may disappear too quickly to have an appreciable incentive effect. Their main function appears to be now, in hypothetical form, as a phantom concession to help get what industry negotiators really want (low investment difference between TEA and non-TEA areas) and a phantom carrot to encourage new investors.

Visa Backlog Update

The backlog of EB-5 visa applications at the National Visa Center continues to grow, as one would expect with I-526 filing surges reaching the visa application stage. The Annual Report of Immigrant Visa Applicants in the Family-sponsored and Employment-based preferences Registered at the National Visa Center as of November 1, 2017 reveals that the EB-5 visa application backlog is 23% longer this year than last year, with 17% increase in pending applications from mainland China and a 106% increase in pending applications from other countries. I’ve added these numbers to my master backlog calculation spreadsheet, which has a projection tab to estimate how statistics translate into wait times.

Legal Actions

Additional reading for those interested in following litigation in the EB-5 space, and learning from the actions and statements that got other people in trouble.

Other Helpful Articles

McKee, Curylo, Parrington: Considerations for Independent Third Parties to Assist With EB-5 Investments (December 12, 2017)

Regional Center List Changes

Additions to the USCIS Regional Center List, 11/08/2017 to 12/05/2017:

  • American Dream Fund Seattle Regional Center, LLC (Washington): www.adreamfund.com
  • American EB5 Regional Center (Florida)
  • Cactus21 LLC (California)
  • Chicago Real Estate Development Regional Center, LLC (Illinois, Indiana, Wisconsin)
  • Great North Regional Center, LLC (Massachusetts, New Hampshire, New York, Vermont): www.peakresorts.com
  • Hawaii Regional Fortune Center LLC (Hawaii)
  • M5 Venture Southern California RC, LLC (California): www.m5venture.com
  • Manhattan Empire State Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • NCP Regional Center (California)
  • North Carolina EB5 Regional Center, LLC (North Carolina, South Carolina): eb5affiliatenetwork.com/regional-centers-access/eb5-regional-center-north-carolina
  • SRC NY, LLC (Connecticut, New Jersey, New York, Pennsylvania)

One regional center was removed from the approved list, but not added to the terminated list:

  • Bart Investment Group, LLC (Florida)

 

Q4 2017 EB-5 Petition Stats

The USCIS Immigration Forms Data Page has posted EB-5 petition processing data for the 4th quarter of FY2017 (July to September 2017).

The good news is that in FY2017, IPO finally – for the first time since FY2009 – adjudicated more EB-5 petitions than it received during the year. That’s what needs to happen for the backlog to shrink and processing times to fall.

In FY2017, I-526 receipts were down 14% and I-526 adjudications up 31% from the previous year. I-829 receipts were down 24% and adjudications up 42% from the previous year.

Although I-526 receipts fell slightly in FY2017, they were still unsustainably high – enough to claim nearly four years of visa numbers if the annual EB-5 visa cap stays at 10,000. As before, the quarterly receipt trend shows filing surges around regional center program sunset dates.

I-829 receipts fell every quarter in FY2017, which is troubling. The State Department has issued the maximum number of EB-5 visas annually since FY2014, so I would expect a steady stream of petitions to remove conditions. Instead, it seems that an increasing number of people who received conditional permanent residence are failing to complete the EB-5 process. I-829 denial rates remain very low, however.

The most dramatic processing improvement in FY2017 came for I-829 petitions, particularly in the fourth quarter. I-526 processing has improved year-over-year, but not consistently by quarter.

IPO has steadily increased their processing capacity since 2013, and I hope that the trend will continue into 2018. IPO has committed to reducing processing times in 2018, and continues to hire new staff. (Last month USAjobs.gov posted a job announcement recruiting for “many vacancies” as Adjudications Officer at IPO. Fortunately for the poor pending petitions, I decided not to apply.)

USCIS apparently continues to refine its record-keeping system. The Q4 data report not only provides Q4 numbers but some revised figures for previous quarters and years (with variation by several hundred from previously-reported figures). The pending petition count remains a mystery. (One would expect quarter-end pending petitions to equal previous quarter-end pending plus current quarter receipts minus current-quarter adjudications, but that’s not the case.)

