The effort by the New York City Regional Center (NYCRC), the private investment pool federally authorized to accept immigrant investor funds, and developer Forest City Ratner (FCR) to raise $249 million from 498 Chinese millionaires under the EB-5 immigration program may be legal, but there is ample reason to question whether it will serve the public interest.
Part 1 of this series concerned the seven-year extension available on Phase 1 of the project should Forest City Ratner not repay the EB-5 loan. Part 2 estimated the developer could save at least $191 million. Part 3 examined the sales effort in China, with the arena front and center, even though it's already funded.
Part 4 reported on claims made in China, on video and in person, by public officials supporting the project. Part 5 concerned the value of the development rights, contrasted with those in last year's deal for the Vanderbilt Yard. Part 6 described reasons to think the development rights are overvalued.
Part 7 explained why China is such a popular target for those seeking EB-5 investors. Part 8 provided another reason why the Nets played exhibition games in China in October. Part 9 cited the curious avoidance of Mikhail Prokhorov during the pitch in China.
Part 10 noted NYCRC's belated announcement of the project in a newsletter. Part 11 described misleading promotion in the Chinese media and by Chinese firms working with the NYCRC. Part 12 covered the proclamations that are part of the pageantry in China.
Part 13 concerned the role of the NYCRC's preferred law firm. Part 14 linked the land loan to a previous one from Gramercy Capital. Part 15 analyzed the use of weasel words and ambiguous language. Part 16 took another look at a web video pitching the project.
The wrap-up and FAQ is here.
Like a game of telephone in which the message gets mangled at each node, so has the story of the Atlantic Yards EB-5 deal been distorted in the Chinese media, due to the deceptive promotion of the project and sloppy and/or misleading reporting.
Compounding that are exaggerated promotional statements by Chinese immigration consultancies working with the New York City Regional Center (NYCRC).
A promotional video
Consider a promotional video produced by the Wailan consulting firm after a meeting for EB-5 investors in China in October 2010.
In the excerpts below, recorded with upbeat, triumphant music, the montage aims to convey luxury and inspire confidence. Flower arrangements and cascading champagne, as well as a raffle, help turn a hotel ballroom into launching pad for a new life.
Among people pictured, developer Bruce Ratner shakes hands with ex-NBA player Darryl Dawkins (aka "Chocolate Thunder") with Forest City Ratner executive MaryAnne Gilmartin looking on; a Chinese speaker is heard using the terms "NBA" and "Barclays;" the NYCRC's Paul Levinsohn turns to salute the crowd; the Empire State Development Corporation's Peter Davidson appears at the podium; and lucky raffle winners pose with Nicolai Hinrichsen of the law firm Miller Mayer.
Dubious "firsts" claimed
But the message was quite misleading.
The final speaker in the original video was introduced as Wailan's Project Director of Overseas and Consulting. According to the translation I commissioned, here's what she said:
Hello everyone. Now why is the NBA Stadium Project today so popular? Because it could be said that this project has set a record of three “firsts.” The first “first” is that this project is the first ever to be pre-approved by USCIS. What does that mean? It means that the processing speed of EB-5 immigrant investor applications will greatly accelerate, and that the safety of this project is greatly enhanced. Of course, its security is also increased dramatically.That's bunk.
The second “first” is that other than the EB-5 funds, the other investment funds in this EB-5 project are already in place and placed in the designated accounts. The total funds added up are up to $1.199 billion USD. And what does this say? That is to say that the splitting of the “capital chain” does not exist in this project.
The last “first” is that this project is the first one really monitored and regulated by the government. Not only New York and the State Government have made cash investments into the project, but the city government is also directly participating in and monitoring the project to ensure the successful operation and completion of this project.
It is not an NBA stadium project, though it is pitched as including the arena.
It is not the first to be pre-approved by USCIS. That's about par for the course, as numerous regional centers get amendments approved when they expand their range.
The money's already in place because it had been allocated and mostly spent, well before a regional center was considered.
Perhaps most questionable is the claim that the project "the first one really monitored and regulated by the government."
The Brooklyn Arena and Infrastructure Project is not regulated much, actually. The state has palmed off queries by sending questioners to the New York City Regional Center, which doesn't respond.
Somewhat similarly, the lead-in to another video, webcast by the Kunpeng consultancy, promotes the project with upbeat, gauzy images.
In the press
News coverage, in a country where the press is highly variable, also serves project promoters. Consider this 10/12/10 article in Information Times. (Here's the Google Translate version.)
