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Exclusive: Forest City seeking $249M in cheap financing from immigrant investors (again); Chinese government would profit by selling U.S. green cards to Chinese!

Also see coverage today regarding how Forest City Ratner spent its first round of EB-5 financing and two federal reports critical of EB-5.

Three years after they (deceptively) marketed Atlantic Yards to green card-seeking immigrant investors, thus reaping $228 million in cheap capital via the federal government's EB-5 program, Atlantic Yards promoters are back.

Their effort now is bigger and bolder, aiming to raise $249 million, saving likely well over $100 million compared to conventional financing.

"Atlantic Yards II" features similarly mendacious marketing. It hypes basketball, the already-built Barclays Center, and booming Brooklyn while remaining vague about how the investors' money might actually be used--though there are hints it would be used for the new railyard that developer Forest City Ratner is obligated to build.

It offers stale quotes from former elected officials about the entire $5 billion Atlantic Yards project, leaving the impression that investors' money would go to the overall project, rather than some vague subset said to be worth $1.235 billion, thus incorporating the $249 million sought as a neat 20%.

It claims that Atlantic Yards would create 9,739 jobs, far more than the ten jobs per investor (there would be 498 investors, at $500,000 each) required by the law.

However, that jobs figure, calculated by a paid economist, includes indirect and "induced" jobs. It has nothing to do with the actual workers on the project--all the more glaring given Forest City's embrace of cost-saving modular construction, with 150 factory workers making up 60% of those needed for the first tower.

And the immigrant investors--thanks to an EB-5 feature recently criticized by federal watchdogs--would get credit for most or all Atlantic Yards jobs, though their contribution would be relatively minor.

Also, as with many EB-5 projects, the coordinating entity, a privately owned investment pool known as a regional center, confuses potential investors by using names (NY Regional Center, U.S. Immigration Fund) and iconography that hint at a governmental role. See screenshot above left.

A new level of audacity

But this effort approaches a new level of audacity.

It sounds like something from The Onion, but it's real: the Chinese government would profit by selling U.S. green cards to Chinese immigrants.

Let me explain and qualify that shorthand.

The remaining 15 towers of the Atlantic Yards project are to be developed by a (pending) joint venture between Brooklyn developer Forest City Ratner and the Chinese government-owned Greenland Group.

(Evidence--including the identification of Mike Bloomberg in a brochure as the current mayor and a quote in the video below about the arena's one-year anniversary--suggests the marketing of this project began last fall, not long after the preliminary Greenland deal was signed 10/2/13.)

The Greenland Group, which will contribute 70% of the funds going forward, will control the joint venture. So, though Forest City executives Bruce Ratner and MaryAnne Gilmartin appear in the promotional video below, and surely offer more local knowledge and marketing expertise, they will ultimately answer to Greenland--even if the EB-5 project, for legal reasons, is controlled by the American partner.

Logo features basketball-style grain 
The joint venture (and thus the Chinese government) will profit because, compared to loans on the open market, EB-5 funding is far cheaper. The immigrant investors--most in the EB-5 program are from China--park their $500,000 for five to seven years, accepting low or no interest but happy just to get their money back.

The reason they accept so little interest? They get green cards for themselves and their families.

The developer and regional center are not actually "selling" green cards--they're part of a Rube Goldberg process in which the green card is traded for an investment promised (or proved) to be job-creating and secure.

But the effect is to sell green cards, and that's commonly understood, as in this Crain's New York Business headline last October: Developers trade U.S. residency for China's cash.

Dartmouth business professor John Vogel last February wrote in U.S. News:
One of the oddities about the EB-5 program is that the U.S. government is giving out the green cards, but the entrepreneur who puts together the investment gets the money. This scheme seems inefficient and open to corruption. If our government really believes that it is a good idea to sell green cards, maybe we should drop the pretense that this is a job creation program. It might be more efficient to have the money go directly to the U.S. Treasury and reduce the deficit by billions of dollars a year.
(Emphasis added)

So in this case, the suckers are the the U.S. government and the American people, since the benefits go mainly to the green card holders, the developers, and the middlemen.