RC Program Reauthorization (CR to 12/22/2017)

Updates:

  • 12/8: H.J. Res 123 has been signed by the President and is now P.L. 115-90. Now we wait for legislation that will authorize the regional center program past December 22, 2017.
  • 12/7: A continuing resolution through December 22 passed the House and Senate today, and the President is expected to sign it. H.J. Res 123 is a “clean” extension, meaning that it simply extends the deadline for previous funding and authorities (including the regional center program) without changes.
  • 12/7: Regional center program authorization is still waiting on Congress to manage a Continuing Resolution that would extend current government funding and associated authorities past December 8. Washington continues to fight and risk shutdown. If by chance current government funding and the regional center program sunset on 12/8, what will happen to EB-5 investors? The impact will not be too painful so long as the lapse is temporary. Judging from past history, the Department of State will change EB-5 regional center visa categories from “Current” to “Unavailable” in the Visa Bulletin, and pause issuing visas to RC investors until the RC program is authorized again, returning to business as usual.  USCIS has reportedly prepared “what if” guidance for two sunset scenarios: if the Regional Center program lapses but Congress apparently intends to reauthorize it, or if Congress indicates its desire to end the program. I’m guessing that if the lapse appears temporary/unintentional, then IPO will probably also just hold off on new RC petition approvals until the program regains authorization. And as another reminder: EB-5 itself is a permanent program and not facing a sunset; direct EB-5 petitions and applications can continue as usual regardless of RC program authorization.
  • 12/5: Senator Grassley and Senator Cornyn — two people who have worked on EB-5 legislation in the past — today announced a new bill that would address a number of immigration issues but apparently not EB-5.  S.2192 “The Security, Enforcement, and Compassion United in Reform Efforts (SECURE) Act of 2017” is about security and enforcement, not about compassion or unity, and not concerned with EB-5 (though it would give permanent status to E-Verify, a temporary program historically reauthorized with the regional center program).
  • 12/5: The Hill notes that immigration is in the spotlight as discussions continue over a series of continuing resolutions that would extend current government funding to 12/22/2017, and then again to January or February next year. But the contentious issues are Delayed Action for Childhood Arrivals and border security; no one’s arguing about EB-5 so far.
  • 12/4: It looks as if there will be an extension to December 22 (or possibly into January), to give Congress more time to come up with a new funding bill.

Original 11/29 post: EB-5 is permanent, but the EB-5 regional center program faces another sunset date. The RC program’s current authorization is tied to a continuing appropriations act that expires next week Friday, December 8. Sabers are rattling in Washington over the next funding bill, and we may be in for another short-term resolution while our representatives get things figured out. EB-5 hardly rates in the scheme of significant and controversial issues facing Congress now, and I don’t hear anyone speaking out about it. I expect we’ll see (1) a new appropriations bill or continuing resolution next week that includes clean extension to the RC program for the bill’s duration (since that’s been the pattern for two years, and the default option for a Congress busy with other matters); or (2) limited EB-5 program changes crafted by/for the few people who spend most on EB-5 lobbying, slipped quietly and at the last minute into a larger bill to facilitate passage and forestall review and criticism from a broader base of interests. I do not think the regional center program will be terminated, or omitted on purpose from the next appropriations bill. Termination calls have never been very loud or widespread, and termination would also take time and attention from Congress. However, the reauthorization picture is not pretty. The RC program has received seven short-term extensions in the past two years. Congress hasn’t taken positive action on EB-5 since 2012. A program with billions of dollars on the line deserves more stability, attention, and enthusiasm.

Chart notes: The PL numbers identify the public laws that contain regional center program authorization. Each opaque blue bar begins with the date of PL enactment and ends with the end of RC authorization in that PL. The light blue shading reflects the fact that the first three reauthorizations just extended the original authorization (from five years to seven, then ten, then fifteen years). If anyone knows how to fill in the authorization gaps in my chart before 2008, please email me the missing PL numbers.

