Top Five EB-5 Originating Countries

The IIUSA has compiled EB-5 Visa usage numbers released by the Department of State. (A bit of background. While the gatekeepers of the immigration process is the USCIS under the Department of Homeland Security, the actual visa issuances are under the purview of the Department of State. That is why visa numbers are issued by the DOS and not the USCIS for those of you who might be curious.) Here is a breakdown of the top five originating countries for the past five years. (Click on the chart to make it bigger.)

Chart source: IIUSA

Here's the key to the EB-5 category breakdown:

C5: Direct EB-5 in TEAs ($500K projects)
T5: Direct EB-5 in non-TEAs ($1M projects)
I5: Regional Center EB-5s in TEAs ($500K projects)
R5: Regional Center EB-5s in non-TEAs ($1M projects)

Those of you new to the EB-5 can read about the difference between Direct EB-5s vs. RC EB-5s here. Also, please note that visa numbers are not the same as I-526 numbers. I-526 petitions are filed by the investor who is investing; so if the investor has 3 qualified dependents (i.e. spouse and unmarried children under the age of 21), that means that 4 EB-5 visas were issued for that single I-526 petition.

Some interesting facts that we learn from this chart:

1. There are in fact $1 million Regional Center projects! Obviously not many as only 5 visas were issued out of the total 4,813 EB-5s as a $1 million Regional Center project - but still, they do exist! (And recently a major Regional Center had ambitiously announced a $1 million RC EB-5 project, so we can expect these numbers to go up a bit next year.) But still, the take-away is, all things equal, people will not pay $1 million for something they can get on the market for $500K.

2. These top five originating countries accounted for 90+% of EB-5 visas issued in FY2012.

3. Mainland China accounted for 80% of EB-5 visas issued in the first three quarters of FY2012.


4. The numbers are bumping against the 10,000 yearly quota that has never been met before. (Which is leading to concerns over backlog in China's per country quota - I'll do a separate post on this soon.)

5. Venezuela made the list for the first time!

6. There are Iranians who prevail through the arduous OFAC (Office of Foreign Asset Control) requirements of the USCIS (even more stringent than the OFAC office itself requires!) and succeed in gaining permanent residency in the United States.

There we have it folks.

Something New: 10/16 Quarterly Meeting

Something Old, Something New, Something Borrowed, Something Blue? (a/k/a How To Kill Deal Flow.)

Something New

Generally, quarterly EB-5 Stakeholder Meetings are a regurgitation of most things old. The real benefit often lies in the USCIS's response to the questions. Still, every once in a while, something new is thrown into the mix. In my opinion, the most shocking thing we learned from last week's quarterly engagement was the USCIS telling the EB-5 community that they have had a policy of suspending I-526 petitions of any Regional Center that has a pending I-924 amendment application.

  

When do Regional Centers apply for an amendment to their designation?

Some background: I-924 is the form on which new Regional Center designation applications are made. It is also the form on which amendments are made. I-924 amendment applications can be made for a number of reasons, including:

A. An amendment request may be filed to seek approval of changes to the Regional Center’s:

1. Geographic area;
2. Organizational structure or administration;
3. Affiliated commercial enterprise investment opportunities, to include changes in the economic analysis and underlying business plan used to estimate job creation for previously approved investment opportunities and industrial clusters;
4. Affiliated commercial enterprise’s organizational structure and/or capital investment instruments or offering memoranda.

B. An amendment may also be filed to seek a preliminary determination of EB-5 compliance for documentation provided as an exemplar Form I-526, Immigrant Petition by Alien Entrepreneur, prior to the filing of Form I-526 petitions by individual alien entrepreneurs.

However, in practice, the line between A and B is fuzzy. When a Regional Center seeks to change its geographic area or other items under A, it usually is put in as part of the exemplar I-526 application:

Example: Acme Regional Center currently has coverage in Northern California and wants to expand into Southern California. And/or it wants an industry category that Acme currently does not have a designation for. To achieve this, the Regional Center will either put in an actual or hypothetical project with all the required documentation showing why it's a good idea for the USCIS to let them do that OR the Regional Center will put in an exemplar I-526 petition with all the required documentation showing, again, why it's a good idea. In this latter case, reasons A and B related to amendments above are merged together. 

