Friday, December 02, 2011

New York City Regional Center was busiest nationally in Chinese market in 2011; EB-5 financing via NYCRC seen by city as potential funding for engineering campus, Willets Point

The New York City Regional Center (NYCRC), has been ranked by Chinese emigration brokers as the most popular EB-5 regional centers in the Chinese Market in 2011, according to consultant Brian Su, via his EB-5 News Blog: Regional Centers in the USA.

A regional center is a privately-run (though in a few cases governmentally-run), federally-authorized investment pool that aims to recruit immigrant investors via the federal government's EB-5 program, under which immigrants and their families get green cards in exchange for a $500,000 investment that purportedly creates ten jobs.

The ranking is based on project market visibility and promotional activities. The NYCRC, which began its activities only in 2008, has not only promoted the Brooklyn Arena and Infrastructure Project (involving Atlantic Yards), raising $249 million from 498 mostly Chinese investors, but two projects at the Brooklyn Navy Yard, raising some $125 million from a total of about 250 investors.

It's now raising money for what it calls "The George Washington Bridge Bus Station and Infrastructure Project."

Questions raised

I've raised numerous questions about such things as the honesty of the NYCRC's promotional activities, whether new jobs would be created, and the accuracy of job projections, but the United States Citizenship and Immigration Services (USCIS), the federal agency that oversees the booming EB-5 program, has redacted key information about such things as job calculations.

The arena project is said to be "sold out," but it's not clear if the money has been delivered yet.

EB-5 now part of city arsenal

As I reported 12/17/10, the New York City Economic Development Corporation (NYC EDC) proposed that the NYCRC and Forest City Ratner meet to discuss a potential collaboration, and that the NYC EDC has an agreement with the Regional Center that provides a finder’s fee for projects that it refers and are ultimately are financed through their program.

Now NYC EDC sees EB-5 as an integral part of its arsenal, as it gives developers access to low-cost capital while costing the city nothing. The discount comes because the investors are willing to forego much or any return on their $500,000, since they're looking to gain a green card and, after parking their $500,000 for some five years, their money back.

Request for Proposals (RFPs) for both the Willets Point Development Phase 1, released 5/9/11, and the Applied Sciences Facility in New York City, released 7/19/11, list the EB-5 program via the NYCRC as part of a suite of potential economic development benefits:
New York City Regional Center (“NYCRC”) 
The New York City Regional Center is an entity approved by the Department of Homeland Security to raise foreign investment capital and invest such funds in real estate projects in the City. The NYCRC is part of the EB-5 Regional Center (the “EB-5 Program”) which was established by Congress to stimulate economic growth through foreign investment. The EB-5 Program’s mandate is to use foreign investment to spur job creation in areas of high unemployment while simultaneously affording eligible foreign investors the opportunity to become lawful permanent residents of the United States.

The NYCRC has provided funding for or is in the process of raising funds for the following  projects in New York City:
  • Brooklyn Navy Yard Redevelopment Project:  $60 million  
  • Steiner Studios Expansion Project:  $65 million 
  • Brooklyn Arena and Infrastructure Project: $249 million 
  • New York City East River Waterfront Project: $77 million 
  • Pier A Redevelopment Project:   $16.5 million 
Some of the benefits from borrowing funds from the NYCRC include the following:
  • Below market interest rates (current range 4% to 5% for City-sponsored projects) 
  • Interest-only loans 
  • Term of five to seven years 
  • Flexible loan structure for borrower 
  • Expedited loan underwriting process 
  • Ability to fund large-scale, multi-component, public/private projects 
  • Can raise money for multiple project phases, with up to $249 million per offering 
Not a no- or very low-interest loan

I previously suggested that, because investors in the Brooklyn Arena and Infrastructure Project were to get no interest or just .25%, Forest City Ratner would get a no- or very low-interest loan.

Rather, as the documentation above suggests, the loan is in the range of 4% to 5%. That still represents significant savings--likely half the interest rate, or better--over what the developer would have to pay in the open market.

Indeed, the New York City Regional Center, as I'm learning, likely earns less money from the add-on fees it charges investors ($30,000 to $38,000, on top of their $500,000) than from the interest spread and other fees.

Much of that add-on fee may go to affiliate agents who recruit investors. The NYCRC then charges the borrower interest (say, 3% to 5%), and keeps most if not all of that interest in fees.

The investors, as noted above, want green cards, not investment return.

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