11/7 and 11/10 IPO Updates (processing, bridge financing, more), Baruch College Conference, RC List Updates

IPO staff met with EB-5 stakeholders twice this week, at an official Stakeholder Engagement on November 7 and at an EB-5 Conference hosted by Baruch College on November 10.

I’ve uploaded voice recordings of both presentations (11/7 here and 11/10 here), and you can watch the Baruch College presentation on YouTube here (IPO speaks in Part 6). Official remarks from the 11/7 engagement are posted on the invitation page. Hot topics included petition processing, Form I-924A, redeployment, bridge financing, and material change. I summarize a few highlights below.

EB-5 Program Introduction
At the 11/10 conference, IPO Senior Advisor for Economics Jan Lyons provided a basic yet substantive introduction to the EB-5 program and how it works. Agents and potential investors, this is an excellent source of reliable information straight from USCIS. He speaks near the beginning of the Conference presentation Part 6.

Processing Information
On 11/7, IPO Deputy Chief Julia Harrison generously spoke at length about processing issues, including staff allocation and petition workflow. Here’s my best effort to summarize the content (with time references to the 11/7 recording FYI).

  • Petition adjudication at IPO is divided across several teams, including a team handling I-829 and customer service, a team handling direct EB-5 I-526, and a group of teams handling regional center I-526. I-924 is also a separate workflow. Each team is staffed by adjudicators and economists.
  • IPO is working to increase capacity by cross-training personnel. Previously, adjudicators and economists had specialist roles, with economists reviewing project-related documents for I-526 and economic issues at I-829, while adjudicators looked at source of funds at I-526 and sustainment at I-829. Now economists and adjudicators are each being trained to handle a single petition from start to finish. The I-829 team is now fully-cross trained, and performing well. One of the I-526 teams is already cross-trained, and the effort will continue until all officers can individually handle any part of I-526 petition review. Ms. Harrison anticipates that this new approach will increase capacity, promote flexibility, and help IPO more nearly reach the goal of processing petitions in first-come-first-serve order.
  • Ms. Harrison described the workflow for I-526 petitions. Previously, IPO would assign all I-526 for one project to a dedicated team for that project. IPO did not intend to prioritize adjudication for big projects, but Ms. Harrison acknowledged the difficulty of keeping petitions in first-in-first-out order when they were grouped in multiple workflows by project. Today, IPO is working with a two-stage process that separates adjudication of project-specific issues from investor specific issues. For regional center projects with multiple investors, IPO waits to receive two I-526 for the project (unless exemplar approval is in place). Those two I-526 are then assigned to a an economist or cross-trained team that reviews the project portion of the petitions. This process may involve issuing an RFC (request for clarification) email or RFE asking project-specific questions. When project issues have been adjudicated, the first two I-526s are released to the general queue for all regional center petitions. Petitions in that queue get assigned to adjudicators in more-or-less first-come-first-served order for investor-specific review. New petitions for a previously-reviewed project would go directly to the adjudication queue, and the project-related aspects of those petitions shouldn’t have to be reviewed anew. A petitioner who already responded to an RFC or RFE at the project-review stage may get another RFE at the investor-review stage, however. The petitions in the adjudication queue are in order by date but may not be finished in first-in-first-out order, due to case-specific issues. (How does the strategy to combine project-specific and investor-specific issues in officer training harmonize with the strategy to separate project-specific and investor-specific issues the adjudication workflow? That question did not come up.) Time references in the recording: 10:59 – 15:15, 17:46 – 22:32, 01:19:37 – 01:22:00
  • Ms. Harrison points to posted processing times as the best estimate for when petitions filed in 2015 will be adjudicated.  (26:22) She also noted that completion rate improvement in the past few months is not yet reflected in the Processing Times report.
  • Direct EB-5 petitions have a separate queue from regional center petitions. The leader on the regional center side communicates about progress with his counterpart on the direct EB-5 side to help ensure that petitions filed at the same time are moved forward concurrently. (01:21:00)
  • IPO lacks an automated system to match an I-924 exemplar request with previously-filed I-526 petitions for the same project. (When the matching happens, it’s by means such as office-wide emails asking “has anybody done a review of this project?”) Therefore, IPO requests that exemplar requests be filed with a cover letter that identifies receipt numbers for I-526 in the same project. In case an I-526 is approved before then I-924 is adjudicated, then the I-924 should also be approved, but ideally IPO wants to have the I-924 exemplar request and any concurrent I-526 adjudicated together by one person. This raises the question of whether the first approved I-526 couldn’t itself serve as exemplar approval, with no need for the I-924, but Ms. Harrison did not answer that question. It also makes us wonder how any Exemplar ever gets matched to associated I-526, even if they are filed subsequently. Ms. Harrison did indicate that IPO welcomes help in the matching process – a cover letter on the petition indexing it to related Exemplar, or even follow-up emails to the IPO customer service mailbox providing lists of associated applications/petitions for IPO’s reference. (9:23 – 10:58, 01:27:10 – 01:28:45)
  • Currently, I-526 petitions are adjudicated more or less in first-come-first-served order by filing date, regardless of nationality. However, IPO is considering the suggestion to prioritize adjudicating petitions of countries that are not backlogged. IPO invites stakeholder feedback on this idea. (32:05 – 33:30, 01:19:37 – 01:22:04, 01:29:12)
  • I-829 adjudications are making significant progress. Julia Harrison noted that the posted processing times don’t fully reflect the improvement yet, but she’s seeing much improved completion rates.

