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.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.
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.
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.