Data Shows There Is Little Interest in EB-5 Among Investors or the Administration, but Some Among the Middlemen

An analysis of obscure public data on the EB-5 (immigrant investor) program shows little interest in it on the part of alien investors and government agencies, but some on the part of the middlemen who profit from it, the middlemen being the people running the DHS-licensed regional centers.

One key measure of the government’s (totally understandable) lack of interest in the program is shown by how long it takes to process various applications for migration benefits among programs with 1,000 or more applications. The only major DHS program with a longer waiting time for handling the two different kinds of EB-5 applications is the controversial U-visa program for crime victims.

It takes the Department 59 months, on average, to process U applications and about 41 months to handle the two different kinds of EB-5 applications. Coming in fourth and fifth are two of the family-based petitions, handled in about 24 months each, according to the most recent quarterly statistical report from DHS. How quickly the government decides yes or no on migration applications depends on, among other factors, the government’s priorities. This measure is available for some DHS forms and not for others.

Meanwhile, although the main part of the EB-5 program, regarding pooled investments, was out of business from June 30, 2021, until March 11, 2022 (due to lack of congressional interest), another segment of it involving direct investments by aliens has been limping along, presumably because of lack of interest on the part of alien millionaires. These direct investments do not involve the regional centers and were always a minor part of the activity. Although about 830 visas (on average) are available to rich aliens each month, no more than 37 per month were issued in the first four months of the year.

The middlemen in the industry, wanting to revive their roles in what had been a 10,000-a-year visa activity, have (as we describe below) sued the government in an effort to defeat the reforms installed when Congress — after a lapse of nearly nine months — revived EB-5 with far-reaching modifications.

Background. The main part of the EB-5 program — named after its legislative home as the fifth of the five employment-based legal immigration categories — sets aside nearly 10,000 visas a year for alien investors, their spouses, and their children under 21. In order to qualify for one or more of these visas, the requirement for decades had been that a family had to put up $500,000 in a DHS-approved investment within a DHS-approved territory called a targeted employment area (TEA), which was supposed to have an unemployment rate of 150 percent of the nation’s rate. Each investment was supposed to create 10 jobs for people other than members of the investor’s family.

In many cases, the TEA was gerrymandered to produce the necessary level of unemployment, linking the location of the investment (often a high-end, big-city real estate development) to a series of distant census tracts with high unemployment rates.

Other controversies included the frequent theft of alien investors' money by U.S. citizens or permanent residents (either as middlemen or those running the project accepting the investment), and the aliens routinely being much more interested in the migration benefits than the financial benefits of the program.

The part of the program that dealt with these pooled investments has always been a temporary one, needing congressional re-authorization from time to time. Another part of the program, calling for direct investments, has a permanent basis in law.

Earlier this year, after prolonged and painful negotiations described by my colleague George Fishman, Congress revived the program but made extensive changes to it. One of them was to make the TEAs more focused on truly depressed areas; another was to lift the minimum investment in the program from $500,000 to $800,00, and the third was an “integrity package” restricting who can take part in the regional centers.

As a logical consequence of the third part of the reforms, DHS decided that all the previously recognized regional centers had to start all over again and file new applications to meet the new rules. A single regional center in California sued against the new rule in the federal courts in that state and subsequently an industry group brought a similar suit in the D.C. federal courts.

I am not a lawyer, but would be surprised if the industry won either of these suits. Congress changed the requirements for EB-5, and DHS has a duty to change the regulations accordingly.

The Statistical Indicators. An examination of recent government statistics on the program shows a remarkable lack of interest in the program on the part of both investors and government officials.

Let’s look first at the matter of visa issuances to would-be investors, as shown in the table below. It is a longish table, but a lightly populated one.

There were 88 visas issued during the first four months of 2022, 62 new ones in the direct investment program and 26 visas for earlier investments — sometimes years earlier, in the pooled program.

The average of 22 visas issued a month may be compared to the average monthly ceiling for these visas, about 830. The program was being operated during these four months at about 2.5 percent of capacity.

The studied period, incidentally, shows a much more diverse model in terms of the nations sending us investors. In years gone by, it was primarily a program for the Chinese, with a large backlog of approved but not yet issued visas to Chinese investors who had run up against the country-of-origin ceilings. In the most recent period, only 19 of the 88 visas went to people from China.

Then there is the question of the backlogs of un-decided applications. We mentioned earlier the length of time it takes DHS to act upon EB-5 applications; another measure of interest in the program is the relative size of its backlogs. One might think that given the lapse in the authorization of the program, and the resultant decrease in workload, that DHS staff would have turned to decreasing the backlogs in the program. One would be wrong.

During the last period for which we have information, October 1 to December 30, 2021, and using the database cited earlier, there were 189 initial petitions filed by would-be immigrant investors; the staff sorted out 61 of these, less than a third newly available, adding to the backlog, which, at the end of the period, reached a total of 13,132.

During the same period, and dealing with a later point in the lives of immigrant investors, EB-5 investors apply to turn their temporary green cards into permanent ones. Using the same database, we find that there were 618 such applications received, and 326 acted upon, swelling that backlog to 11,731.

The approval/denial ratios for these two applications are interesting. In general, USCIS approves the overwhelming majority of papers before it — about six out of seven in the October-December 2021 period. The denial rates for the two applications noted above came out quite differently in that time frame.

The initial EB-5 applications got 45 denials to 16 approvals but on the second round there were 299 approvals and 27 denials. These two quite different denial rates, however, make sense. The first, and higher rate, is an initial screening in which anyone can apply, the skilled and the unskilled, the questionable and the commendable.

The second round consists only of those who have survived the first round and who have put in two years in the U.S. and seemingly met their EB-5 financial obligations. One would expect a higher rate of approvals in such a situation, if not the dramatic difference we see.

Another approval/denial rate can be seen with a much smaller and, by definition, disadvantaged group in the EB-5 business — those who already lost at the staff level, and then appealed. There have been five decisions taken so far this year by the USCIS appeals panel, the Administrative Appeals Office (AAO). In all five of them the AAO supported the earlier denials, usually on the grounds that the alien had not proved that he or she had put up the amount of money needed to qualify.

In summary, there were very few new investors in the program in the first four months of 2022 and DHS — despite the lack of new business — allowed large existing backlogs to grow. Maybe the government was hoping that the EB-5 program would simply go away.