In the 11/10 presentation, IPO Senior Advisor for Economics Jan Lyons pointed out that IPO has finally cleared a huge hurdle – the surge of applications and petitions filed in advance of the December 2015 sunset date. That surge slowed down processing not only due to volume but to the poor quality of many petitions, apparently filed in a rush. I-526 and I-924 adjudications are proceeding more quickly and smoothly going forward. Mr. Lyons pointed out three factors that affect an individual’s processing time: place in the queue, the qualify of petitions before yours, and the quality of your petition.

Bridge Financing
This issue needs its own post, so I’ll just briefly mention the points at issue: whether bridge financing to be replaced by EB-5 must be “temporary” as in “a year or less” to qualify as a bridge and establish nexus, and whether EB-5 funds must pass through the job-creating enterprise account to repay the JCE’s bridge debt. IPO’s working answers are a tentative “yes” to the duration question and firm “yes” to the path question. Jan Lyons gave thoughtful discussion in the 11/7 call at time 01:01:28 – 01:10:11 and 01:40:01 – 01:42:11, and starting at time 12:55:24 of the 11/10 conference (I’ll let you listen for the details). And he welcomes feedback from the industry. That IPO hasn’t already received solid feedback demonstrates acute industry failure. In a healthy world, IIUSA would’ve shared bridge financing RFEs with membership months ago, and appropriate people would’ve gotten together to write and submit a constructive, well-footnoted article presenting reasonable guidelines for bridge financing in EB-5. As it is, I didn’t even hear about the RFEs ‘til very recently, and there hasn’t apparently been any industry collaboration except to whine about why the RFE creates problems (while putting the burden on IPO to solve a problem that our collective experience and industry sources are competent to address). For shame. (In case you weren’t informed either, see the RFE trends presentation at this link.)

Redeployment & Material Change
I lump these topics together because IPO’s answers to questions on both issues were the same: consult written policy. IPO did not clarify ambiguities in the redeployment policy, and did not fall into the trap of contradicting the clear material change policy. People who know better keep asking at meetings whether a petitioner can change projects or change regional centers before CPR — probably because they hope someday IPO might accidentally say the “yes” we’d like to hear. But investors beware: this is not a grey area. Policy and decisions are clear that material change before conditional permanent residence will derail a petition, and that project and regional center identity are material. Changing NCEs is not an option at any time. (I have a post detailing the material change policy and applications.)  The grey area comes at the I-829 stage. IPO said they’re working on policy specific to the question of how to treat regional center changes for an I-829 petitioner. (For sure the petitioner is protected from any changes that occur after I-829 filing, but the situation before that is less clear.)

