The news is slipped in an overview of the recent popularity of EB-5, headlined Help Fund a Project, and Get a Green Card: Once-Obscure U.S. Program Provides Alternative Financing for Developers, but New Flood of Interest Raises Concerns.
FCR's success is not surprising, given the popularity of basketball in China, the number of Chinese millionaires seeking green cards and the tendency in China, apparently, of doing little due diligence on such EB-5 immigration programs.
(Some 40 investors were sought in South Korea, as well, but they were offered a slightly better deal, with .25% interest rather than no interest. I estimated Forest City Ratner could save some $191 million. Here's coverage today of how Mayor Mike Bloomberg went to bat for the project, and the varied valuations of project development sites.)
Failure of oversight
What is surprising is the failure of the Wall Street Journal, and the U.S. Citizenship and Immigraiton Services, the federal agency that oversees EB-5, to look closely.
After all, Reuters in December nailed the New York City Regional Center (NYCRC), the private investment fund pitching the project, on several misrepresentations:
- that investors need not worry about getting green cards
- that investors would be financing a new arena in Brooklyn for the National Basketball Association's Nets
- that the government of New York State is involved in the project being presented
Video finally surfaces
I previously published an audio version of that video, but now, thanks to a video-sharing site in South Korea, have seen that video.
It's a doozy, reinforcing deceptive statements--such as developer Bruce Ratner claiming his firm's the city's dominant developer--with misleading visuals.
At right, for example, see Ratner and Brooklyn Borough President Marty Markowitz, bonding over a basketball, with a Brooklyn Nets uniform hanging off to the side.
An uninformed viewer might be convinced that, yes, they were being asked to invest in the arena. But the arena's already funded and state officials acknowledge that "There are sufficient funds committed to complete the arena and related improvements with or without EB-5 funds."
That calls into question the justification for the EB-5 program in this case; if the money's not needed, how can it be said to create jobs? (Each investor is supposed to create ten jobs.)
Below is the version, subtitled in Korean, from a Korean video-sharing site.
Below is a YouTube version of that video, but without audio.
Below is the audio associated with that video, as taped in China. Some of the audio is inaudible, but the version on the Korean web site had clear enough audio for me to learn of some additional deception.
Consider the opening lines, spoken by NYCRC Managing Principal Paul Levinsohn.
The New York City Regional Center is pleased to offer EB-5 investors another secure, job-creating project in conjunction with the governments of the state of New York and the city of New York.
What does "in conjunction with" mean? It suggests that the state and city are partners. Actually, while they're supportive of this effort, they're not on the hook in any way.
Located at Atlantic Yards, the 22-acre, 7.8 million square foot project includes the construction of the Barclays Center, a new 18,000-seat sports and entertainment arena, a new modern trainyard at one of New York City's busiest transportation hubs, and vital infrastructure work necessary to open the arena and build thousands of new apartment units in the future.
The project isn't located at Atlantic Yards; Atlantic Yards is the 22-acre, 7.8 million square foot project. But this sentence suggests to potential investors that the project in which they'd invest covers 22 acres and 7.8 million square feet.
The Brooklyn Arena and Infrastructure Project is the vision of the governments of the state of New York and the city of New York, as well as Forest City Enterprises, one of the largest real estate firms in the United States and a publicly traded company on the New York Stock Exchange.
The sentence suggests that the city and state government conceived the Brooklyn Arena and Infrastructure Project, said to include the arena, a new railyard, and infrastructure, and that Forest City later joined in.
That's bogus. Forest City Ratner conceived of both. And the arena's already funded, as your agency has acknowledged.
While the New York City Economic Development Corporation did connect the NYCRC and Forest City Ratner, no city or state agency approved or conceived the project as presented. In fact, Forest City Ratner executive MaryAnne Gilmartin told the Wall Street Journal in September that the money would be used for the railyard and possibly to pay off a land loan.
(I think the evidence suggests it would be used to refinance the loan, which is due in February 2012, rather than build a railyard that need not be finished until 2016.)
You have to appreciate the iconography of the video, with developer Bruce Ratner looking responsible, filmed in a boardroom that has, in the background, gilt-framed portraits of stately men.
Then there's Gov. David Paterson, speaking enthusiastically at the groundbreaking last march, asserting, This project will yield 1.5 billion dollars in economic development for the state over the next 30 years and will have job creation the likes of which Brooklyn has never seen.
Neither claim is true--the first is based on optimistic assumptions of a full, timely buildout, since dashed, and the second is fantasy.
The ESDC's alter ego, the Job Development Authority, created the Brooklyn Arena Local Development Corporation to authorize tax-exempt bonds to support arena construction.
Neither the city nor the state are on the hook, but that's not what narrator Levinsohn--or, Paul Levinsohn, Esq., as he's described on screen in an effort to bolster his credibility--suggests. He describes funding as $511 million of proceeds from New York State-sponsored municipal bonds.
