While many issues negatively affecting the success of an EB-5 project and the associated immigration process are related to fraudulent practices, that is not always the case. At times, financial difficulties may arise that put an investor’s immigration at risk. When this happens, a project is labeled as “troubled” and must be carefully monitored. All potential issues should be addressed appropriately in the original project documents, specifically in the loan documents and partnership agreement documents. The two main categories of issues, immigration issues and financial issues, will be addressed separately in the following section.

Issues Affecting Immigration
Successful immigration with an EB-5 immigrant investor visa depends on the creation of an adequate number of jobs per investor and the continuing at-risk status of the investment funds. If construction of the EB-5 project is not able to be completed within the necessary timeframe or if the new enterprise, once operational, does not product the projected amount of revenue that additional job creation is dependent on, investors may not be able to have their I-829 Petitions approved. The minimum number of jobs (10 per investor) must be created for successful immigration.

Other issues may arise over the course of the project that may put immigration status at risk. A lack of adequate financing is only one; others include a delay in project construction or other issues arising due to partner disputes—basically, anything that prevents project developers from obtaining the needed financing or seeing the project through within the required timeframe.

Issues Affecting Investor Finances
Immigrant investors enter the EB-5 process hoping (and expecting) to receive a return on their investment. While the issues already mentioned can affect this as well, there are also other factors that may come into play. For example, changes to the original project plan that may have a negative effect on the project’s financial status can prevent investors from receiving a full return. Changes to material costs or financing terms and the inability of the project developer to obtain needed tenants, licensing, or brand name can have a detrimental affect on the financial viability of the project.

Involved Parties and Respective Roles
To avoid encountering difficulties such as those presented above, it is vital to associate with professionals who have the competence and experience necessary to overcome obstacles as they may arise. Each professional plays a valuable role in this process, which should be considered carefully when planning investments.

The immigration attorney. Due to the sensitive immigration issues involving “Matter of Ho” compliance and the creation of jobs, especially given the status of the delay in investors obtaining visas from China, the issue of materiality must be taken into account. If there is a possibility of a material change in the project at any point before investors are able to complete the immigration process, that may have a negative affect on investors who are not yet temporary residents of the United States. Because of the importance of ensuring that projects are compliant with EB-5 regulations and the necessary number of jobs are created, an immigration attorney can be an important source of guidance during this process.

The general partner: The general partner of the new commercial enterprise that is receiving the investment funds must be actively involved in salvaging each investor’s capital if the project takes a turn for the worse. The drafted agreement needs to clearly state what actions various parties can take independently and what actions require a majority vote of investors.

The investor. Investors must provide consent for important decisions that may affect the viability of the project as well as approving the release of EB-5 funds do the selected project.

The lenders. The lenders of an EB-5 project need to be able to protect their investments should difficulties arise. Details regarding what action they can take should be included in loan agreements, such as in the case of loan default. Information about any guarantees of completion should be obtained as well.

Restructuring Projects Due to Financial Difficulties
Troubled projects always come with financial issues. There may be a scarcity of adequate capital to finish project construction or start operation of the completed project. In this case, regional centers and partners who have adequate experience may be able to make arrangements for bridge funding or obtain additional capital from other sources. At times, this can include taking over management of a project by mutual agreement or as a result of legal action being brought against the project developer.

Most investors will be either unwilling or unable to provide more funding if a project is in trouble. Thus, it is recommended that EB-5 projects are also associated with another third-party source of capital and appropriate experts.

Another issue that may arise when a project becomes troubled is a financial agreement with the lending financial institution that prevents any other funding from coming into play until the original loan is paid off. Occasionally an exception is made in the agreement to allow for a qualified partner to take on the role of the project developer in certain situations. Successful completion of a troubled project requires the mutual efforts of all involved parties and sincere effort to complete the project in a timely manner and ensure the creation of the needed jobs.