I-924A
Most answers to I-924A questions likewise boiled down to “read the instructions,” but you can re-listen to the 11/7 recording for any nuances. In the 11/10 meeting, Julia Harrison made the welcome comment that “two to three years” is not a hard and fast requirement for the time during which a regional center must sponsor a project or face termination. “We do look at the totality of the evidence you submit,” and will consider evidence that the regional center is “making progress toward a project” or at least “has something on the horizon” (2:44:00)

Policy & Regulations
Julia Harrison reports having no information to indicate that the April 2018 target date for finalizing the EB-5 regulations will not be met, though this does not depend on IPO. Her team is “always working” on the Policy Manual, but doesn’t have specifics on future updates. Lori McKenzie is no longer the Policy Division Chief, and Ms. Harrison did not mention a replacement.

Baruch College Conference
The EB-5 Conference with USCIS IPO, Hosted by the Steven L. Newman Real Estate Institute – Baruch College (November 10, 2017) had a number of solid presentations besides the IPO panel. Here is the list of speakers, and video of the panels.

Regional Center List Changes
Additions to the USCIS Regional Center List, 10/2/2017 to 11/08/2017:

  • 1 America Regional Center (California)
  • AHRC PA, LLC (Pennsylvania)
  • ARE Regional Center (MA), LLC (Massachusetts)
  • American Ace Development Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • American East Coast Regional Center, LLC (Connecticut, New Jersey, New York)
  • American Fortune Regional Center, LLC (Texas)
  • American Real Estate Growth Regional Center, LLC (California): www.aregrc.com
  • City by City EB-5 Regional Center PR USA, LLC (Puerto Rico)
  • Fairhaven Capital Advisors American Samoa Regional Center Corp. (American Samoa)
  • Florida Opportunities Regional Center LLC (Florida)
  • Genesis Regional Center, LLC (California)
  • Golden Shores Regional Center (California)
  • Gulf Coast SW Regional Center, LLC (Florida)
  • Hawaiian Opportunities Regional Center, LLC (Hawaii)
  • LA Yucaipa Regional Center, LLC (California)
  • Liberty Investment Center LLC (Illinois, Wisconsin)
  • MZH Capital Partners, Inc. (New Jersey, New York, Pennsylvania)
  • Montana Real Estate EB-5 Regional Center, LLC (Montana)
  • New Sun EB-5 Regional Center, LLC (California)
  • Paradise City Funding Regional Center, LLC (Connecticut, New Jersey, New York)
  • Pocono EB-5 Regional Center LLC (New Jersey, Pennsylvania)
  • Related California Regional Center (California): www.relatedusa.com
  • Related Chicago Metro Regional Center (Illinois, Indiana, Wisconsin): www.relatedusa.com
  • Related Florida Regional Center (Florida): www.relatedusa.com
  • SRC LA, LLC (California)
  • South Carolina Global Regional Center (South Carolina)
  • United Land RC LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • Vegas Regional Center, LLC (California, Nevada)
  • Wealth Global Regional Center, LLC (Connecticut, New Jersey, New York)
  • A List Partners Regional Center, LLC (Texas): www.alistpartners.com
  • Inkstone States Regional Center LLC (Washington): www.inkstone-capital.com
  • Noblemen Regional Center (Washington)
  • Wasatch Front Regional Center, LLC (Utah)

This regional center was listed as terminated on 8/10/017, but restored to the approved list on 11/6/2017:

  • Civitas Rio Grande Regional Center (Texas)

New Terminations:

  • Charlotte Harbor Regional Center (Florida) Terminated 10/2/2017
  • California Development Regional Center (California) Terminated 10/23/2017

Visa Numbers Update (Vietnam, India), TEA Reform Proposal, RC Audit Change

Visa Numbers Update (Vietnam, India)

