A new slate of huge development projects in the city is tapping into a source of financing that provides their builders not only with cheap capital but with foreign investors eager to pour money into the projects with a path to U.S. citizenship.Those include the conversion of Kingsbridge Armory in the Bronx into the Kingsbridge National Ice Center, as well as an outlet mall on the Staten Island waterfront in St. George.
The Atlantic Yards connection
After all, they've already (reportedly) raised $249 million thanks to some misleading marketing. That sets up the bizarre situation of the Chinese government profiting from marketing green cards to Chinese millionaires seeking to jump the U.S. immigration line.
After all, Jamestown Properties, owner of the Industry City complex in Sunset Park, hired Andrew Kimball, who used to oversee the Brooklyn Navy Yard, the first local recipient of EB-5 funds.
“At first, we were sort of scratching our heads, thinking, is this real?” Kimball told Crain's in 2012, seemingly incredulous at the opportunity to leverage public assets for private gain. “The next thing we knew, we were falling out of our chairs.”
The investors accept zero or low interest, because they want the green cards and the return of their cash more than any return. (Yes, they're putting their money at risk, as some projects fail, but for most investors the biggest sacrifice is the foregone return.)
In return, the developers get a loan at below-market interest rates.
Everyone else makes bank, too.
The middleman--the private entity known as a regional center--gets the spread. The regional center, which may pay bounties to other middlemen, also takes a fee from the EB-5 investor. Others making profits include reps in China and attorneys.
The purported benefit to Brooklyn and the USA is the creation of jobs, but in many cases no new jobs are actually created--in this case, it would just be cheaper capital.
Because developers and entrepreneurs are so eager to be "falling out of their chairs," they manipulate an already sketchy program, using deceptive marketing and gerrymandering their location to fall into a zone of high unemployment, which qualifies the project to investments of $500,000 rather than $1 million.
The loser? The American people, who should benefit from a more coherent and ethical program for immigrant investors, such as a direct investment into government bonds rather than the current Rube Goldberg process.
The current program, billed as a win-win-win for investors, entrepreneurs/developers, and the public, ignores the notion of opportunity costs--an alternative program could benefit the public far more.
Some thoughtful criticism
Consider Dartmouth business professor John Vogel's U.S. News February 2013 column, Why Is the U.S. Government Selling Green Cards?, where he raises several questions, the responses to which I've excerpted:
Question No. 1: Is the United States actually selling green cards?In its original form, one could argue that the primary purpose of EB-5 was to encourage individuals and companies to create jobs in the United States. In its current form, we are selling green cards and the opportunity to become a U.S. citizen. What is surprising is that such a controversial idea has not sparked significant debate.
Question No. 2: Is it in the best interest of the United States to give priority to wealthy foreigners?
From the perspective of creating jobs over the long term, one might question whether it is better to bet on the person from a wealthy family or the MBA. With respect to the 18-year-old college hopeful, we all know that there are advantages to being wealthy, but are we comfortable creating laws that explicitly favor those born to wealthy families over those born to poor families?
Question No. 3: Are these prudent investments?
Into this highly competitive, oversupplied market, we are asking a group of amateurs, the EB-5 investors, to compete against sophisticated professionals with extensive deal sourcing networks and years of experience.
Question No. 4: Are there good alternative uses for the EB-5 money?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. In fact, the U.S. government could auction off these green cards and perhaps raise even more money.
And Voegel didn't even address deceptive marketing and gerrymandering.