Or, a Regional Center will put in an exemplar I-526 for its next project even if there is no change in the regional or industry coverage.

What is an exemplar I-526?

An exemplar I-526 is an application that a Regional Center will make (through an I-924 amendment) to "pre-approve" a project before it goes out to market, or if the project has already been marketed, to qualify a project before any investor I-526s are filed. 

The I-526 petition is comprised of two parts. Part I pertaining to the business that is receiving investment (what is it, how are the jobs approved, what are the offering documents provided to the investor, how are the business entities involved structured, etc.) and Part II pertaining to the investor's source of funds. Therefore, if  a Regional Center's project has, for example, 90 investors, Part I of the I-526 petitions for all 90 investors will be identical. However, the USCIS did not have a formal procedure in place for streamlining its operations and as a result, all 90 investor petitions were reviewed 90 times. So it was not unusual for some investors to get an RFE (Request for Evidence) on Part I while other investors did not. Painfully inefficient, needless to say. 

So a few years ago, at the urging of the EB-5 community, the USCIS implemented a new process called an "exemplar I-526".  The Regional Center would submit to the USCIS a sample I-526 with only Part I. Then the USCIS could RFE (yes, loyal readers, RFE is used as a verb among my cohorts) Part I to death (or at least until they were satisfied it was a good project). Once the Regional Center received the exemplar I-526 approval, the idea was that any investor I-526 petitions that were filed based on the exemplar approval would only have Part II pertaining to the investor's fund sources reviewed. And this, the idea was, would dramatically speed up the I-526 review process.

(At this juncture I will not discuss how the USCIS took the opportunity to spend all the time they saved on not having to review Part I on scrutinizing Part II with a level of specificity never before encountered by any immigration lawyer; or how some adjudicators flatly ignored the exemplar approval and RFE-ed Part I anyway; and how many seasoned immigration lawyers took to advising clients to not even bother with the exemplar process, etc. But I think the exemplar I-526s are now coming into their own. To our credit, I think the tide turned when someone asked the USCIS Director in one of the quarterly engagements why the exemplar process was even introduced if the adjudicators were not going to honor it and the Director answered something to the effect of, this is the first time I'm hearing of this, is this true people? But I digress.)

What does this all mean?

ANYWAY, back to the topic at hand. Therefore what does it mean, if the USCIS is really going to stick to their policy (which we had never heard of before) that any I-924 amendments will automatically halt existing I-526 adjudications? It means that a Regional Center that has just closed an offering and has a dozens of I-526 applications pending cannot move ahead and prepare for its next offering (i.e. It will kill deal flow).

Example: A Regional Center has just successfully closed an assisted-living facility offering to foreign investors. There are currently 30 I-526 petitions pending approval. Currently I-526 approvals are taking something like 9 months on a good day (with the rare exception of a couple of older centers). The Regional Center would now like to launch its next offering which involves, say, a hotel. They would also like to put in an exemplar I-526 application for the said hotel project to save time and aggravation. But, if what the USCIS said at last week's conference is true, they cannot do this for fear of holding up I-526 adjudications on the assisted-living facility project.

Unfortunately, a number of Regional Centers whose I-526 petitions have been pending for a while realized after last week's call that it was their new project documents that were holding up the adjudications. But then again, this year was an unusual year in many respects for EB-5, especially with the extension of the Regional Center program that was hanging over everyone's head and the controversy surrounding the tenant-occupancy model. So it is hard to say what exactly has been holding up all these petitions. 

But as an EB-5 attorney representing individual clients, I am wondering if I need to add to my checklist of questions to ask Regional Centers that my clients are considering investing in, "Do you have any I-924 amendments pending that can potentially delay the approval of my client's I-526?"