They're not New York State-sponsored municipal bonds, which would finance state capital expenditures, nor are they, as described in an onscreen graphic, "New York State Municipal Bonds."
Levinsohn leads viewers through several claims.
Difference number one: job creation. The project will generate 7696 jobs, a job surplus of 54 percent for the EB-5 investor, and 100 percent of the government and private capital used to calculate the jobs has either already been spent or already placed in a dedicated account ready to fund the project. So the job creation is extremely secure.
That's questionable. After all, the ESDC admits no new jobs would be created. It's an accounting trick. It may pass muster with the feds, but it's taking advantage of a loophole.
Difference number two: government involvement. The project is endorsed by and involves numerous levels of government, including the state of New York and the city of New York. The project is situated on land owned in state of New York, and there will be 742 million dollars of government-related capital that is funded in conjunction with the EB-5 investment.
While government logos are used, as in the screenshot at left, those governments have never formally endorsed this project, as opposed to Atlantic Yards. The terms "government-related capital" and "in conjunction with" are weasel words.
Difference number three: investor security. The EB-5 investor community will have a first mortgage on land parcels containing over 3 million square feet of development rights, valued at over 542 million dollars.
Whether the valuation is accurate remains in question, but what's not explained is how a first mortgage on such parcels could actually get investors their money back. The process wouldn't begin for seven years, after which a new developer would have to be found.
Key project components
As shown above, the Barclays Center arena is portrayed as the first of three key project components. But the arena's already funded, and the NYCRC admitted to Reuters it was misleading.
But it's fundamental to the pitch. Indeed, see Nets General Manager Billy King talk about how 2012's going to be a great time for the Brooklyn Nets and Nets Executive VP Leo Ehrline claim the whole corporate world has really endorsed Brooklyn.
Here's how they explain the jobs.
The EB-5 investment is 249 million dollars. The project will have 498 investors. And since each investor of 500,000 must create ten jobs, the total amount of new jobs needed for 498 investors is 4980 jobs. The Brooklyn Arena and Infrastructure project will generate 7696 new jobs. Therefore, the project creates 2716 excess jobs, for a job surplus of 54%.
No one with a grip on reality would claim that the Brooklyn Arena and Infrastructure Project would generate 7696 new jobs. It wouldn't generate any more jobs than originally promised, the ESDC acknowledges.
Jobs are calculated by applying a multiplier to the amount of money invested--not the $249 million from the immigrant investors but the $1.448 billion "project."
Do immigrant investors deserve credit for jobs created by public funding committed long before they came along? That surely violates the spirit of the law, but it may be a loophole the USCIS has yet to fill.
Then there's FCR executive Gilmartin, perched outside in a Manhattan high-rise, carefully enunciating her lines: The city of New York, the state of New York, and Forest City have already funded a combined 501 million dollars into the project, and an additional 698 million dollars of capital is in dedicated accounts.
Neither the city or the state gave money for the Brooklyn Arena and Infrastructure Project.
Ratner and Markowitz
At about 11 minutes in, Bruce Ratner tells us, Our company is 90 years old. The company is known probably as one of, if not the largest developer in the country of public private partnerships, that is, partnerships which involve the government and the private sector.
As Ratner makes that statement, he enjoys a vigorous round of hand-shaking with Brooklyn Borough President Marty Markowitz, who, it should be pointed out, is not part of any public-private partnership with Forest City Ratner.
Markowitz is the developer's cheerleader. The partnerships are with the city and state.
The dominant developer?
Ratner goes on to make an astonishing claim: Our company has operated in New York City for well over a quarter of a century. For many years we have been the dominant developer in New York City, and over that period of time we have built over 40 projects from the ground up.
Did Ratner really say "the dominant developer"? He did.
He wouldn't say that in New York. But how could the Chinese audience--or Korean audience--know any better?
Markowitz, who intended to join Ratner in China but backed out, nonetheless appears three times in the video, schmaltzing it up as only he can do. (Audio here.)
In his gray suit, and wearing his Brooklyn pin, Markowitz reinforces the basketball iconography when, as he claims of Ratner's company, they make a promise, they keep it, he and Ratner, two unathletic guys in their 60s, together grip a basketball.
The video can't even get some basic things right. Levinsohn asserts: Forest City will construct seven residential towers and over 2400 apartment units on the 3 million square feet of land used as collateral.
That's highly unlikely. The Recognition Agreement provides for a new Permitted Developer should Forest City default.
Markowitz, in his closing appearance, claims, incredibly, Brooklyn is 1000 percent, 1000 percent behind Atlantic Yards.
And then he asserts that there's nothing better than China and Brooklyn together.
Oddly enough, the video, which was clearly aimed at potential Chinese investors, was also subtitled in Korean, thus confusing the fraction of Korean investors considering the project.