When fraud becomes a factor, the U.S. Securities and Exchange Commission (SEC) can take action to appoint someone to oversee the project and associated funds if the current project developer is found to be engaging in fraudulent or otherwise inappropriate practices. This process involves freezing all project assets and then changing project management, but as this can take a longer period of time to implement as well as being expensive, it is not always the most desirable option. For the most part, the SEC is concerned about capital involved in EB-5 projects as opposed to the job creation aspect of them. In the recent Jay Peak case, however, the SEC made decisions in consideration of job creation as well as the status of the finances.

While many problems leading to a troubled business can be fixed internally, thereare other problems that are not controllable by the parties involved with the project. Changes in the environment, such as economic recession or a change in the market, are concerns that cannot easily be handled in this manner. For this reason, a backup plan that prepares for contingencies is always recommended when preparing to implement an EB-5 project. Perhaps a construction project is no longer able to be used as the planned business due to market changes; plans can be made to use the building for another purpose as a backup. Businesses that do not involve real estate are at greater risk of facing barriers due to changes in the market. Thus, flexibility is a necessary component for EB-5 project plans to prepare for these potential issues.

With the rapid expansion in EB-5 investments, an accompanying increase in troubled businesses is also expected. To prepare for financial and immigration difficulties that may arise over the course of the EB-5 process, professionals should be retained to guide participants through the process and protect the project’s viability.

USCIS recently updated its online data for I-526 and I-829 Petitions to include Q3 of fiscal year 2017.

During Q3 (April through June), the Investor Program Office (IPO) significantly increased its processing of I-829 Petitions, outpacing the receipt of new petitions for the first time in years—and by a significant margin. This increase in processing volume is likely due to the recently announced formation of a specific division of adjudicators focused on I-829 Petitions.

I-526 Petitions, on the other hand, experienced reduced processing, resulting in the lowest number of adjudicated petitions this fiscal year. Fewer I-526 adjudications combined with a rise in I-526 filings means the total number of pending I-526 petitions yet again went up.

The increased number of I-526 Petitions filed during Q3 correlates with the historical pattern of increased filings just before the sunset date of the Regional Center Pilot Program. The legislative sunset date of the program has an obvious destabilizing impact on the market, creating uncertainty about whether the program will continue, and if so, what changes may be implemented by Congress. Drastic spikes in I-526 filings have occurred prior to each of the most recent five program extensions (Q4 FY2015, Q1 FY2016, Q4 FY2016, Q1 FY2017, and Q3 FY2017). These extreme increases to filings, often more than doubling the previous quarter’s filings, inundates IPO and serves only to expand an already massive backlog of pending EB-5 petitions.

The massive number of petitions filed in Q4 FY2015 and Q1 FY2016 in particular have caused adjudication times to grow—and as of the previous two IPO processing time reports, the office was still working through petitions with priority dates of November 22, 2015. Once IPO works through these two quarters, the office is expected to process the following two quarters much more quickly due to the drastically lower number of filings. They will, however, likely face another slowdown with two more back-to-back surges in I-526 filings during Q4 FY2016 and Q1 FY2017.

USCIS recently published the EB-5 program statistics for the third quarter of fiscal year 2016 (April-June 2016). I-526 receipts moved towards the norm but were still lower at 1,513 receipts than the same time last year. Annualized Q3 leads to a 6,000 petition number which is in line with 2012 / 2013 figures.

As a reminder 1Q FY 2016 was at the end of calendar year 2015 when there was a rush to file before December, and in that month alone there were over 6,000 petitions filed. Since then there was a large drop-off in Q2 (Jan-March) and only 848 petitions were filed. Q3 rebounded with 1,513 petitions filed which is nearly double Q2, but still below historical norms.

We expect for there to be a significant pickup in Q4 as there is another rush to file petitions before 9/30 although we believe it will be a significantly smaller rush than at the same point in the prior year.

Trends of I-526 Receipts by Quarter
FY2013 – FY2016, Q3

Trends of I-829 Receipts by Quarter
FY2013 – FY2016, Q3

I-526 Petition Quarterly Statistics
FY2013 – FY2016, Q3

Trends of I-526 Pending by Quarter
FY2013 – FY2016, Q3

I-829 Petition Quarterly Statistics
FY2013 – FY2016, Q3

Trends of I-829 Pending by Quarter
FY2013 – FY2016, Q2

USCIS updated the processing times for the Immigrant Investor Program Office on February 11, 2015. The processing times are slightly longer than previous figures:

• 14 months for I-526 Petitions.
• 11.4 Months for I-829 Petitions.
• 11.1 months for I-924 Applications.