We heard some updated EB-5 numbers this week from Charles Oppenheim, the Chief of the Immigrant Visa Control and Reporting within the U.S. Department of State. Bernard Wolfsdorf gives highlights from the presentation in 5 Things I Learned from Charlie Oppenheim at the IIUSA 7th Annual EB-5 Industry Forum. The major news is Mr. Oppenheim’s prediction that Vietnam will have enough demand to be subject to a cut-off date in 2018, and India may need a cut-off date by 2020. Cut-off dates happen when a visa category is oversubscribed and a country demands more than its rightful 7% of available visas in that category. A cut-off date holds back applicants from oversubscribed countries long enough to let any other applicants from undersubscribed countries get first chance at available visa numbers.  China is so far over the limit that it’s in an indefinite cut-off date situation with slow forward movement. Vietnam and India are just barely approaching the limit, and don’t have that much competition from other countries, so their cut-off dates would likely be temporary and hardly perceptible unless demand explodes.

I most appreciated the slide from the Mr. Oppenheim’s IIUSA presentation that gives a breakdown of pending applicants at the National Visa Center by country of origin (for the top five countries) and priority date. I added data from the slide to my Excel file of EB-5 backlog-related info, and correlate it with per-country I-526 receipt data from USCIS. I’m copying below a couple tables that illustrate (1) how we might forecast future cut-off-date-countries from information on I-526 receipts and approvals, and (2) that life is not fair. (Note: see below for updated tables.)

Since the IPO Processing Times report indicates that USCIS has only gotten to processing I-526 filed in November 2015, one wouldn’t expect to see applicants with 2016 and 2017 priority dates already in the visa queue. But Department of State reports nearly 2,000 applicants from the top five countries with priority dates after 2015, which means that USCIS must have processed over 600 petitions out of date order. Of course the number of pending visa applicants with priority dates 2015-2017 is still very small compared with the number of I-526 receipts in those years, so a majority of petitioners are getting held up in slow I-526 processing. I am surprised at the number of applicants with early priority dates still pending at NVC, considering that the China cut-off date progressed to mid-2014 this year (per the Visa Bulletin) and the other countries don’t have a cut-off date.

12/11/2017 UPDATE: The Department of State has provided updated numbers for pending visas in its Annual Report of Immigrant Visa Applicants in the Family-sponsored and Employment-based preferences Registered at the National Visa Center as of November 1, 2017. Here are updated charts based on the new data.

TEA Reform Proposal

Industry discussion about potential legislation has focused on the House-Judiciary Chair EB-5 Reform Proposal, a one-page term sheet with notes for potential future legislation. The term sheet proposes replacing the current Targeted Employment Area (TEA) system with a R/UD system. R/UD stands for Rural or Urban Distressed – two areas that would be incentivized for EB-5 investment with a slightly lower investment amount and fees, reduced job creation requirement, and – most potent of all – set-aside visas.

A couple major questions to consider: which projects would qualify for incentives under the R/UD proposal, and who’d be the winners and losers, were the term sheet to become legislation and then law?