UPDATE: December 4, 2012

There was a Conversation with the Director engagement call yesterday and someone managed to squeeze in the question whether there was an USCIS policy of holding I-526s adjudications when an I-924 amendment was made because he was experiencing a sudden halt to his projects I-526 approvals since he put in an I-924 amendment; to which Mayorkas answered he wasn't aware of such a policy. (Apparently, nobody told Mr. Mayorkas that the new operations person from the USCIS said that was happening during the October call.) I have heard from a handful of RCs that this was happening. Also, a friend who was in the audience at the DC meeting said that after the meeting he spoke to some RC reps that were noticing the same thing.)

Direct vs. Regional Center EB-5s Part 2.

This is Part 2 of a two-part blog post addressing the intense debate which was waged on many LinkedIn groups recently. If you are relatively new to EB-5s and need to understand the exact difference between Direct EB-5s and Regional Center EB-5s, please read Part I first.

The following are my thoughts on the arguments for Direct EB-5s and against Regional Center EB-5s that were posted on the LinkedIn EB-5 groups. (Italics are from the post.)

1. Argument re: Loss of Capital: "It is almost unheard of that an investor in a Direct Investment has seen a loss of capital. In cases of Regional Centers, it is quite common for investors to experience capital erosion of between 5 to 100%."

As a starting point, I would like to point out that there is no way anyone can get accurate data to make the above claims. Because the USCIS only started systematically collecting Regional Center data at the end of FY2011, the public has no access to the I-526/I-829 approval or deny records of any Regional Center. As to investment return track record, it is anybody's guess. So when Regional Centers boast a 100% track record, you have to kind of take them at their word.

In addition, the bulk of Regional Centers were formed beginning 2008/2009. Currently there are over 200 Regional Centers, while as of June 2010 (which is the oldest USCIS statistic I can find right now), there were 94. Considering that Regional Center investments are not returned for five to six years, even if the first round of new Regional Centers established in 2008 flooded the market with projects as soon as they were approved (which they didn't), that was only 4 years ago, so it is pretty early to be making sweeping ("quite common") and weirdly specific ("5 to 100%") statements about the return of capital.

As for Direct Investments never losing capital, that again, is a statistic nobody keeps. But that statement doesn't sound too accurate as it implies new businesses never fail or lose money. I wouldn't be surprised, however, that EB-5 Direct investments as a group have better success rates than generally established new businesses, as the owners probably manage them very conservatively, so as not to lose the opportunity to get the conditions removed on their greencards. (Assuming it is the investor owner that is managing the company. There seems to be a slow but steady emergence of "institutionalized Direct EB5s" (I made up that term) where entities are acting as intermediaries, similar to regional centers, and connecting investors with Direct EB-5 opportunities. Or, the investor may simply be taking a minority stake in a company managed by someone else.)

2. Argument re: Dividends: "Most regional centers do not pay out dividends. and those that do pay dividends are usually in the low single digits in RC's, while investors usually get double digit returns for Direct Investments. This means that at the very least, investors in direct investments get between 2 to 8 times higher profits when compared to Regional Centers."

It is true that Regional Centers pay little, if any, distributions to its members. (I assume that the writer meant distribution as regional centers are not corporations.) And in the case of loan products, the interest rates are very low as well. (To understand the difference between equity based and loan based EB-5 projects, see here.) Whether investors who invest in direct projects "usually" get double digit returns, is up for debate.

3. Argument re: Exit Strategies: "It is quite easy to sell a business on the open market or even take it public. It is quite hard to sell shares in a regional center, and most regional centers require the investors to use their affiliates to sell their shares, which means an added cost of 3-10% when exiting."

Off the bat, let me just say taking a business public is a very rare and expensive endeavor. (You don't have to be a former securities lawyer like me to know that.) Whether an investor can sell their EB-5 business quite easily depends on how well the business is doing and what the market conditions are at that point in time.