(I didn't contact Forest City Ratner or Empire State Development for comment on this article, because the first time I wrote about EB-5, in September 2010, Forest City leaked the story to the Wall Street Journal, which published an article devoid of skepticism.)

A new level of hype

"Atlantic Yards II," as promoted on the project website, is essentially the full project as announced and approved: 6,430 residential units, 627,000 square feet of office space, 8 acres of "park" (actually, privately owed public space), a new Long Island Rail Road yard, and more.

But investors would not be putting their money into that whole project but rather some vaguely defined $1.235B "project" subset. As seen in the screenshot below, 41% of the  $1.235B "project" would be a senior loan--I'd guess that could include tax-exempt bonds--while 37% would be the developer's capital.

While the previous effort was vague and misleading in its own way,  the marketing material was limited to Chinese and Korean, as the New York City Regional Center sought investors only in those countries.

Now the U.S. Immigration Fund has put together materials in English, including a slick brochure and a video with Chinese subtitles, obviously aiming at a broader market. (Indeed, the project is also being marketed through an immigration consultancy in London.)

Surely there's a Chinese-language brochure, and I'd bet it plays up Greenland's role.

The video, as seen below, contains dramatic, urgent music and visuals of Brooklyn icons, from the arch at Grand Army Plaza to the new Barclays Center.

"Brooklyn is no longer apologizing for not being Manhattan," declares Gilmartin.

"Brooklyn has become a magic name all over the world," adds Ratner. "It's the best development opportunity in the whole country."

On screen comes the message: "At the heart of Brooklyn is Atlantic Yards. And its pulse begins with the Barclays Center." Then a quote from Vogue, and a description by Gilmartin: "It's 22 acres of large-scale mixed-use development, located above one of the most active transit centers in New York City."

After citing the arena's success, Gilmartin says, "we are now commencing the rollout of the residential portion of Atlantic Yards."

What's missing

It's notable that neither she nor Ratner mention the talismanic term they use so often with New York and Brooklyn audiences: "affordable housing."

After all, potential investors want to be reassured that the project will deliver sufficient revenues to pay them back, and "affordable housing" doesn't have that kind of ring."

Nor do they mention the use of innovative, cost-saving modular construction, perhaps because it adds a layer of uncertainty.

Indeed, as noted in the screenshot at right, from the brochure below, they're doing their best to hype high rents in Brooklyn (which don't count rent-regulated and public housing units, of course.)

The governmental fig leaf

"Any project on the scale of Atlantic Yards requires the work of the public-private partnership," declares Gilmartin. "Our project is sponsored by the state of New York and heavily supported by the city of New York and local politicians."

"Heavily supported"? Well, maybe. But that doesn't mean they're involved.

Ratner then describes the company's scope.

"Atlantic Yards creates an abundance of construction jobs," continues Gilmartin. "And in the operation of the arena, we're very proud of our track record in creating jobs, and we believe that's a big driver in what makes this project so important and in fact so successful."

None of that answers the question of how and whether Atlantic Yards would create sufficient jobs to meet the federal requirement.

After the video hypes the arena as the nation's highest-grossing venue, we hear Ratner claim, "whatever I do has to have a social value. It has to either create employment, to create homes, or create economic development."

"It has to be a partnership with the government, because a project of this size requires a lot of government approvals, requires a lot of help from the government, getting it through all of the environmental requirements, and so on," Ratner continues. "So it really is a public-private partnership."

None of that means that any governmental entity will be part of the $1.235 billion EB-5 project marketed to investors. But Chinese investors, especially, feel more confident about EB-5 projects that demonstrate governmental involvement.

Indeed, as shown in the screenshot at right, the project brochure claims that Empire State Development and the Metropolitan Transportation Authority are "Project Parties"--i.e., parties involved in the project.

That doesn't make them partners in the slightest, though I would acknowledge that Empire State Development has significantly backed the project, sending a top executive to China in 2010 and asking nothing in return.

Still, another screenshot claims that "[e]ach of the public agencies... has already invested significant capital into the Atlantic Yards Project."

That's curious syntax, since investment usually means the investor has some role in sharing profits, rather than distributing public subsidies.