The headline, according to the translation I commissioned, is "U.S. Immigrant Investment Market Taken By Storm, Experts Advise to Avoid Risks."
The first and final sections indicate that, while the U.S. immigrant investor program may be more popular than those in Canada and Australia, there are risks involved in U.S. projects.
Except for one project, this one:
However, the “Nationwide Tour Conference of the New York Government NBA Arena and Public Infrastructure Project” (hereinafter referred to as the “State Project”) led by the Borough President of Brooklyn, New York will visit Guangzhou on October 17, thereby officially launching New York’s most important project on the recruitment of immigrant investors in China in the past 10 years.Four points of misdirection
Let's unpack the misdirection.
First, it's not a project of the New York government. It's a project of the government-authorized New York City Regional Center in partnership with Forest City Ratner, with the support of city and state government.
Second, it's not an NBA project. The NBA's not involved. And the arena's already funded.
Third, the Borough President of Brooklyn, though initially billed as attending, did not go on the trip.
Fourth, it can't be "New York's most important project" because neither the city nor state themselves are trying to recruit immigrant investors. (A few EB-5 projects formally involve government agencies.)
Project description and misdirection
The article states:
It is reported that the project seeking immigrant investors in China is different from other U.S. immigrant investor projects in that it is not a project of some fund company but of investors such as the New York State and City Governments. It will also commence the beginning of the construction of a landmark venue – the large-scale NBA arena as well as public infrastructures. The project falls into the category of EB-5 immigrant investment. It will raise a loan of $249 million USD in total and recruit 498 investors. Under the premise of maximum security of funds, Chinese immigrant investors can participate in the borrowing program and through the process obtain green cards for their entire families in approximately a year.Let's unpack the misdirection.
First, the statement "It is reported" is a dodge, not uncommon in the U.S. media as well, to distance the reporter from actually verifying information.
Second, it is incorrect to say that "it is not a project of some fund company but of investors such as the New York State and City Governments." Most regional center projects, by definition, are "project[s] of some fund company." In this case, the city and state governments put money into elements of the project that were already funded before a regional center was considered.
Third, it will not "commence the beginning of the construction of a landmark venue." Construction of the arena is already in progress, and the arena is already funded, state officials acknowledge.
Fourth, it's simplistic to say that immigrant investors can "obtain green cards for their entire families in approximately a year." Yes, they can get conditional green cards within a year, according to the NYCRC, but permanent green cards take another two years.
About the security
The article states:
As is understood by the reporter, most of the U.S. immigrant investment projects guarantee investors’ capital with private borrowing companies. Due to the instability and the uncertainty in company operations, the risks of applicants’ investment funds are very high.Let's unpack the misdirection.
Out of the U.S. EB-5 projects implemented, the “State Project” that is now recruiting immigrant investors in China utilizes a rare collateral [literal: collateral loan] to obtain the financing of EB-5 funds. EB-5 investors will have the first mortgage to the land where the development project is carried out. The assessment report of the land is certified by the Chinese Embassy.
First, this project is no different from others, in that investors' capital is guaranteed by a private company, even if the state signed a "recognition agreement" regarding the collateral.
Second, the collateral does not "obtain the financing of EB-5 funds." Rather, the collateral serves as a guarantee--a less secure one than promoted. There's been no public statement about the rating of the debt.
Third, investors will not exactly "have the first mortgage to the land where the development project is carried out." Rather, the first mortgage applies to development rights where future phases of the project are supposed to be carried out, with several steps required to make the mortgage fungible.
Not every regional center presents such a scenario--with many question marks--to potential investors.
By contrast, a veteran regional center operator, CMB, explains that it requires its borrowers to provide recent audited financial reports and other references such as a Standard & Poor's or a Moody’s rating. One borrower, for example, had reported a AAA rating--which is far stronger than the arena bonds.
About job creation
The article states:
In addition, the green cards issued to applicants are secure because the scope and scale of the project is large and the surplus in job creation is 54%. The Guangzhou immigration agencies are also working with the “New York State Government Project” in its recruitment of immigrants in China. The agency Qiaowai Immigration was granted more than half of the total investment application quota.Let's unpack the misdirection.
The Mayor of New York Michael Bloomberg publicly acknowledged that “the project will bring in $1.5 billion USD of profits for the economic development of New York State as well as unprecedented opportunities such as employment and others in the next 30 years.”
First, there's no proof that the green cards are secure, because the claim of surplus in job creation may still be tested.