I agree it is quite hard to sell a regional center interest (not shares, again, because regional centers are not corporations and what the investor is obtaining through the investment is interest in a fund (either a limited partnership or limited liability company). Regional center interests are restricted securities, meaning that there are heavy transfer restrictions. In addition, there is no market for these securities because, in a way, the main "return" on the investments come in the form of a greencard. Regional Centers EB-5s have evolved from the equity model to the loan model to address this issue. (Again, see link in #2 above for a discussion on the difference between the two.)


4. Argument re: Loss of Certification: "It is quite common for regional centers to lose certification, and quite unusual for direct investments to lose certification." 

As of today, there is only one regional center that has lost its certification. (Which is not to say, more will not in the future if managed badly.) Direct investments are not certified in any form by the USCIS. You either create the jobs or you don't. Mismanagement of the business will result in the investor not obtaining the permanent greencard.

5. Argument re: Fraud: "Many cases have surfaced where regional centers were found to have defrauded investors. As a matter of fact, the NYTimes.com article below clearly says EB-5 programs are rife with fraud and corruption. http://www.nytimes.com/2012/04/16/opinion/reform-the-eb-5-program.html"

There is no doubt that the EB-5 program needs better supervision. At the very least, it needs some sort of an EDGAR-like system where potential foreign investors can gain access to relevant data points. And I am sure there are misstatements galore and even instances of fraud involved. But to say that because there is fraud in regional center projects, all people working in regional center projects must be frauds (which is the gist of the accusations hurled around on LinkedIn) is like saying there are securities fraud on the stock market so anyone involved in public companies are guilty of fraud.

(I must admit that I'm a bit disappointed in my beloved New York Times publishing such a lazy opinion piece. The opinion piece that makes claims that the EB-5 program is "rife with fraud and corruption" without any supporting evidence (although I am the first to admit that there is no place to obtain such evidence; but the writer could at least have made the effort to have one egregious case study of an individual investor or bad-behaving regional center!) with a poorly crafted conclusion to just "fix it".)

For the interest of full disclosure, I would like to state that I have a regional center application pending (in the USCIS's RFE blackhole) while I earn a living filing petitions for immigrant investors  that want to obtain a greencard through Regional Center EB-5 investments. I also work with businesses that are interested in establishing regional centers or working with existing regional centers. That said, I also assist investors with their Direct EB-5 petitions who want to run their own business (or invest in a Direct EB-5 by taking an equity stake in somebody else's business). In fact, I am going to a construction site next week to take pictures of a restaurant that is being built that my client is investing in. (I could have asked for the pictures to be send via email, but I wanted to see it for myself and also talk to the owners who are receiving the investment.) I'm also going to Korea at the end of this month on behalf of a client who is receiving Direct EB-5 investments so that I can meet his investors and explain the EB-5 process.

So which is better? I will have to give the quintessential lawyer's answer, which is: IT DEPENDS. Then what does it depend on? That will be the topic of my next few posts.

Which is better? Direct vs. Regional Center EB-5s

During the past few months, there has been a pretty intense debate raged on many of the LinkedIn EB-5 Groups regarding the benefits of Direct EB-5 vs. Regional Center EB-5s. The debate, unfortunately, took a pretty nasty turn as the proponent of Direct EB-5s tried to engage the Regional Center side by calling everyone names. Not the most productive way to begin a conversation. That said, the topic of discussion one of great interest to many prospective investors. So I would like to take advantage of my soap box and touch on the arguments made, point-by-point.

But first, what is the difference between a Direct EB-5 and a Regional Center EB-5?

Direct EB-5 is the default mode of investment under the immigration laws and regulations. A foreign investor will invest either $1 million (or $500,000 if the investment is located in a Targeted Employment Area (TEA)) and file an I-526 and obtain a conditional greencard. Two-and-a-half years later, she will earn a permanent greencard by showing that she created 10 qualifying U.S. jobs. A "qualifying" U.S. job means that the job is a minimum 35-hour a week full-time position and that is filled by either U.S. citizens or greencard holders who are not immediate family members (i.e. spouse, sons & daughters) of the immigrant investor. Independent contractors do not qualify.

