Skip to main content

Stunning: most EB-5 projects, Immigration Daily says, are "Extra Profits," creating no new jobs (as with Atlantic Yards, I'd say)

An astounding, and disturbing, essay/editorial appeared 5/27/15 in Immigration Daily, an online newspaper for the immigration law field.

It is hardly known as an enemy of the EB-5 program, in which immigrant investors park $500,000 in a purportedly job-creating investment, and get green cards for themselves and their families, but in this case essentially says nearly all projects are just

In Four Flavors of EB-5 Jobs Programs describes the following:
  • "But for" Projects: Projects that would not be possible but for EB-5
  • "Extra Profits" Projects that don't need EB-5 capital; and EB-5 produces extra profits
  • "Hands on" Eb-5 Investments
  • "Pooled Direct" where multiple direct investments are pooled under an common management
The first category involves projects that get a lot of publicity, such as Jay Peak, a ski resort in Vermont, that would not be built without EB-5. As noted in the essay, this "is consistent with the original intention of EB-5 as a regional development program for economically disadvantaged areas and these projects create jobs that would otherwise not be created."

"Extra Profits" Projects

The second category surely contains many real estate projects, including Atlantic Yards/Pacific Park, and the Nassau Coliseum, which use intermediaries known as regional centers, which are permitted to count jobs indirectly created by the investment.
  • "Extra Profits" Projects that don't need EB-5 capital; and it produces extra profits for the promoters: Projects such as those located in major cities, are not exactly in an economically disadvantaged area. They also have ample sources of capital from multiple sources. For such projects, EB-5 capital obtained at interest rates far below the market level through EB-5 produces extra profits for the project. These projects create no extra jobs other than those that would be created anyway through regular financing. As EB-5 capital is only a small part of the capital stack the risk is reduced for the EB-5 investors. This option creates no extra jobs but carries low risk for the investor.
In the rare "Hands on" projects, the "immigrant takes the full risk of running the business and creating the job," and in "Pooled Direct" the investments are pooled, but only directly created jobs are counted.

Nearly all are "Extra Profits"

Stated Immigration Daily:
As best as we can estimate, currently the bulk of the EB-5 investment (85%) is taking place in the "Extra Profits" category of projects where only a small sliver of EB-5 capital is used to lower the overall cost of capital. Remaining 15% is distributed evenly between the category of projects that would not be built but for EB-5 capital, Hands on investments and pooled direct investments. The EB-5 program was originally conceived to be focused on the "But For" and "Hands on" projects and has expanded radically to include these four different flavors.
The problem is that "But for" projects like Jay Peak get lumped in even somewhat critical news coverage with "Extra Profits" projects like Atlantic Yards/Barclays Center, such as coverage by ABC.

Is opinion shifting?

David North of the Center for Immigration Studies, who in Immigration Lawyers Website Disses the EB-5 Program, noted, "I would hate to be the publicist for the EB-5 program if it got negative reviews like these from both pro-business (e.g., Fortune) and pro-immigration media (Immigration Daily)."

Comments

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…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

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…