The processing times can be accessed at the following link: https://egov.uscis.gov/cris/processTimesDisplayInit.do

While the mechanics of visa retrogression on a per-country basis are complex, the reality is that there are only 10,000 visas available in the EB-5 category each USCIS fiscal year. Since an average of approximately two family members apply alongside each investor, USCIS can approve 3,300 EB-5 visas each fiscal year.

However, as of May 2019, around13,500 I-526 petitions 500I-526 petitionsare pending with USCIS. Therefore, it is likely that the current fiscal year’s visas will be exhausted by investors whose petitions are currently pending, and investors submitting I-526 petitions this year could face delays of over 12 months. In fact, predicted wait times each extend to several years for countries facing higher demand.

Given this change, the market standard escrow release terms for EB-5 projects are changing to allow for earlier release of investor capital before I-526 approval. This is simply a matter of timing and realistic waiting time for EB-5 projects, of which the vast majority cannot deal with funding uncertainty in the 12- to 24-month range.

To learn more about EB5AN and how we work together with partners to assemble best-in-class EB-5 projects, please call us directly at 1-800-288-9138.

On October 24, 2014, USCIS released an updated EB-5 Processing Report of average processing times for the Immigrant Investor Program Office as of August 31, 2014. This recent report indicates that current average processing times are 13.8 months for Form I-526 (Immigrant Petition for Alien Entrepreneur); 7.2 months for Form I-829 (Petition by Entrepreneur to Remove Conditions), and 8.1 months for Form I-924 (Application for Regional Center Under the Immigrant Investor Pilot Program).

It is important to note that these figures are averages and that EB5AN has seen processing times both significantly shorter and longer on all forms. For example, our experience completing numerous economic impact reports and regional center applications throughout the United States shows us that I-924 applications filled for smaller regions (<10 counties) tend to be approved faster than average, whereas larger tracts of coverage typically require more approval time. Although this is the norm there are exceptions and it is difficult to predict processing times with any certainty.

From an availability of capital perspective, since current I-526 forms are taking around 13 months for individual investor approval, we are seeing a shift in the marketplace in escrow terms. Both the timing and amount of capital available upon release are adjusting to reflect delays in processing times. For example, during periods where I-526 application processing times have been shorter, projects in the marketplace have structured escrow agreements such that investor funds drop into the project’s operating account (out of escrow) on each individual investor’s I-526 approval. Now that USCIS processing times have increased, we are seeing a movement toward a range of early release investment structures. A few examples of these structures include: (i) 80/20 capital releases on submission and (ii) full capital release for all investors on the first investor’s I-526 approval.

(i)             80/20 capital releases on submission: With this structure, the investor’s funds are put into escrow and then 80% of the funds are directly released into the project’s operating account upon I-526 submission with the remaining 20% held back in escrow until that individual’s I-526 application has been approved by USCIS. This method of early release is becoming more widespread as many projects cannot wait over a year for money to become available out of escrow. The logic behind this structure is that historically USCIS has had an I-526 denial rate of well below 20% and so the idea is that with multiple investors in a given project, if one investor’s I-526 petition is denied, then there will be at least 4 investors in the same project who successfully obtain I-526 approval.

(ii)           Full capital release for all investors on first I-526 approval: With this structure, all of the investor’s funds for a project are held in escrow until the first investor in the group gains I-526 approval. When this occurs, this event serves as a trigger for the remaining investor’s capital held in escrow to drop out of escrow and into the project’s operating account. There can also be holdbacks included in this to create reserves for any denials.

To learn more about EB5AN and how we work together with partners to assemble best in class EB-5 projects, please visit our website at www.EB5AffiliateNetwork.com or call us directly at 1-800-288-9138.