Regional Center EB-5s are allowed under the Regional Center Pilot Program. This is the program that is extended every three years which was extended for another three years by the Senate last week. (In other words, even if the Regional Center program had not been extended, Direct EB-5s could still have been filed regardless of the extension.) The structure of Regional Center EB-5s are basically the same as Direct EB-5s: invest $1 million (or $500,000 if the Regional Center project is located in a TEA) and then each investor creates 10 qualifying jobs. (It is a common misconception that the minimum investment for Direct EB-5s are $1 million and Regional Center EB-5s are $500,000.) The difference between the two is that if an investor invests through a Regional Center and not directly, she can claim credit for the indirect job creation that the economic impact of the EB-5 project brings. This is where the economic report comes in: in a Regional Center EB-5 petition, in addition to the business plan, the investor will submit an economic report (provided to the investor by the Regional Center) that a certain number of "jobs" will be created by the economic impact of the proposed project. These jobs are the same type of jobs that President Obama or Mitt Romney is referring to when they talk about the number of "new jobs" that they are going to be creating if/when they are (re)elected. Because you are able to count these indirect jobs, obviously, the job numbers are going to be much bigger than only the direct jobs that you are counting in the Direct EB-5 context. And because the amount of capital an EB-5 project is able to raise will necessarily be capped by the number of jobs, more jobs means more investors means more investment flowing into the United States. (Example: If project A creates 20 jobs, only 2 investors can invest and at $500,000, each, only $1 million can be raised. If project B creates 200 jobs, 20 investors can invest and thus $10 million can be raised.)

I mentioned above that 2.5 years after obtaining the conditional greencard, the investor must show that 10 qualified U.S. jobs have been created. This means that the Direct EB-5 investor must prove that she has 10 or more people on her payroll. She can show this by submitting W-2 tax forms or I-9 forms, etc. The Regional Center investor, on the other hand, will be relying on the Regional Center to provide them with data they can submit to the USCIS to show that the indirect jobs were created. This is done by showing that the Regional Center project was able to achieve whatever milestones were set out in the business plan and the economic report that was previously submitted 2.5 years ago. If you said that the economic impact jobs were going to be created by reaching a certain revenue number, you need to show that you in fact reached those revenue target. If you said that these indirect jobs were going to be created by spending a certain amount of money on certain activities (like construction, for example), then you have show that you, in fact, spent the money the way you said you were going to spend it in the business plan. Then, once the USCIS can verify this, they will "deem" the indirect jobs to have been created and the investor will get credit for them.

That, in a rather large nutshell, is the difference between the Direct and Regional Center EB-5 investments. With this background in mind, let me attempt to address the Direct vs. Regional Center debate.

Click here for Part Two.

Premium Processing for EB-5 petitions

"Are we there yet?"

Now that the Regional Center Pilot Program has been extended for another three years, the topic of premium processing is bound to come up again. 

Here's a bit of background for the new comers to the industry. Back in the day, when EB-5s were not as popular and the USCIS California Service Center was not completely overwhelmed, it used to be that I-526 petitions were often processed fairly quickly in a matter of three or four months. But as the program grew in popularity in the past years, while the official processing times published by the USCIS always stood at around five months, immigration lawyers would tell clients to realistically expect to wait nine months or so. It would not be shocking in the case which received a difficult RFE (Request for Evidence) for the process to take up to a year.

Premium processing is a service that the USCIS provides for certain visa categories (ex. H-1Bs, L-1s, etc.) where the petitioner would pay $1225 to "expedite" the processing and a response would be guaranteed for w/i 15 days upon receipt of the filing. (By "guaranteed" they mean that if for some reason they are not able to make a response, you will get your $1225 returned to you.) But because the promise is a "response" and not an "approval", every so often you would hear an immigration attorney complaining about an inane they received for a premium processed petition. For example, the officer would make a fairly silly request in order to be able to say that they "responded" within 15 days. (But this is pretty rare and I personally have never experienced this.) A premium processing eligible petition that has been pending for a long time can also be "upgraded" to premium processing by sending in the required form and $1225.

