Wednesday, June 08, 2011

The EB-5 story: WSJ offers less skepticism than Houston Chronicle; federal agency announces plan to streamline applications

One of the lessons of the Atlantic Yards saga, and highlighted in the film Battle for Brooklyn, is the importance of a skeptical approach to the media.

Nowhere is such skepticism more important than in coverage of the EB-5 phenomenon, in which would-be immigrants trade purportedly job-creating investments for green cards for themselves and their families.

Despite ample evidence that the program is dubious, especially related to the Atlantic Yards project, the Wall Street Journal yesterday proceeded with some shoddy journalism, in an article headline Program Gives Investors Chance at Visa.

It's in line with the Journal's lame coverage in February, which ignored misrepresentations made by the New York City Regional Center, the first investment fund in the city that recruited investors, in signing up Chinese and Korean millionaires to invest in the Atlantic Yards project.

Explosive growth

The new article begins:
A 38-story luxury Times Square Hotel. A medical center, hotel and condominium development in downtown Flushing. And New York City's reportedly first Proton Therapy Cancer Treatment Center.

All rely on an unusual source of funding: immigrants who invest $500,000 for a shot at a shortcut to permanent residency.

During the past year, four new groups in New York City have been designated regional centers by the federal government, enabling them to market their projects in foreign countries to raise capital. Nationwide, there are now more than 140 centers, compared to 11 in fiscal year 2007.

As traditional financing options have dried up, developers suddenly have turned to the program to fund projects that might otherwise be ignored.

"That money is not available elsewhere," said George Olsen, managing principal at New York City Regional Center LLC, the first regional center to operate in the city.
That's not so.

The money is not available at the near-zero low interest rate that developers like Forest City Ratner seek.

The obligatory caveat

The article continues:
The program has its critics. They say it has been pitched at times to foreigners as a sure-fire way to get a green card or as a risk-free investment—which it's not.

Some immigrants have experienced deteriorating investments and been sent home packing after developments flop. Since all of the regional centers in New York City are relatively new, none of the investors have reached the point where they would have applied for permanent residency.

Michael Gibson, who researches EB-5 projects for investors through his Florida-based business, said it's hard to monitor what overseas agents are pitching to foreign investors. He said there have been cases of regional centers giving the impression that they are connected with the government.
Um, like the New York City Regional Center's promotion of Atlantic Yards?

What about AY?

The article and accompanying graphic offer divergent portrayals of Atlantic Yards. The text states:
The New York City Regional Center has raised $60 million for the Brooklyn Navy Yard and $65 million for Steiner Studios, a film and television studio in Brooklyn. The center is in the process of raising $249 million to pay for infrastructure costs for developer Forest City Ratner Cos.'s Nets basketball arena in Brooklyn, its biggest project so far. And it's raising $77 million for developer Dermot Co. to rehab the Battery Maritime Building in Lower Manhattan, where the developer plans to add a 67-room hotel.
(Emphasis added)

Infrastructure costs? Most likely the money would go to pay off a land loan.

Moreover, the graphic (click to expand and clarify) indicates that the money would go to "the new Brooklyn arena for the Nets."


Not really. It might support related infrastructure, or pay off a land loan for part of the arena site.

But it wouldn't pay for arena construction and, crucially, the investors--despite enormous arena-related promotion--would not get a stake in the arena, just a share in future development rights to housing towers.

Creating jobs

The article states:
The New York Immigration Fund is raising about 30% of the estimated $250 million needed for the Times Square Hotel through the EB-5 program, said Robert Roe, vice president of the group. "Immigration can be a very polarizing topic but we feel this program is a great program," he said. "You're creating jobs locally and you're not using any taxpayer assistance."
As the Empire State Development Corporation has acknowledged, with Atlantic Yards, no new jobs would be created beyond those originally forecast. Rather, the developer would save money.

Federal inattention

The federal agency in charge of the EB-5 program, the United States Citizenship and Immigration Services (USCIS), seems far more concerned with streamlining the program, ensuring that it works faster.