Second, Bloomberg's quote referred to the overall Atlantic Yards project, not the "project" that is recruiting investors. The latter consists of the arena, infrastructure, and a new railyard.
The final paragraph of the article offers a general warning:
Currently the vast majority of immigration agents are pushing forward U.S. immigrant investment projects on the market and the number of applicants is rising rapidly. [We] must remind all investors that there are good and bad U.S. immigrant investment projects. Applicants must have a clear look at investment risks of each project and should not blindly follow the trend so as to avoid losing both lifeblood and wealth.A Chinese reader coming fresh to the article, however, would read it as a caution about immigrant investor projects in general, but an endorsement of this project.
However, an informed reader would know better.
This 10/11/10 article (Google Translate version) from Guangzhou Daily, the newspaper of the city formerly known as Canton, also misleads readers.
The headline, according to the translation I commissioned, reads, "With the help of the NBA Nets, the largest EB-5 Immigrant Investor Project is about to visit China."
On October 13 and 16, 2010, the NBA Nets and Rockets will play two games respectively at the Beijing Wukesong Arena and the Guangzhou International Sports Performing Arts Center.As noted, it's neither "a" government project, nor "the" government project.
Though the two games are yet to begin, they have already attracted tremendous attention of our compatriots. But what most people don’t know is that the Nets that are playing in China on this visit also have a special mission – to promote the New York Government NBA Arena and Public Infrastructure Project. This project includes the construction of the stadium that will be home to the Nets in New York in 2012.
The role of the Nets
The article continues:
The New York Government NBA Arena and Public Infrastructure Project is the largest EB-5 Immigrant Investor Project in 2010. Great attention has been brought to the [immigrant investor] market with the help and appearance of the Nets [in China]. As the pioneer of U.S. Immigrant Investor Program and the leading consultancy in the immigration industry, Qiao Wai Group is now fully accepting consultation of and subscription to this project.While the city and state governments have put money into Atlantic Yards, their support of this EB-5 project is tangential. They're not formally involved.
Clients who make their reservations and sign their contracts in advance will have the chance to win the NBA basketball tickets in China as well as souvenirs with celebrities’ autographs. From October 11, 2010 onwards, Qiao Wai Group which is supported by the New York State Government and the New York City Government will hold a series of large-scale project seminars in Beijing, Guangzhou, Shanghai, Chengdu and other cities.
Looking at the numbers
The article continues:
Industry insiders said that the New York Government NBA Arena and Public Infrastructure Project will absorb 498 U.S. immigrant investor applicants. According to the bill, a total number of 4980 newly created jobs is required. But the statistics of the economic report of the New York Government NBA Arena and Public Infrastructure Project show that a total of 7696 new long-term jobs will be created, which is 2761 more jobs than is required by the EB-5 Employment bill. The surplus in job creation is 54%, making the lifting of immigration conditions much easier. Meanwhile, the appraised value of the collateral of the project is $540 million. This is twice the amount of EB-5 funding. The collateral evaluation report has been certified by the Chinese Embassy and adds a strong guarantee to the project."Industry insiders" suggests specialized knowledge, but the numbers reported are part of the general pitch.
"The economic report" of the project is one prepared by its proponents, not any government agency.
The certification merely serves to authenticate the document, not verify its contents.
The Shenzhen investor event
The Qiao Wai consultancy produced a promotional page for its October investor event in Shenzhen, also known as the Brooklyn Arena and Infrastructure Immigration Project Official Launch.
The text states:
On the 23rd of this month, the New York Brooklyn Nets Arena and Public Infrastructure Project Conference organized by the Qiao Wai’s branch in Shenzhen was successfully held at the Ritz-Carlton Shenzhen. The three levels of governments including the New York borough, the city and the state all place great importance on the project, and in order to improve investors’ confidence, the United States sent to China a team with strong official background. This includes Mr. Alex Fong, CEO of Hong Kong General Chamber of Commerce and appointed New York’s Empire State Trade and Investment Representative for China and Hong Kong, Mr. Gregg D. Hayden, the General Manager of New York City Regional Center, Ms. Kate Bicknell, Business Development Director of Forest City Enterprises, and so on.(Emphasis added)
Let's look more closely. The "United States" didn't send anyone, much less "to improve investors' confidence."
The New York City Regional Center and Forest City Ratner paid their own way. There was one government representative, Peter Davidson of the Empire State Development Corporation, which paid his way.
