Friday, March 18, 2011

How does refinancing a land loan and helping build a new railyard create Atlantic Yards jobs, under EB-5? It defies common sense

In an article today headlined With Federal Case and Modular Building Plan, New Attention for Atlantic Yards Project, the New York Times's Charles Bagli, for the first time, makes mention of Forest City Ratner's effort to exploit the EB-5 investment program, but the coverage is belated, parenthetical, and weak.

And I even laid out a road map for critical coverage in a comment yesterday on the Times's web site.

Bagli writes:
[Forest City] also lined 498 Asian investors who enrolled in an obscure federal program that grants green cards in exchange for a $500,000 investment in a job-producing American project.

MaryAnne Gilmartin, executive vice president of Forest City Ratner, said that when it received final approval from the federal government, the $249 million would be used to pay down a land loan for the project and additional work on the railyard.
How would that create jobs? It wouldn't--at least not in great quantity, not close to the 4980 minimum jobs required (ten per investor) or the 7696 jobs claimed.

If no EB5 funds, then what?

What happens if Forest City does not pay down the land loan? The collateral development rights would have gone to their lender, Gramercy Warehouse Funding, if Forest City didn't pay. Now they'd go to the Asian investors.

What about the railyard? They're obligated to build the railyard by 2016; if they can't come up with financing they'd lose development rights.

Their whole 2005 bid to the Metropolitan Transportation Authority--and the renegotiation of the bid in 2009--was based on the premise that the cash component was only a small percentage of the overall value.

How jobs are calculated

In either case, note that under federal guidelines, actual jobs need not be counted; rather, an economist's report suffices. It applies a "multiplier" to the total sum invested.

However, for the "Brooklyn Arena and Infrastructure Project," Forest City Ratner and its partner, the New York City Regional Center, have been claiming that the $249 million sought is part of a $1.448 billion package, and that the "multiplier" be applied to the entire sum.

That of course would increase the number of jobs.

That may pass muster under lax federal review, but it's bogus.

It's bogus because refinancing the loan wouldn't create jobs.

And it's bogus because the arena--nearly a billion dollars, and the main component of the EB-5 project as pitched to investors--is already funded and would go ahead with or without the immigrant investor funds.

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