  • The term sheet briefly defines Urban Distressed criteria: “must meet 2 out of 3 of the New Market Tax Credit Criteria.” The NMTC program has several sets of criteria, but we’ll assume the staffers mean the NMTC criteria for “severe distress” (since that’s the criteria referenced in previous EB-5 draft legislation): Poverty rate greater than 30 percent; median family income not exceeding 60 percent of statewide median; unemployment rates at least 1.5 times the national average. The term sheet gives this cryptic description of Rural criteria: “Base law + census tracts that would qualify under base law except for the fact that they are located in the outlying counties of MSA’s with population densities of less than 400 psm + Hatch fix.” I believe that means: Rural is an area with a population under 20,000 that is outside a Metropolitan Statistical Area (or a low population/low density area within the outskirts of an MSA). With those definitions in mind, you can get a sense of whether a project location might qualify for R/UD incentives using the CDFI Fund Mapping page provided by the US Department of the Treasury. For urban projects, select the NMTC mapping tool. When you enter the project address, the NMTC tool will bring up a map of census tracts around that address, with relevant NMTC data for poverty rate, income, and unemployment for each census tract. Check these numbers against the NMTC Severe Distress threshold, recalling that the EB-5 proposal would require 2 of 3 criteria to qualify. For rural projects, choose the BEA tool on the CDFI Fund Mapping page. This will bring up a map that lets you search by address and discover whether the address is in a non-metropolitan area, and the local area population. (To be sure of R/UD qualification, you’d need some additional guidance: whether and to what extent it’s allowable to group and average data across more and less distressed urban census tracts, what it means to be “outlying” in the rural context, and what source and date of data would be accepted. The term sheet doesn’t specify this.)
  • To judge winners and losers, we look at proposed incentives for R/UD investment. The term sheet suggests that investments in R/UD areas would be incentivized in these ways: 1,500 annual set-aside visas each for R and UD (with any unused visas rolling over from year to year in the same category), $925,000 minimum investment, reduced job creation requirement (5 indirect), option for exemplar somewhat-premium processing (one year), and exemption from an extra visa fee. Investments outside R/UD areas would have a $1,025,000 minimum investment, compete for the 6,940 annual visas remaining after set-asides, and would be subject to a visa fee of $50,000. The R/UD definitions and visa set-asides would become available on the date of enactment, affecting everyone with a visa pending at that time. The term sheet specifies that people with pending petitions and applications wouldn’t need to increase their investment amount, but they would find themselves in a line suddenly made about 40% longer by set-asides that reduce the generally available visa pool. The term sheet offers this limited relief: “For 1 year after DOE, any unused set-aside visas may be used by investors who had filed petitions pending as of DOE that meet the new definitions of R/UD.” However, I guess that few pending petitions fall in that category. This means that the #1 loser in this proposal is the past investor still waiting on conditional permanent residence. Congressional staffers don’t cry over the past investor, because they’re annoyed by the filing surges that happened in recent years (while they failed to act) and have wanted retroactivity. Self-interested RC lobbyists may also have few tears for past investors, whose money is in the bank and whose presence in the backlog represents the major drag on recruitment of new investors. A small negotiating table could see a win-win in a proposal that could discourage past applicants into clearing out the backlog and smooth the way for new rural/urban distressed investment (effectively incentivized with set-asides) and new prosperous urban investment (still competitive thanks to minor investment amount difference). Industry players who care about past investors and clients exist, and I hope their concern will signify.

Audit and Inspection Change
The page on the USCIS website that formerly explained Regional Center Compliance “Audits” and Site “Inspections” now describes Regional Center Compliance “Review” and Site “Assessments.” It’s interesting that USCIS revised the titles to sound less threatening, though the promised content of the audit/review or inspection/assessment remains almost unchanged.  The one content change I notice on the page is an additional bullet point for Regional Center Compliance Review: “Assess the effectiveness of internal controls related to the regional center’s administration, oversight, and management functions.”

EB-5 Timing Issues and Visa Wait: Process and Data

[Update: see also my 4/8/2018 post EB-5 Visa Waiting Line and Visa Allocation]
How long does it take to get an EB-5 visa? Before we look at numbers, consider this picture illustrating variables in the EB-5 process from initial application to conditional permanent residence.

The investor files an I-526 and receives a priority date, goes through I-526 adjudication, and proceeds along with family members to I-485 status adjustment (if already in the US) or consular processing (if outside the US) in order to get EB-5 visas. The system has two major constraints: USCIS capacity to process petitions, and the annual quota on EB-5 visa numbers. These constraints have produced pile-ups of pending petitions and applications, illustrated by the green bins in the picture.

We have data for many parts of this picture, such as how many people are in each of the pending bins, the historical rate of receipts and approvals and denials, and the annual visa quota. The simplest way to estimate the visa wait line (the time from priority date to green card) is to add up the pending bins and divide that number by the annual quota. As there are currently 90,000+ people associated with the pending bins, and the annual EB-5 visa quota is about 10,000, the current total waiting line is 9+ years long. (Maybe longer, depending on assumptions about the other variables). As recently as mid-2014, the line was only about three years long (as we know from the Visa Bulletin, which indicates that China-born investors with June 2014 priority dates started getting visas in May 2017).

