Friday, May 15, 2015

More sunny EB-5 coverage from Times Real Estate section: "it creates jobs and gives people access to the American dream”

Note: here's a far more skeptical article in CommonWealth magazine, which noted how politicians won't comment and how "no federal agency with even tangential oversight of any aspect of the EB-5 program was willing to talk on the record." Also note the Times's far more critical coverage of a similar citizenship-for-sale program in Malta, which quotes a critic, "There’s no reason Malta should engage a private company to sell its citizenship."

A front-page story on EB-5 immigrant investment funding in the New York Times Sunday Real Estate section, Want a Green Card? Invest in Real Estate, quotes numerous promoters of (i.e., profiteers from) the program, with zero critics:
Through a federal visa program known as EB-5, foreigners, more than 80 percent of them from China, are investing billions of dollars in hotels, condominiums, office towers and public/private works in the hope it will result in green cards.
There is some useful information:
Developers are eager to access the visa program because it is cheaper than many other financing sources. This is in large part because the participants are focused on securing green cards and are therefore willing to take smaller returns on their investment, typically earning less than 1 percent.
...Before the advent of the visa program, the company would have taken out a loan and paid around 12 percent in interest, “but EB-5 money can be as low as 5 percent,” he said. 
But not nearly enough skepticism. Consider what Dartmouth's John Vogel wrote in Feburary 2013 in U.S. News and World Report, Why Is the U.S. Government Selling Green Cards?:
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.
Selling the deal

From the Times:
Developers also take the search for investors in their projects on the road, primarily to China. These presentations can be sedate or flashy affairs.
Consider, by contrast, Fortune's EB-5 article last July, The dark, disturbing world of the visa-for-sale program:

EB-5 fundraising is a messy process, more like pitching vacation timeshares than any normal form of deal finance. Developers embark on road shows to big cities across China. With help from local “migration agents,” they use spam messages, slick websites, and telemarketing to round up potential investors for free dinner seminars featuring raffles for raffles for iPhones and lofty promises of a brighter future.... Despite the arrival of institutions like Related, EB-5 remains a wild and woolly realm...
The fundamental questions

The Times acknowledges some cases of fraud nationally, and suggests "it may be only a matter of time" before a bum project comes up in New York.

In acknowledging criticism of the program's "lack of transparency and oversight," the Times relies on EB-5 proponents, Invest in the USA. It also acknowledges the gerrymandering that I and the Times wrote about more than three years ago.

The conclusion:
In the meantime, “the market is still a bit like the Wild West,” said Min Chan, a lawyer and associate real estate broker at City Connections. The brokerage firm is applying for a license to assist developers with the visa program, one of the first brokerage firms to do so. “There are a lot of people out there who don’t know what they are doing. It is very complicated, and there are a lot of I’s to dot and T’s to cross.
“But it also is worthwhile, because it creates jobs and gives people access to the American dream.”
As I commented (not yet posted), this giveaway of public assets, which benefits the immigrants & developers far more than the public, deserves skepticism. 

Fortune magazine last July questioned an industry study that claimed EB-5 funds in 2012 "supported 42,000 jobs":
Others who have examined the program view it very differently. They question whether it generates many jobs—especially in needy areas. A Dec. 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 Feb. 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. (Indeed, those big companies are actually "hijacking" money from worthy smaller investments in hard-hit areas, argues Michael Gibson, a financial adviser who vets EB-5 investments.)
My EB-5 coverage is here.

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