Thursday, November 13, 2014

Crain's offers softball interview with Greenland USA leader: EB-5 "improves the employment rate"

Crain's New York Business has published an unsurprisingly gentle interview with I-Fei Chang, who leads Greenland USA, the U.S. arm of Greenland Holdings, "a partially state-controlled, Shanghai-based development conglomerate with more than $50 billion in assets," that has bought a 70% share in the Atlantic Yards/Pacific Park project going forward, excluding the Barclays Center and the stalled B2 modular tower.

(No, the Brooklyn project is not located "in Fort Greene" but rather Prospect Heights.

Chang says Greenland came to the U.S.--it also has a project in Los Angeles--because "It's all about good timing" and "We believe in investing in cities in transition."

OK, sure, but maybe it also has something to do with wanting to make a splash internationally and moving money from China, where the real estate market may be more volatile, to more stable markets where a decent return is likely.

Also, while Chang says "We're here for a long time" rather than aiming to cash out, that may be true, but, remember, Forest City Ratner said that too.

Asked about modular construction, Chang diplomatically said "we never exclude any techniques that might be able to help with the efficiency targets that we want." In other words, who knows.

She also said the Atlantic Yards/Pacific Park plans have been in place for about a year. That suggests that, had the Supplementary Environmental Impact Statement (SEIS) been issued earlier, it may have interfered with the process, but in this case did not.

Why Atlantic Yards?

Here's where it gets interesting:
What made you want to invest in a troubled development project like Atlantic Yards?
I convinced my chairman that this is exactly the project that Greenland USA should look into. And I think the community will welcome us if we have the determination to meet their expectations. That is why we hope this project will be delivered at the speed and the efficiency that Greenland is always very proud of.
Maybe "exactly the project" means that--just as Mikhail Prokhorov bought the soon-to-be Brooklyn Nets at the right time--Greenland saw an opportunity that parent company Forest City Enterprises could not justify in terms of its short term results.

About the timeline

Crain's suggests that Greenland was "pledging to cut the timeline for the project by half, to 10 years," which isn't quite true. The project was approved in 2006 with a ten-year timeline, then again in 2009. Contract documents gave the developer a 25-year "outside date" from 2010, though Forest City said it wasn't the timeline.

Now, given a 2025 deadline, you could say the timeline is now 15 years--though, given that demolition and other work began long before 2010, neighbors might reasonably say that construction work will have gone on for two decades or so.
How are you moving the timeline ahead so dramatically?
We have the expertise for building large-scale projects, and we have the experience of moving them together with the city's infrastructure. But we are very thankful for our partners. It's a team effort to make it happen, so we are quite happy about the updated result.
Unmentioned was the pressure of threatened fair housing lawsuit prepared by BrooklynSpeaks and allies, or the willingness of the de Blasio administration to allow affordable housing for higher incomes than previously pledged.

About EB-5

The interview ends with this unintentionally comical sequence:
What are your thoughts on the EB-5 program, which offers a U.S. visa to overseas investors?
I think it's now become almost a conventional way [to raise capital] for large-scale developers in America. They utilize EB-5 because it is quick money, and it improves the employment rate. For the L.A. project and also Pacific Park, we used that method. EB-5 investors, especially some of the 2 million customers who already buy from us in China, know our brand. So they are very confident we will deliver.
Yes, it has become almost conventional because it's such a great deal--as long as an economist can say that the $500,000 low-interest loan indirectly "creates" ten jobs, the investor gets visas for the whole family and the developer saves on the cost of capital.

EB-5, however, does not "improve the employment rate." To quote Fortune:
A December 2013 study by the Department of Homeland Security’s inspector general found that the government “cannot demonstrate that the program is improving the U.S. economy and creating jobs for U.S. citizens.” A February 2014 paper by the Brookings-Rockefeller Project on State and Metropolitan Innovation concluded that “knowledge of the program’s true economic impact is elusive at best.”
There are two reasons for that. First, the government is exceedingly generous in its employment tally. It gives EB-5 investors credit for all the jobs theoretically spawned by a project even when EB-5 money represents only a sliver of its financing. Second, for many mainstream ventures, EB-5 money isn’t really creating jobs—it’s merely saving developers money for projects that would be financed anyway.
But she does affirm that a Chinese company has an edge in marketing an EB-5 project to Chinese investors.

There was no question about the deceptive tactics used to recruit EB-5 investors, or the astonishing irony that the Chinese government is profiting by essentially selling U.S. visas to Chinese nationals.

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