Calculating the actual visa wait time for any given person is complicated. Where is that person in line, relative to other pending petitioners and applicants? Is that person from China (which is oversubscribed and subject to a per-country limit) or from an undersubscribed country that’s free to take the first available visas? How have/will other process variables such as per-country receipts and approval rates change over time and affect calculations?

If I were someone born outside China considering EB-5 now, I’d feel good about the per-country limit that allows me to skip ahead of most China-born applicants in line (i.e. about 87% of the line). For me, the time IPO takes to process I-526 is the major factor in my total wait time.

If I were a China-born prospective investor, I’d look at everyone in line ahead of me, and also try to estimate how many queue-jumping non-Chinese may enter from behind in the time I have to wait. That calculation could add years to the potential wait time, well exceeding 10 years, if the number of non-Chinese investors increases dramatically in the future and IPO processing speeds up. Or future circumstances could quell new EB-5 demand, encourage existing applicants to drop out, or apply the per-country limit to other countries, improving the wait time for China-born investors who stay in the system.

All past investors should consider the significance of the visa quota constraint and the possibility that it will change. Indeed, it could change for the better. For example, if the State Department recognizes that Congress intended the 10,000 visa quota to apply to 10,000 investors, not investors plus family members, this would loosen the constraint and cut about six years from the current visa wait time. Unfortunately, quota reduction is also a live possibility. Industry lobbyists are reportedly considering legislation with visa set-asides that would reduce the generally-available annual EB-5 quota from 10,000 to 7,000. This could be disastrous for past EB-5 applicants, adding about four years to the wait time. Visa set-asides have emerged as a compromise between the Senator Grassley camp, which wants to incentivize rural/urban-distressed investment somehow, and certain regional centers, who resist an incentive based on a significant investment differential that would make their future prosperous urban projects uncompetitive.  Tying the TEA incentive to visa set-asides rather than reduced investment would allow regional centers to keep attractive terms and options for future investors. Their past investors would suffer, but that cost seems not much counted. (My impression of the current legislation discussion comes from this webinar and this article.) Of course, maybe protections for past investors will be added to the legislation, or maybe there won’t be any deal and we’ll get new regulations instead. The regulations could significantly reduce new EB-5 demand, which would hurt the industry but benefit people who stay in the current visa queue.

And now, let’s get to the numbers. I’ve expanded and improved my backlog calculation spreadsheet, which now has multiple tabs that compile all the data I can find on each variable influencing the visa wait time for an EB-5 conditional green card. Keep the spreadsheet link, as I will update it whenever new inputs become available. (For those who don’t face backlog issues, see my posts on I-526 processing times Part I and Part II to help estimate the time between you and conditional permanent residence.)

Summary of EB-5 Visa Wait Time Variables

  1. I-526 petition variables
    • Number of petitions currently pending
    • Future petition filings
    • Number of petitions by country (how many China-born, how many born outside China)
    • Percent of petitions that will be denied or withdrawn
    • Number of family members to be associated with each petition
    • Time USCIS takes to adjudicate petitions
    • Investor’s priority date relative to others with pending petitions
    • The extent to which USCIS follows its first-in-first-out policy when adjudicating petitions
  2. Visa application variables
    • Number of I-485 adjustment of status applications for EB-5 pending at USCIS
    • Number of EB-5 visa applications pending at the National Visa Center
    • Number of pending applications by country (how many China-born, how many other)
    • Percent of applications that will be denied or withdrawn
  3. Political factors
    • Whether the rules and interpretation for the EB-5 visa quota remain unchanged
    • Whether new legislation introduces visa-set-asides that would reduce the annual visa quota generally available
    • Whether the regional center program remains authorized, and the impact of a sunset on investors in line for a visa
    • Whether new regulations or legislation include features that would change demand and/or affect past applications

Additional Reading

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