Monday, June 08, 2015

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)."

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