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.
The New York City Regional Center's (NYCRC) misleading effort, in partnership with developer Forest City Ratner, to market the "Brooklyn Arena and Infrastructure Project" to Chinese investors seeking green cards, relies significantly on statements from public officials aimed at bolstering investor confidence.
Thus, Brooklyn Borough President Marty Markowitz, Empire State Development Corporation President Peter Davidson, and New York City Mayor Mike Bloomberg, on video and in person, have promoted the project to potential investors in misleading and even ridiculously dishonest ways.
(Audio clips of their statements are below.)
The statements, which praise the overall Atlantic Yards project rather than the Brooklyn Arena and Infrastructure Project at hand, may distract potential investors from due diligence, despite reasons to question the job creation claims and the solidity of the investment. (Graphic from project brochure distributed in China.)
Thus, the three officials help convince potential investors to commit their $500,000 to the project, benefiting Forest City Ratner and the New York City Regional Center but not necessarily the public: the loan process could delay the Atlantic Yards arena block another seven years and otherwise reduce public benefits.
Misleading the audience
Markowitz claimed that Brooklyn is "1000 percent" behind Atlantic Yards.
Davidson (left, in screenshot from promotional video) asserted that Atlantic Yards "will be the largest job-creating project in New York City in the last 20 years.”
Markowitz, Davidson, and Bloomberg all conflated the $1,448 billion "Brooklyn Arena and Infrastructure Project" marketed to the investors with the larger $4.9 billion Atlantic Yards project, slated to include 16 towers.
The significant job creation promised for the overall project could have left listeners with the impression that the speakers were endorsing the project in which they could invest.
The fundamental dodge
As explained in Part 3, the deal contains a fundamental dodge: the 498 investors being asked to put up $500,000 each, for a total of $249 million, are being marketed an "NBA project," with the $1.448 billion package consisting of an arena, associated infrastructure, and a new railyard.
But the first two elements are already funded, as the ESDC admits and documents confirm.
Forest City Ratner wants the money for the railyard and, perhaps, to pay off a land loan, it told the Wall Street Journal. I suggested that it would use the funds to substitute for other high-cost financing.
However, the the EB-5 immigration program requires each investor to create or retain, directly or indirectly, ten jobs. Only by yoking the immigrant investor funding to already-committed funding, I argue, can the total sum of money be sufficient to calculate the required number of jobs.
Is this legitimate? Unclear, but the public officials sure don't seem to have vetted it.
Similarly, given their enthusiastic but imprecise rhetoric about the larger Atlantic Yards project, they may not understand the "project" being presented to investors. And that may be the point.
Markowitz: on video, not in person
Markowitz initially aimed to join Davidson on the tour in China in early October, but backed out--despite a go-ahead, according to his office, from the New York City Conflict of Interests Board--after publicity in this blog and the New York Post.
(Was he embarrassed about backing a questionable project? Possibly--though Markowitz also may have just wanted to avoid inevitable criticism in the Post about borough presidents accepting free travel.)
Still, Markowitz expressed enormous enthusiasm while appearing in a video shown to prospective investors.
While the video also includes clips from public events, such as Governor David Paterson at the Atlantic Yards groundbreaking, Markowitz's contribution was arranged specifically for the video, which contains subtitles in Chinese.
The audio version below combines all of Markowitz's statements, which were made at different junctures in the video. (Audio recording by Tom Spender; see note on sourcing at bottom.)
Fudging the description of "project"
"Atlantic Yards is the largest development in decades in Brooklyn, USA and one of the largest in the entire city of New York," Markowitz asserted, emphasizing his words like a carnival barker.
(Screenshot from earlier video, Welcome to the NYCRC, promoting NYCRC in general, not this project. The earlier video, unlike the video for the arena project, has been made public.)
"I want to say how excited we are that, in two years, the Brooklyn Nets development will be completed and offer a new opportunity and a new way of life in our borough," Markowitz exclaimed.
Note that Markowitz conflated "Atlantic Yards," which is "the largest development," with "the Brooklyn Nets development," which will be completed in 2012.
Unsophisticated listeners might conclude that they are being asked to invest in "the largest development," which will be completed "in two years."
It won't. The three or four towers in Phase 1 could take 19 years, while the Development Agreement for the project as a whole allows 25 years..
The "project" being funded is just a subset of the larger Atlantic Yards project. No one has claimed that an arena, by itself, would offer "a new way of life."
Such a statement, while still hyperbole, might be more plausible attached to the project as a whole--which isn't being funded by these EB-5 investors.
Forest City Ratner "unbelievably reliable"
Later, Markowitz again hyperbolically praised the developer. "The largest company in Brooklyn is Forest City and I can assure you that their reputation is unbelievably reliable," he declared. "They're a great company to work with; they've worked very closely with government. The most important thing: they make a promise, they keep it."
