Wednesday, June 1, 2016

EB-5 in Fiscal Year 2016 – Has The Bubble Burst?

(Source: Bernard Wolfsdorf) On May 25, 2016, U.S. Citizenship and Immigration Services (USCIS) released updated performance data on the Form I-526 Immigrant Petition by Alien Entrepreneur (Form I-526) and the Form I-829 Petition by Entrepreneur to Remove Conditions (Form I-829). The data included the number of Forms I-526 and Forms I-829 received, approved, denied, and pending.  Below are 5 observations:
  1. USCIS received only 848 Forms I-526 Immigrant Petition by Alien Entrepreneur in Q2 of FY 2016 (January 2016 through March 2016), as opposed to 6,277 in Q1 of FY 2016 (October 2015 through December 2015) and 2,337 for the identical period in Q2 of FY 2015 (January 2015 through March 2015). This represents an 86% decline in initial EB-5 filings in the past quarter alone, and a 63% drop from the number of Form I-526 filings during the same time last year.
  2. Despite receiving only a fraction of Form I-526 petitions in Q2 of FY 2016, as compared to Q1 of FY 2016, USCIS reduced the number of Forms I-526 pending at USCIS by 1,753. There are currently 20,235 Form I-526 petitions pending at USCIS
  3. The denial rate for Forms I-526 has increased for the fourth consecutive quarter. We can therefore anticipate that at least a quarter (1/4) of the Form I-526 petitions currently pending with USCIS will be denied and that the attrition rate will also be higher if Form I-526 petitions are withdrawn.

  4. USCIS received more Forms I-829 Petition by Entrepreneur to Remove Conditions during Q2 of FY 2016 (845) than Q1 of FY 2016 (821) but reduced the number of Forms I-829 adjudications by almost half, or 47%. It is likely USCIS may be allocating resources to pending Forms I-526 in an attempt to reduce the current I-526 backlog.  There are now a total of 4,712 Form I-829 petitions pending at USCIS, the highest ever.
  5. While the number of Form I-829 adjudications decreased substantially, the number of Form I-829 petitions denied remained extremely small with only 10 cases, or 1.22% in Q1 of FY 2016 to 12 cases, or 2.77% in Q2 of FY 2016. USCIS therefore appears committed to a policy of denying cases at the initial I-526 stage, so as to avoid the consequences of having to place immigrant investors in removal proceedings, often due to no fault of their own other than possibly having picked an EB-5 project that did not succeed in creating the requisite number of jobs. Further, there was a significant drop in the number of Form I-829 approvals in Q2 of FY 2016 (421), as compared to Q1 in FY 2016 (812), representing a 48% decrease.
In conclusion, Wolfsdorf Rosenthal LLP sees a vast drop-off in EB-5 filings and an increase in initial filing (Form I-526) denials.  However, because of the three short-term extensions to the EB-5 Program in 2015, it appears almost every Chinese investor who was interested in filing for EB-5 did so last year.  It is likely that Chinese EB-5 investors will dive back in again, and there might even be another surge, again, as the September 30, 2016 sunset date is approached — with the likelihood that the minimum investment amount will increase to $800,000, or more.  We therefore feel there was a bubble, but we also believe the demand for EB-5 visas from Chinese investors will increase and continue to be strong for the remainder of this fiscal year.

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