A recent surge in EB-5 visa petitions from Chinese investors has resulted in a significant backlog, and United States Citizenship and Immigration Services (USCIS) has offered little clarification on the length of waiting periods investors should expect. This has created issues for EB-5 investors and projects alike, as the current structure of the program requires that the initial investment amount remain at risk for the duration of an investor’s conditional residence period.

This article explores the current retrogression situation and some of the obstacles it has posed for investors under the EB-5 Program.

What is retrogression?

The United States grants a limited number of visas per fiscal year, just under 10,000 of which are allocated to investors and their families within the EB-5 Program. Additionally, since demand for EB-5 visas has outstripped supply in recent years, the number of visas available for investors from any one country has been further limited to 7% the total amount.

This has largely affected investors from China, who make up the majority of EB-5 applicants. While unallocated visas from the worldwide total can be reassigned to Chinese investors, the number of visas available still falls far short of the number of applicants, and USCIS thus began 2016 with a backlog of nearly 22,000 petitions awaiting adjudication.

The process of applying for an EB-5 visa begins with the investor filing an I-526 petition, which proves that the investor has already invested (or is in the process of investing) the required amount of capital in a new enterprise in the United States. This amount is significant, either $1,800,000 or $900,000 depending on the nature and location of the project, and it must remain at risk until the investor’s conditional residence period comes to an end.

A problem arises in that the waiting period between filing and adjudication of the I-526 petition, at which point the conditional residence period begins, can stretch anywhere from several months to several years. With additional waiting periods following the filing of the I-829 petition, the adjudication of which determines whether unconditional permanent residence is granted, Chinese EB-5 applicants can expect their investments to remain at risk for ten years or more.

Several aspects of the EB-5 Program are affected by increased wait times. These include loan terms, maintenance of the at-risk requirement for investment funds, and the types of jobs qualifying for EB-5 job creation. Below, we outline some points investors should keep in mind.

Points of Consideration for EB-5 Investors

Facing a potential wait time of up to ten years following the initial investment and filing of the I-526 petition, Chinese investors must plan carefully to ensure they meet all requirements of the EB-5 Program. The granting of unconditional permanent residence is contingent on the following factors, all of which must be met by the time an investor files his or her I-829 petition:

1. The investor must invest either $900,000 or $1,800,000 as applicable in a new commercial enterprise in the United States. This investor must typically meet or be in the process of meeting this requirement by the time he or she files the I-526 petition.
2. The investment must be maintained at risk throughout the conditional residence period, which begins when the investor enters the United States on an EB-5 visa following approval of the I-526 petition. This means the full investment amount must be made available to a new commercial enterprise for job creation purposes, and the investor must notbe repaid until the conditional residence period ends following adjudication of the I-829 petition.
3. The full investment amount must be allocated for job creation and must result in the creation of ten fulltime jobs in the United States. Although USCIS has not clarified whether the jobs must exist at the time of filing or approval of the I-829 petition, the current assumption is that this must be the caseif those jobs are to count toward the job creation requirement.

As a result of the retrogression wait times and the specific requirements of the EB-5 Program outlined above, Chinese EB-5 investors thus face two potential obstacles:

• Loan If an investor enters into an agreement with a new commercial enterprise based on a loan term of five years, the loan will be repaid by the end of that term and potentially within the conditional residence period. Early repayment means those funds are no longer at risk and thus no longer satisfy the requirements of the EB-5 Program. As such, investors must carefully negotiate loan terms to ensure either that the initial loan will not be repaid prior to the end of the conditional residence period or that the investment funds will be redeployed into a new job-creating entity and thereby maintained at risk.
• Job creation. The calculations used to determine job creation numbers depend on the nature of an EB-5 project. While most regional center projects benefit from the opportunity to include construction jobs in the job creation total, some projects rely on the creation of operations jobs, meaning the business must be operational at the time of filing of the I-829 petition for those jobs to be counted. With waiting periods of up to ten years, the risk of a business failing before its investor is able to file his or her I-829 petition is not insignificant. Investors must therefore carefully consider both the viability of the new commercial enterprise and the methods used to determine job creation, as both factors affect the fulfillment of EB-5 requirements.

Retrogression has created major uncertainties for Chinese investors, who face the possibility of losing their permanent residence if the conditions of the EB-5 Program are not met within specific timeframes. With ultimate visa approval potentially resting on the long-term success of new commercial enterprises, the coming years may see an increased focus on largescale urban construction projects, meaning investors will likely be less able to take advantage of the lower investment amount required for projects in underemployed areas.

An additional possibility is that Congress will address the backlog by increasing visa quotas over the coming years and that USCIS will publish new guidelines to clarify the aforementioned EB-5 Program requirements affected by retrogression. As always, investors should consult with experienced EB-5 advisors to keep apprised of any developments in the program.