Skip to main content

The sunny mainstreaming of EB-5, ever popular with real estate developers

It's notable how discussion of EB-5 financing has become detached from the realities behind it. From Bisnow:
One of the hottest investment vehicles in NYC right now is EB-5 financing, say NES Financial EVP Reid Thomas and Homier and Law managing attorney Clem Tuner, who gave a special presentation on the subject. There's a large pool of capital with "quiet and patient" investors who will accept low returns. EB-5 financing first started gaining traction in 2010, Reid says, and we've seen a 1,080% increase since then in the Northeast. In NYC, the typical investment is $20M to $70M, with the interest rates averaging around 5% and a term of five years. Among developers using it: Forest City, Extell, Related, Silverstein Properties, Lexington Realty Trust and hotel giants like Hilton,Marriott and Starwood. 
(All emphases added)

Um, the immigrant investors, largely from China, accept low-returns because they get another benefit: green cards for themselves and their family members.

They're parking $500,000 in a purportedly job-creating investment for five to seven years, and giving up the potential return in exchange for something more precious. And then, in most but not all cases, they get the money back.

An overview in the WSJ

From the Wall Street Journal, 12/9/14, Hot Source of Property Financing: Visa Seekers: Developers Raise Hundreds of Millions for U.S. Projects Through EB-5 Visa Program:
The giant trucks pumping concrete in Hudson Yards, New York’s biggest real-estate project in a generation, are being financed by an unlikely source: about 1,200 Chinese families in search of U.S. visas.
Developer Related Cos. says it has raised roughly $600 million from the families to build the foundation for three skyscrapers at the West Side project, a 17-million-square-foot colossus of office, retail and residential space set to open over the next decade.
To finance the concrete-steel platform, Related tapped a little-known and at times controversial federal visa program known as EB-5, which offers green cards to foreign families who invest at least $500,000 in U.S. projects that create at least 10 jobs per investor.
The amount brought in so far, which privately held Related hasn’t previously disclosed, is a record for the cash-for-visa program.
Related’s success shows how the once-obscure federal program has grown in popularity among developers and foreign investors since the recession.... Developer Forest City Ratner Cos. has taken in more than $475 million for the real-estate project connected to Brooklyn’s Barclays Center. 
Actually, as I've written, it's a little more suspect. The second and third rounds of fundraising for Atlantic Yards have been done in conjunction with the Greenland Group, which is owned by the government of Shanghai. Which means a Chinese government is profiting by marketing entry to the United States.

Bisnow has a roundup on  AMERICA'S MOST NOTABLE EB-5-FINANCED DEVELOPMENTS, which includes:
What it bought: Forest City execs said most of the EB-5 money would go toward a new rail yard and some toward loan repayments, with critics contending the financing largely went toward the latter.

Ah, I guess I'm the "critics." Well, here's the evidence.

Reasons for popularity, reasons for doubt

The Wall Street Journal notes how a 2009 decision to count temporary construction jobs spurred more EB-5 investments, just when banks were more wary of financing.

A single paragraph is pregnant with doubt:
At times the program has invited scrutiny. The U.S. Securities and Exchange Commission last year warned of “fraudulent securities offerings” related to the EB-5 program, in which investors put money into nonexistent projects. The program also has come under fire because it can be difficult for investors overseas to discern safe investments from risky ones, and if the investment fails to create the required jobs, they don’t get a green card. In addition, claims of jobs created are difficult to verify and the program administrator has been criticized for not having an effective system for doing so.
Indeed, the criticism comes from government agencies themselves, as I wrote in January. Why isn't that worth a story in itself?

Among business publications, only Fortune has explored EB-5 as a real public policy issue, with some sketchy players, rather than essentially cheerleading for developers and entrepreneurs who've found a new way to work the system.

Comments

  1. Anonymous9:20 AM

    Always good reporting here. The EB-5 thing certainly demands more attention on this project, and in general. The tale of two paths citizenship is certainly a vexing one that immigrant right's activists might pay more attention too. Tens of thousands of hard working people ripped from their families and homes and deported... meanwhile the rich can merely buy what the rest are persecuted for. And what they "buy", or invest in here, is often a troubling enterprise for the existing community and area, what a rat race.

    ReplyDelete

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…

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…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.