Forest City may be the largest developer, in terms of projects, but isn't so large by other indices. (The health care industry is the largest employer in Brooklyn; Forest City Ratner, according to Hoover's, has 250 employees, which is far fewer than some hospitals.)
As for keeping promises, consider that Forest City once promised starchitect Frank Gehry and 10,000 office jobs. However, both are long gone and, as then-FCR executive Jim Stuckey once said memorably, "Projects change, markets change."
Other reasons to question the developer's reliability: insistence (since contradicted by a judge) that the project would be completed in a decade and the renegotiation in 2009 of the Vanderbilt Yard deal with the Metropolitan Transportation Authority.
Markowitz should know better. The developer, in its initial promotion of the project, promised that the flagship office tower would not block views of the iconic clock of the Williamsburgh Savings Bank building.
When the design, as presented, blocked the clock, Markowitz and others urged changes. The height of the tower was reduced, but it would still block the clock. Markowitz dutifully praised the reduction in height but ignored his earlier request about the clock.
Brooklyn "1000 percent" behind project?
In his final statement for the video, Markowitz declared, with even more schmaltz than usual, "All I can say, Brooklyn is 1000 percent, 1000 percent behind Atlantic Yards, and we invite Chinese investors to join with us, because there's nothing better than China and Brooklyn together."
He could never get away with such a statement on home ground.
While the Borough President embraces Atlantic Yards, the people of Brooklyn are divided: some in support, some (especially those close to the project site) in opposition, and a good number indifferent.
At the 11/4/10 quarterly meeting at Borough Hall of agencies dealing with Atlantic Yards construction issues, he canvassed the audience and said, "Obviously, I know there are feelings here that run the gamut" regarding Atlantic Yards.
At Markowitz's State of the Borough speech last February, an event attended mainly by his supporters and allies, mention of the project provoked little reaction.
Similarly, at the 11/30/10 tree-lighting at MetroTech, Markowitz's attempt to gin up enthusiasm for the Brooklyn Nets fell flat.
ESDC's Davidson on job creation
When it comes to job-creation related to the Atlantic Yards project, the ESDC tells different stories for different audiences. In the 10/6/10 Daily News, ESDC spokeswoman Elizabeth Mitchell acknowledged that the EB-5 program would not create new jobs beyond those already forecast.
ESDC Executive Director Davidson, at an event for prospective investors in Beijing, was at times vague in his remarks, but claimed Atlantic Yards would "be the largest job-creating project in New York City in the last 20 years.”
The ESDC has not made such a claim previously, and there's no evidence that's true.
Nor are immigrant investors being asked to put their money into the Atlantic Yards project as a whole, which--though not the "largest job-creating project"--would at least be larger than the Brooklyn Arena and Infrastructure Project.
(At right, Davidson and Hu Weihang of the Kunpeng immigration consultancy, in a photo from the Kunpeng web site. Below, another photo from Kunpeng site: Davidson with Hu and another Kunpeng official.)
Davidson was the only government official to join the tour. After first saluting Kunpeng, the Chinese immigration consulting firm sponsoring the event, and the NYCRC (for "creating jobs in New York City and New York State"), Davidson addressed the audience directly.
Point one: AY "very important"
“The government of New York State and the governor of New York State knows what a major decision it is you are about to take, and that is why I am here tonight,” he stated.
“So I'd like to make three points about this project. The first is that the Atlantic Yards project is a very important development project for our government,” Davidson said. He added some boilerplate, and declared that “the Atlantic Yards project is one of the most important projects we have had over the last ten years.”
That may well be, but that ignores the issues faced by the prospective investors: would this project create the jobs needed to justify their green cards? Would they get their money back?
Point two: government investment
“The second point I'd like to make is that the government has invested millions of dollars in this project,” Davidson said, providing numbers that had been repeated several times to the audience.
The key issue, of course, is the definition of "project." The government has invested in the arena, and infrastructure.
The NYCRC and FCR are trying to attach funding for a railyard to an already funded arena and infrastructure project. Davidson helped them make their case.
Davidson noted that the city of New York has contributed $131 million and the state of New York has contributed $100 million. “In addition, and very importantly,” he said, “the state has helped with the issuance of over $500 million in bonds to fund the construction.”
Well, the state-authorized Brooklyn Arena Local Development Corporation issued bonds that will be privately repaid.
Point three: fudging job creation
“The third point is that this project and your participation will definitely create jobs,” Davidson declared. “The Atlantic Yards project will create thousands of jobs, both in construction and in permanent jobs that follow construction. And as a result, there will be billions of dollars generated in taxes that will be paid to the city of New York and the state of New York.”