Now in the context of I-526s, I have always been very pessimistic about premium processing being introduced anytime before the extension of the program. Even when the USCIS itself was pretty gung ho on the topic and saying that it might happen. Common sense dictates that the I-526s are backlogged because they don't have enough manpower, and no government office was going to send more people to a department that may or may not exist at the end of the fiscal year. Also, because a petition can always be "upgraded" to premium processing, it is not hard to imagine that EVERYONE who had an I-526 pending would send in the upgrade request once it was introduced.

But now that the Regional Center Pilot Program has been extended, I am more hopeful for the prospect of premium processing in the EB-5 context. Most likely, as the USCIS itself expressed last year, it will be introduced for I-924s (Regional Center applications) first, if only because there are far fewer I-924s that can be potentially be upgraded than I-526s. (The former would be in the dozens while the latter, hundreds and hundreds.)

There is, however, nothing that I am aware of that says that the fee has to be $1225. That's what it is for all other premium processable (?) petitions, but who knows. But even at a higher rate, I'm sure that many investors who are waiting to hear their fate would appreciate the opportunity to upgrade. Let's see how it goes. It will be interesting to see if the USCIS brings up the topic in the next Quarterly Stakeholders Meeting in October.

EB-5 Conference in DC (October 15, 2012)

First, hope you all had a good summer! I haven't been able to post over the summer but am now back with a bang, now that the Senate has approved the extension of the Regional Center Pilot Program for another three years. While we weren't able to get the Regional Center Pilot Program based into the laws, I guess things could be much, much worse.

As I've mentioned to many of you who have expressed interest in entering the EB-5 industry in one capacity or another, spending the time and money to attend one of the many EB-5 related seminars and conferences, is a good way to get up to speed about the goings on about the industry.

In this backdrop, I am giving a shout-out to those of you on the East Coast that Brian Su is hosting his next seminar in Washington, D.C. on Monday, October 15, 2012. Click here to register. I've been to many of Brian's seminars and plan to be at this one too. There is so much changing in this field, there is always something new I come away with. Hope to see you there!

The EB-5 Escrow Account

Generally, when an investor chooses a Regional Center project to invest in, she will wire her funds to the Regional Center's escrow account. The EB-5 regulations require that funds must have been "invested" (or be in the process of investing - though no one wants to take a chance on that anymore) in a U.S. business and over the years, the USCIS has agreed that placing the investment funds in an escrow account will be sufficient to meet the investment requirement. In other words, placing funds in an escrow account is not a USCIS requirement, but a business best-practice that has developed over the years. In other words, escrow terms are business specific and the escrow agreement is one of those documents that the investor must really read. (Well, the investor really should read ALL the documents given to her, but not many do.) Generally, the $500,000 principal will only be released to the project once the investor's I-526 is approved. The subscription fee (which ranges from approximately $40,000 to $50,000) may or may not be released immediately after the investor wires the funds to the escrow account.

Recently, however, I am seeing more Regional Center projects moving away from the traditional escrow model. For example, one well-established Regional Center with a fantastic track record has amended its escrow to say that the investment principal will be released to the project when i) an exemplar I-526 is approved or ii) when the first three I-526s are approved, whichever happens first. With I-526 approvals taking up to 8 or 9 months, it is no surprise that project owners and Regional Centers are trying to develop new ways to speed things up. But it is one thing when a "well-established Regional Center with a fantastic track record" does this. It is another thing when a brand new project for a brand new Regional Center has no escrow account at all. That the project has no escrow account in and of itself does not mean that it is a bad project. But I would think that it would be something that the agent selling the project points out affirmatively. (At least they were in the risk factors of the PPM.)