Skip to main content

Another look at the huge benefits from the EB-5 program: perhaps (updated) $128 million to Forest City Ratner, and $36 million to NYCRC

Update 9/25/12: the total loan, it has since been reported, was $228 million, which is 8.43% less than $249 million. Thus, an 8.43% cut on $140 million would mean a decline of $11.8 million, leading to a total of $128 million.

So, how much if Forest City Ratner saving on its $249 million low-interest loan from immigrant investors under the EB-5 program? And what are the earnings of is the New York City Regional Center (NYCRC), the private investment pool that was marketing the project--green cards in exchange for $500,000 in purportedly job-creating investments?

I have to revise some of my reporting from last year, when I calculated a gain of some $191 million to Forest City, based on the difference between the interest rate the developer might have to pay on the open market and the no-interest being offered to Chinese investors.

I also have to revise my calculations regarding benefits to the NYCRC, which I calculated would earn $38,000 per client in fees, or nearly $19 million.

Earning money on the interest

Rather, the NYCRC may be keeping very little of those fees, since it has to share fees with affiliates. It earns its money on the spread between the interest rate on loan offered to Forest City and the return received by the 498 investors.

Forest City likely will pay 4% to 5%, as with other NYCRC projects promoted by the city, while the majority of the investors, from China, will get no interest, and the 40 or so Korean investors will get .25%.

So it's a win for Forest City and the NYCRC: they both make money. I think Forest City's benefit is still more than $100 million, while NYCRC may earn some $50 million (see bottom).

It's a win for the immigrants: they get green cards for themselves and their family, with the cost being the foregone interest on the investment they get back. (Of course there is a risk, and not every EB-5 investor gets a green card.)

What about the public benefit? The investments are supposed to create jobs, but in some case--as I've shown with the Atlantic Yards investment--they don't create new jobs, and the immigrant investors get credit--apparently legal, though logically questionable--for the jobs created by the entire $1.448 billion in the "Brooklyn Arena and Infrastructure Project."

New sources

Insights come from a purportedly confidential NYCRC offering memorandum ( for the $60 million Brooklyn Navy Yard project, posted on a Chinese web site and dated 10/2/09, and an offering memorandum for the NYCRC's $65 million Steiner Studios project, posted on a Russian web site and dated 5/1/10.

The offering memorandum for the Brooklyn Arena and Infrastructure Project has not surfaced, but I assume it shares similarities with the other two, though it's surely not a direct copy.

For each of the initial two projects, each investor had to pay $530,000, which includes a $30,000 fee to the NYCRC, presumably a portion of which went to affiliate agents in China and elsewhere. For the Brooklyn Arena project, the fee was $38,000.

Interest rates

The NYCRC apparently earns money not merely via the fees, but by a spread between the interest rate delivered to the investors and the interest rate charged to the borrower.

As noted in the RFPs for current city projects, the interest rates for city-sponsored project is 4%-5%, likely less than half the rate available on the open market.

The Navy Yard loan was advanced at 3%--likely a low interest rate because it was the NYCRC's first project. The Steiner Studios loan was at 4.45%. Likely the Brooklyn Arena loan is closer to the latter.

The distribution

The Brooklyn Navy Yard memorandum states:
Subject to any adjustment required as determined by the Manager for the expenses, liabilities and other obligations of the Company, the Company will make distributions of the net cash proceeds realized from the interest payments from Investments (the “Interest Income”) to the Members promptly after the end of each calendar quarter to the extent available, as follows: eighty percent (80%) among all Members in proportion to their respective Membership Units owned as of the distribution date and twenty percent
(20%) to the Manager.
For Steiner Studios, the distribution was 50% to the Member, and 50% to the Manager.

But the adjustments, including a management fee, cut down significantly on any potential interest.

Management fee

The Navy Yard memorandum states:
The Company will pay the Manager an annual management fee in the amount equal to the product of $7,000 and the number of Membership Units outstanding (the “Management Fee”).
That works out to 1.4%.

For the Steiner Studios project, the management fee is be 2.2% of the Investment Portion ($500,000) of each Membership Unit, or $11,000 a year.