Hence the 5/9/11 announcement headlined USCIS Proposes Significant Enhancements to EB-5 Visa Processing to Help America Win the Future:
Actions Will Streamline Program Designed to Create Jobs
WASHINGTON—U.S. Citizenship and Immigration Services (USCIS) today proposed significant enhancements to the administration of the USCIS Immigrant Investor Program, commonly referred to as the EB-5 Program—transforming the intake and review process for immigrant investors as part of the Obama administration’s continued commitment to improve the legal immigration system and meet our economic and national security needs for the 21st century.
The EB-5 Program makes 10,000 visas available annually to immigrant investors who invest in commercial enterprises that create at least 10 U.S. jobs. EB-5 investors may petition independently or as part of a USCIS-designated Regional Center.
“Congress created the EB-5 Program in 1990 to attract investors and entrepreneurs from around the globe to create jobs in America,” said USCIS Director Alejandro Mayorkas. “We are dedicated to enhancing this program to ensure that it achieves that goal to the fullest extent possible.”
USCIS is proposing three fundamental changes to the way it processes EB-5 Regional Center filings. First, USCIS proposes to accelerate its processing of applications for job-creating projects that are fully developed and ready to be implemented. USCIS will also give these EB-5 applicants and petitioners the option to request Premium Processing Service, which guarantees processing within 15 calendar days for an additional fee.
Second, USCIS proposes the creation of new specialized intake teams with expertise in economic analysis and the EB-5 Program requirements. EB-5 Regional Center applicants will be able to communicate directly with the specialized intake teams via e-mail to streamline the resolution of issues and quickly address questions or needs related to their applications.
Third, USCIS proposes to convene an expert Decision Board to render decisions regarding EB-5 Regional Center applications. The Decision Board will be composed of an economist and adjudicators and will be supported by legal counsel.
This proposal will be online until June 17, 2011, for public comment—providing stakeholders an opportunity to offer feedback on the proposed changes to the administration of the EB-5 Program.
It was seen by one commentator as good news for commercial real estate projects that needed investments.EB 5 Proposal 18May11

Skeptical coverage in Houston
The Houston Chronicle has joined Reuters and this blog by casting a (partly) skeptical eye on the EB-5 program, in a 5/23/11 article headlined Federal program offers investors visas, a lot of risk: Some Texas companies that handle the deals have legal problems, other issues:
The program lacks transparency. While the government estimates that EB-5 investments have generated $1.5 billion for the U.S. economy since 1990, USCIS does not publicly disclose how well individual regional centers perform.

The agency denied requests from the Chronicle for information on which centers have successfully helped EB-5 applicants to receive visas or to become green card holders.

Immigration officials say they are working to improve oversight of the regional centers, which have grown rapidly in recent years.

On Thursday, the agency proposed changes to the program, including creating a "decision board" that includes economists and legal counsel to help vet the regional center applications. The agency also plans to hold already established regional centers accountable by requiring them to file more detailed annual reports, said USCIS spokeswoman Maria Elena Garcia-Upson.

Experts from within the EB-5 industry praised USCIS for efforts to reinvigorate and revise the EB-5 program, but warned that more needs to be done - and quickly - to help protect investors.

"If I were an investor, I would run," said Michael Gibson, managing director of USAdvisors.org, which specializes in investigating regional centers for potential EB-5 investors. "There are so many people out there who have checkered backgrounds and suspect projects that for an investor, it's extremely important that they do due diligence on all of the claims made by the centers," he said.
An economist's modest proposal

Libertarian economist Gary Becker, in a 2/21/05 post on the Becker-Posner Blog, suggested that the right to immigrate be sold, perhaps for a $50,000 fee:
In summary, charging a fee to immigrate would raise tax revenue, increase the number of immigrants accepted, and also raise the quality of those accepted. It is a win-win situation for countries accepting immigrants, and for the vast majority of persons who would like to immigrate.
Here's his response to comments. Here's a 2008 update and a June 2010 article in The Economist.

Note that Becker's suggesting ways to monetize and regulate what is often illegal immigration, not address investment immigration.

But if we are going to sell entry to the U.S.--and surely that's what the EB-5 program is--shouldn't the main benefit go to the public, rather than to private enterprise?

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