The "great tradition of this city"

"We are in the strongest core market in the country," declares Gilmartin. "We believe that this city was built and created for an immigrant population. And EB-5 allows folks from all around the globe, in the great tradition of this city, to come and participate in one of the most exciting developments in our country."

Is it in "the great tradition of this city" to let rich foreigners jump the immigration line--and live wherever they want in the U.S.--because they can pay for Forest City's development? As they say, SMH.

"Investing in stability"?

"Several years back, we utilized EB-5 funds to execute other infrastructure improvements in and around the Barclays Center," Gilmartin says. "So, given the success of that first EB-5 raise, we are focused on a second raise that will allow us to continue the infrastructure development portion of the project."

Hold on.

While they may have used some EB-5 funds for infrastructure, evidence suggests the money was used significantly to retire a high-interest land loan.

Forest City may still have some loans it needs to repay.

But I'd bet a good share of this new $249 million will be going to help build the new railyard Forest City is obligated to start by next June and finish by 2016.

If so, all the Barclays and Brooklyn hype, along with the selling of green cards, is deployed to get Forest City Ratner--now, the joint venture--to pay for work it promised as part of its original bid to the MTA.

Note that, as shown in the screenshot above right from the brochure, Forest City anticipates that "upon completion and stabilization of the project, the residential components will generate substantial cash flow... which will allow them to successfully refinance and repay the senior and EB-5 loan."

Maybe, but the "project" is undefined, as is the timing for its completion, despite claims, below left, that this is "investing in stability." There's no mention of what might serve as collateral, though presumably investors could be offered a piece of future development sites, as previous investors were offered.

About Forest City

The video closes with Bruce Ratner.

"One of the most important thing about our company, if you were to ask people in New York is: they get it done. We finish things," Ratner declares. "And that's very important for EB-5. We have a real track record, and it's a very good track record. We understand that it's very important for all the people in EB-5 that we do what we say we'll do."

Cue the dramatic music, and cut to an AYII logo.

Stale quotes

The brochure, as shown in the screenshot below, contains stale quotes about the project as a whole--not the EB-5 investment--from former Gov. David Paterson, then-Mayor Bloomberg, then-Brooklyn Borough President Marty Markowitz, and Greenland Chairman Zhang Yuliang.

The question of job creation

According to the screenshot below, the economic study "utilizes the number of jobs created by construction spending only."

So somehow economist Dr. Michael Evans, who claims a 100% approval record in EB-5 project, created a report that says 9,739 jobs would be created based on construction spending.

If that's based on the $1.325 billion "project" promoted to investors, that means nearly 30,000 jobs would be created by construction spending for the remaining Atlantic Yards project, which is about $4 billion after the arena.

That's preposterous, even if indirect and induced jobs are counted.

If that jobs total is based on the entire $5 billion project, then the immigrant investors don't deserve credit for the jobs, even based on the feds' loose standards, because they're only supposed to be investing in the $1.325 billion "project" as promoted.

Gerrymandering the map

Evans' firm also helps regional centers ensure that their projects are built in a Targeted Employment Area (TEA), which means the immigrant investor can invest a minimum of $500,000 rather than $1 million. A TEA is either rural or has an unemployment rate at least 150% of the national average.

Bed-Stuy Boomerang; TEA for Atlantic Yards
Needless to say, every project is in a TEA.

Evans states:
In many cases, the area where you want to put the new building has a lower unemployment rate. We work closely with state agencies to design an area that includes your census tract but also qualifies as a TEA. 
Translation: they gerrymander the map to create such absurdities as the "Bed-Stuy Boomerang."

It links the Atlantic Yards site--in blue--to high-unemployment Bedford-Stuyvesant but does not reflect any known electoral or governmental jurisdiction,

Bottom line

Many elements of this "project" deserve scrutiny, and investigation.

From the web site


  1. Kind of funny how FCR is supposed to foster local business growth, and the video above was created by a Florida-based production company.

    1. Agreed. Though it should be noted that the regional center Forest City is working with is based in Florida.

      In 2010, they worked with a NYC-based regional center.


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