(Did a government agency pay for Fong's trip from Hong Kong to China? I don't know.)
The article continues:
As the meeting began, the General Manager of Qiao Wai Shenzhen first explained the advantages of U.S. immigrant investment. She introduced Qiao Wai as the first immigration agency in China to bring in U.S. immigrant investment projects and emphasized the company’s extensive experience in project operation as well as its quality services. Subsequently, the China representative of the New York Empire State Economic Development department explained how important this project is to the New York government.Keep in mind that the "Atlantic Yards project" is not the same as the "Brooklyn arena project."
The NBA distraction
The fourth paragraph describes the excitement produced by the NBA distraction:
Guests expressed great interest in the project after the conference, and with further elaborations of the authorities, all the previous questions raised have been answered. Many agree that this is a rare opportunity, and a dozen families made the deposit and signed the contracts on the spot. The basketballs with NBA stars’ autographs were all given out. Mr. Wang who brought his son along to the conference said, “Fortunately I was quick and grabbed the last basketball. My son and I both love to watch NBA basketball games. I am so happy that we got a basketball with our own idols’ autographs. This is so memorable!This is also not necessarily prudent investment advice. Above right, an apparently raffle winner poses with the NYCRC's Gregg D. Hayden.
This promotional page for the Qiao Wai consultancy's Guangzhou event also misleads.
The fifth paragraph states:
Next, the specially recorded video of the New York City Mayor Mr. Michael R. Bloomberg taking the time to congratulate the project made guests and audience felt that this project is even more unique and unparalleled. The fact that the New York Empire State Economic Development Executive Director Mr. Peter Davidson and CEO of Forest City Enterprises Mr. Bruce Ratner both came a long way to China to present their speeches on site, that the General Manager of New York City Regional Center Mr. Gregg D. Hayden launched the opening ceremony of the event, and that the President of the New York City Regional Center gave a description of the project – these actions all fully confirmed the security and the reliability of the New York Government NBA Arena and Public Infrastructure Project! Well trusted and respected by the New York government, Qiao Wai Group’s strength and influence in the immigration industry add to the project the most solid catalytic power! Guangzhou Daily, Yangcheng Evening News, News Express Daily, Information Times as well as many other mainstream media also came to the site and participated in the event on that day.(Emphasis added)
The fact that Bruce Ratner came to China did not fully confirm the security and reliability of the project. Rather, it confirmed the importance to his company of getting a no-interest loan of $249 million.
And it's not a "New York Government" project.
As for whether the Qiao Wai Group is well-trusted and respected, that might be the conclusion they drew from the certificate Davidson apparently presented to all the NYCRC's partners.
Did the ESDC do any due diligence to determine if these companies can be trusted? Given Davidson's willingness to make outlandish claims about facts he should know--jobs--that's very doubtful.
The next paragraph describes the lure of the NBA:
At 14:30, the lucky draw began. The former NBA legend known as the “Chocolate Thunder” and one of the main forces of the New Jersey Nets, Darryl Dawkins, drew from the box three winners to the NBA game in China to be held at the Guangzhou International Sports Performing Arts Center on the 16th of this month. The representatives of the three winning families were pleasantly surprised and ran up to the stage to accept the tickets, bringing the seminar into its climax.The same tone emerged in the last two full paragraphs:
At 16:00, the first on-site client who signed the contract emerged, and that was Mr. Fung from Guangzhou! The room was in an uproar immediately and the applause was endless! 10 minutes, 20 minutes, 30 minutes… Ms. Yuan, Mr. Shi, Mr. Liu… all of them signed the contracts one after another! In less than half an hour, a total of 15 participating guests became Qiao Wai’s clients today and will begin their journey to realizing their American dream!That sounds impressive, but it doesn't replace due diligence.
The results today are not a miracle. Rather, they are stemmed from the emphasis of CEO of Qiao Wai Group Ms. Ding Ying: “Honor one’s commitments, accept one’s responsibilities and live up to one’s trust.” These words are not only the doctrine and business practice required to be carried out by each Qiao Wai’s employee, they are also silently and firmly held by Ms. Ding Ying for all these years. With this as the team’s mission in addition to their dedication and hard work, the glory and resplendence of Qiao Wai is possible today.
Oh, and what's the final line of the piece? Almost a proverb:
Now that the sword has been struck, all obstacles will be swept away.It's doubtful such enthusiastic, deceptive promotion would be found in many other countries home to potential immigrant investors--which is likely another reason why China is such a popular place for those seeking investors.