(Emphases added. Screenshot of an ESDC proclamation from promotional video.)
Whether there will be billions of dollars of taxes is questionable, but Davidson's answer dodged the issue of job creation.
The "project" as pitched to investors includes the arena, infrastructure, and railyard. So the investors would have nothing to do with what Davidson described as "permanent jobs that follow construction." Not included in this "project" are construction of housing, office, or retail structures.
Nor would billions of dollars be generated in taxes from this "project."
Davidson makes jobs claim
Then Davidson, perhaps feeling expansive, asserted, “This project will be the largest job-creating project in New York City in the last 20 years." (Go to 4:40 of the audio.) “And one of the largest development projects of any type in New York City.”
Had Davidson had made such job-creation claims in New York, he would have been laughed off the stage.
First, the number of projected jobs has been declining. While the ESDC has relied on the Final Environmental Impact Statement and no longer viable configurations of office jobs, the agency, in a 9/17/09 memo from Chairman Dennis Mullen, estimated impacts over 30 years:
3998 permanent jobs in New York City and 4277 jobs in New York State, inclusive of New York City, as well as 16,427 new direct job years from construction and 25,133 total job-years.The construction jobs, over ten years, would at best be 2513 jobs a year. Over a more likely 25 years of construction, they would average about 1000 jobs a year.
Also, if job claims are to be based on estimates, we should consider the Hudson Yards project in Manhattan. The environmental review statement claims many more jobs over a shorter period of time:
By 2025, the Proposed Action would completely transform the Hudson Yards neighborhood by creating approximately 12,887 housing units (expanding the population base by approximately 22,200 residents) and generating up to 127,100 new jobs... Cumulatively, the projected development would result in 225,941 direct and indirect jobs in New York City.(Emphasis added)
Davidson closed with some boilerplate more appropriate for a Rotary Club in New York than immigrant investors worried about job creation.
“So, finally, this project is not just about constructing buildings, it is about building a stronger future for both New York City and New York State,” he said. “On behalf of the governor of the State of New York, I thank you very much for being here tonight.”
The potential investors don't care about New York's future.
They don't even have to live in New York State. They want green cards--and assurances that the "project" before them would generate sufficient jobs to get them permanent resident status.
Davidson provided such assurances.
Bloomberg's balancing act
Bloomberg, in a statement taped for the video, was more cautious, avoiding precise claims about the job-creation prospects of the "Brooklyn Arena and Infrastructure Project" as defined by the NYCRC.
However, his ambiguous statements confused the issue, suggesting to potential investors that the "project" they are asked to support is the same one about which he enthused.
"Hello, I'm New York City Mayor Mike Bloomberg. The Atlantic Yards project is changing the face of our great city and producing major benefits for the borough of Brooklyn and all of New York," Bloomberg stated. "In addition to creating a state-of-the-art arena for a new professional sports team, the Atlantic Yards project will build critical infrastructure elements, thousand of affordable and market-rate housing units, and hundreds of thousands of square feet of office and retail space."
That's the plan for the project as a whole, not the Brooklyn Arena and Infrastructure Project.
The "project" as pitched to investors includes the arena, infrastructure, and railyard, not the construction of housing, office, or retail space.
Bloomberg continued, "And all of that will generate many thousands of construction jobs and permanent jobs."
(Emphasis as delivered)
Yes, "all of that" is supposed to generate thousands of jobs, given that office space and retail space can accommodate workers, but "all of that" is not at stake for potential investors.
(Photo of Bloomberg on video from SoHu abroad/Kunpeng promotional video/interview, below.)
Bloomberg closed with boilerplate: "We strongly believe in the importance of the Atlantic Yards project, and we've made a major investment to help bring it to life. While a new hometown team will give us something to cheer for, it's the jobs and housing that will have the greatest lasting impact in New York's future."
Like Davidson, Bloomberg sounded like he was speaking to a Rotary Club.
Did Bloomberg endorse the job creation about which investors worry?
Yes, but only for the overall Atlantic Yards project.
And that's not the "project" at stake.
Note on sourcing
I listened to the NYCRC promotional video via an audio recording of a presentation to investors provided to me by Tom Spender, a reporter I engaged to cover an investor session in China. Spender, who approached the session promoters as a stringer for China International Business, covered the session for that publication as well as The National, a newspaper in the United Arab Emirates.
The audio of Markowitz threads together statements made at different times in the promotional video. Bloomberg's statement was made in whole, as was Davidson's presentation.
The video in today's post is edited from publicly available webcasts produced in China.
Forest City Ratner; the New York City Regional Center, and the NYCRC's law firm, Miller Mayer, have ignored my questions about this EB-5 effort. A lawyer for the firm last month posted a shallow critique of an earlier Huffington Post article I wrote; here's my response.