Steiner disclosure: no income

This was in the Steiner memorandum but not the initial Navy Yard one:

Additionally, during the initial term of the Loan, after payment of the Management Fee, the Manager’s portion of Interest Income and certain expenses, it is likely that there will not be any or any significant interest income to Members. 
Surely this clause, or a variant much like it, appeared in the Offering Memorandum for the Brooklyn Arena project.

How much does Forest City save?

Consider, for example, that Forest City would save more than $140 million if it paid no interest while the regular financing rate is 6.5% (but it's not), as reported last year.

What if it's paying 4.5% interest? Well, the typical interest rate available for non-recourse financing was 12%. That's a 7.5% spread, and thus leaves some wiggle room.

If Forest City is saving 6.5%, it's likely saving some $140 million. If the spread is smaller, the savings likely are still more than $100 million.

How much does NYCRC earn?

Let's say NYCRC earns 4% a year on an investment of $249 million. That's some $10 million a year, or $50 million over five years.

(Update: On $228 million, that would be closer to $36 million.)

Nice work if you can get it.

Job creation

Both memoranda assure potential investors that an economist has calculated that the project would create sufficient jobs to pass muster, but at the same time warns that the economist's report has not otherwise been verified.

The Navy Yard memorandum states:
The Manager, through Company, has partnered with BNYDC to fund a key phase of the Navy Yard’s redevelopment plans. The Company expects to provide a Loan of up to $60 million to BNYDC to facilitate (i) the refurbishment and expansion of a 215,000 square foot industrial building for green manufacturing (the “Green Manufacturing Center”); (ii) the construction of a new 89,000 square foot industrial building (the “Sands Building”); and (iii) a broad range of related infrastructure improvements throughout the Navy Yard. The Loan is expected to be combined with approximately $81 million funding from the New York City, New York State, and the U.S. federal government for an aggregate project budget of up to approximately $141 million.
The Manager has engaged Dr. Michael K. Evans, Chairman of Evans, Carroll & Associates, an economist who specializes in EB-5 immigration analysis and economic impact studies of development projects and new construction, to conduct a job creation analysis of the Project. According to the report, the Project is expected to create in excess of 1,300 jobs. Neither the Company nor the Manager has undertaken any independent investigation to confirm the accuracy of such report.
The Steiner memorandum states:
The Company expects to provide a Loan of up to $65 million to the Borrower, 25 WA Associates, LLC, an affiliate of Steiner Studios, to facilitate (i) the renovation of the Building, a 235,000 sq. ft., seven-story building located adjacent to Steiner Studios’ current facility that will convert the Building into new film, television and commercial production facilities; (ii) the construction of five new film, television and commercial soundstages; and (iii) the construction of a 110,000 sq. ft. parking facility to accommodate increased car traffic into Steiner Studios (items (i)-(iii), the “Approved Improvements”). The Loan will be combined with $10 million of funding from the City of New York in connection with electrical substation upgrades, $3 million from the BNYDC, and $2 million from the United States Economic Development Administration to perform environmental remediation and interior demolition of the Building, for an aggregate Project budget of up to $80 million. In addition, pursuant to the requirements of the Loan Agreement, the Borrower shall be required at all times to contribute not less than 10% of the Qualified Investment portion of the Project’s cost (inclusive of interest service on the Loan and operational costs). As noted, the City of New York has pledged up to $10 million to the Navy Yard to upgrade an electrical substation adjacent to Steiner Studios that will provide increased electrical output needed for expansion of the film, television and commercial studios. 
...The Manager has engaged Dr. Michael K. Evans, Chairman of Evans, Carroll & Associates, an economist who specializes in EB-5 immigration analysis and economic impact studies of development projects and new construction, to conduct a job creation analysis of the Project. According to the report, the Project is expected to create 1,648 EB-5 eligible jobs from the construction and operation of the expanded Steiner Studios. Neither the Company nor the Manager has undertaken any independent investigation to confirm the accuracy of such report.


  1. Anonymous4:38 PM

    Incredible depth on this site, should be a new category of Pulitzers. FYI the "NYCRC's $65 million Steiner Studios project, posted on a Russian web site" link is down.

    1. Sorry, sometimes documents in the EB-5 world do not persist after a project has gone through a cycle.


Post a Comment

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…